|
|
Don’t Believe Everything You Read in the Papers
Don’t believe everything you read in the Wall Street Journal — at least if it’s about housing. On the editorial page and even in its news coverage, over the past year or so this venerable newspaper has launched a steady barrage of attacks against the industry: Housing is the next big financial bubble that will burst. Fannie Mae and Freddie Mac are the nation’s next Enron. Housing is setting the nation up for a major economic tumble.
These inflammatory stories are being published by the most respected, most widely read financial newspaper in the country. But that doesn’t make them true. Underlying the Journal’s coverage is the assumption that housing values are speculative and prices are headed for a big fall. That assumption ignores a mountain of evidence that the fundamentals for housing are strong and likely to remain strong for years to come:
- Today’s housing market is not overbuilt. As Federal Reserve Board Chairman Alan Greenspan sees it, “There is little indication of a supply overhang in newly constructed homes. The level of overall new home construction…appears to be well supported by steady household formations.”
- Demand for housing is climbing in tandem with population growth. The U.S. population is expected to expand by at least 30 million during this decade, producing, on average, more than one million new households per year. Factoring in the number of units that are lost from the housing stock, as well as second homes and other vacancies, more than 1.8 million new housing units (including manufactured homes) will be needed on average each year to meet the demand. That is about the level of today’s pace of housing production.
|
Learn how to reduce financial risk and convert leads faster with Countrywide's One-Time Close Loan.
Check out the best part about Countrywide's EasyWay loan -- little or no down payment for qualified borrowers.
|
- The underlying cost of building a home will continue to rise. Finding land is by far the biggest problem facing home builders. The cost of a developed lot now accounts for about 35% of the sales price of a home in fast growing markets, and the upward spiral in lot prices isn’t expected to change. As Chairman Greenspan sees it, “Local building and land use restrictions continue to constrain the supply of buildable land in many areas, whose price increases also tend to outstrip the rate of inflation.” Over the last 50 years, home prices have increased about 1% faster than overall inflation, he said, and the differential definitely has increased in recent years as land-use controls have proliferated.
- While stocks have plunged more than 30% in a single year, existing home values have never shown an annual decrease on a national basis.
- “There is no national housing market,” according to Alan Greenspan, and any bubbles in home prices “that might emerge would tend to be local, not national, in scope.”
- Families need a place to live and their confidence in the value of their homes is well founded. The market value of America’s single-family homes is more than $13 trillion. Home equity is more than $7 trillion, and is continuing to grow despite record refinancings during the past year. History has shown that housing prices can experience some cyclical stagnation or even declines, but over time home values are likely to rise, without the extreme gyrations of the stock market. The tax benefits afforded home owners also bolster the market.
Perhaps the Wall Street Journal is too close to the stock market to realize that Americans don’t buy and sell homes the same way as they invest in stocks and bonds. People live in their homes and leaving them is not a snap decision. Or as Chairman Greenspan has concluded, “Any analogy to stock market pricing behavior and bubbles is rather a large stretch.”
[ Go to Top ]
|
Need to Buy General Liability Insurance?
Are You Controlling Your Exposure to Moisture, Mold and Fungus?
Do You Know How to Compete for Insurance Dollars and Coverage?
Insurance Coverage a Challenge?
|
|