True or False: The media decide whether you buy or sell a home.
That sounds ridiculous, even insulting. But there’s no doubt that there is a psychological component to buying a house — and that a lot of negative publicity about the housing market can have an effect on whether you will buy, sell, or sit.
There has been some speculation that the media is usually responsible for the way the market goes. When people hear that the market is going to crash, they freak out and stop buying, which, in turn, causes the market to crash (imagine that!).
In my opinion, much of what happens in the national economy is shaped by the self-fulfilling prophecy of the national media headlines (USA Today, the New York Times, ABC, NBC, CBS, etc.) When you read, day after day, that we’re headed toward a recession, isn’t that what you’d do?
And yet, a review of history shows that the greatest fortunes are begun when “blood is running in the street”. Isn’t that what we have right now?
I’ve written previously about how our local market has fared these recent few years. Prices are down 15-25% from their peaks in 2003-2004. Has this ever happened before? Certainly not in our lifetimes – and, frankly, isn’t that all the history that most of us ever bother to know?
In the world of the major stock markets, when prices decline over 20%, it is what is described as a bear market.
Well, the bear has certainly been growling in our local area! (Either that, or a few ferocious Wolverines – who, by the way, have been known to chase away bears in the wild).
Back to the stock market: When prices decline by 20%, wise investors know that it’s time to take notice for buying opportunities. Wall Streeters use the term “contrarian investing”.
When the stock market value of a company falls below the underlying value of the assets of a company, wise investors swoop in and buy up all the stock they can handle. At worst, they will own assets of a company, which they could later sell off to recover their investment. That’s what’s known as a sure thing.
If ever there was a sure thing in the local real estate market, IT IS NOW!
Oh, sure, you can call me wacky, or a Pollyanna, or worse.
And that’s when I’ll show you how the current prices of homes in our local market have declined below their underlying value.
Talk to a builder (if you can find one who is still in business – is blood running in their streets? Hmmm…..?). Ask them if they can even build a home right now for less than $125 per square foot. They’ll say “No Way!” – not with the ever-increasing costs of concrete, lumber, copper wiring, drywall, asphalt shingles, and everything else that goes into a new home.
So, if a builder can’t build a new home today for less than the prices of some newer (3-5 year old) homes on the market, haven’t we hit our “underlying value”?
Contrarian investors are moving into our local markets in a big way. Shouldn’t you get on board?
Back in 1980, a local newspaper included a headline “Will the last person leaving Michigan please turn out the lights?” Those were pretty bleak times in Michigan – I know, I was there. Doesn’t it remind you of today?
The average price of a home in Ann Arbor in 1980 was in the $60,000s. Last year – 2007 – admittedly, a bleak year for our local real estate market – the average price of a home in Ann Arbor was in the $240,000s.
That’s a pretty healthy increase, huh?
Trust me on this. Five years from now, a few wise people will be chuckling all the way to the bank when they sell off the investment properties they bought in 2008.
Will you be one of them?