As Realtors it is imperative that you believe that real estate is the strongest commodity that an individual can own. If not, then how else can you sell real estate?
The good news is that real estate is still a strong buy, compared to other assets.
These posts provide plenty of fodder to help you make your case that real estate will continue to rise. That real estate is indeed a terrific investment. Of course I am a bit biased sitting in my L.A. desk. I understand that in some parts of the country, real estate is not as robust as Cali.
{The Federal Reserve Governor Mark Olson said on Oct. 19th."In order for there to be a true
bubble, there has to be a single market," Olson said in response to a question following an address on banking at Widener University, adding that was not the case for the geographically diverse housing sector.}
However, overtime these regions will still hold value, and grow. They always have, and always will grow in home values.
Recently I wrote that the hang-up in real estate sales volume right now is mostly an issue of:
~Having sold most of the people that are going to buy
~A seasonal and pre-election slow down
~and an adjustment from the fixed rate world to the adjustable world of financing.
Fixed rates and adjustable rates are historically low.
I was pleased to see some evidence of this in today's Inman News which headlined as:
Adjustable-rate real estate loan popularity climbs First-time home buyers more likely to choose ARMs
A recent Motley Fool article refers to their own belief that the real estate market is in a bubble and will burst. The Fool article also calls upon a Goldman Sachs study that came to the same conclusion.
However, the piece fairly reports from an interview with Amy Crews Cutts, the deputy chief economist at Freddie Mac. She argues that there is no housing bubble in the U.S. today.
Cutts gives the following reasons for a strong housing market:
1.Supply of housing for sale is low. The current inventory of new and existing homes for sale is lower today than it has been in the last 20 years. If demand drops off, supply can be quickly cut back, which basic microeconomics tells us will mitigate any steep drop-off in price.
2.Housing doesn't resemble the typical bubble asset. According to Freddie Mac, the purpose of a typical bubble asset is investment, not consumption.
3.Mortgage rates are low. Freddie Mac argues that even with the recent increase in mortgage rates, we are still very far away from the 30-year mortgage rates above 10% that existed in the early 1990s.
4.User costs are negative. Related to the previous point, as long as mortgages are low and home prices continue to rise, net user costs are negative. Freddie Mac argues that interest (after tax), maintenance, and taxes approximate 6.5% of the price of a house. If the home price rises at 6.5% per year, the owner gets to live in the house "for free."
5.Household incomes and house prices in balance in the long term.
6.Rent vs. price growth is aligned.
You can get more details by visiting the article.
Recently Federal Reserve Chairman, Alan Greenspan argued, "Short of a significant fall in overall household income or in home prices, debt servicing is unlikely to become destabilizing".
As Realtors, you have an obligation to squelch any fear that your prospective real estate owners may have. These articles provide plenty of help for your case.
ARM's are a great tool when disclosed and proposed properly. Too many first time buyers are getting mis informed in the morgage loan process. Check out our web blog for the article on Florida residents bewarwe and the follow up http://www.mortgages-understood.com
Posted by: Jason | November 9, 2004 at 08:15 AM