Popular Housing Market Myths
Whether they're up, down or sideways, the nation's housing markets are frequent top stories in the business and economic press. But the daily take on the housing markets isn't always accurate, in part because the true picture is too often distorted by a number of persistent myths about real estate. Here are four that deserve to be debunked:
Myth #1: House sales have "collapsed."
Fewer single-family homes were sold in the United States in 2006 than had been sold in each of the several previous years, and this slowdown in sales volume was more pronounced in some markets around the country. But millions of homeowners and investors bought houses last year. In fact, existing homes were sold at a seasonally adjusted annualized rate of 6.28 million units as of November 2006, according to the National Association of Realtors. That's a very strong pace of sales, which certainly can't be characterized as a "collapse" of the housing markets.
Myth #2: House prices have "popped."
The rapid rate of home price appreciation came to a gradual halt last year and even reversed itself in some markets. The national median home price in November 2006 was $218,000, a decline of 3.1 percent compared with the median price recorded in November 2005, again according to the Realtors group. That decline might be characterized as a price "reduction" or "correction" on a national basis, but "popped" is no more accurate than "collapsed." Moreover, the median price is affected by the mix of homes sold as well as the overall level of home prices. That means the median price can decline if a larger percentage of the homes sold were in lower-priced segments of the market.
Myth #3: House prices are "too high."
The classic buyer's complaint that houses are "too expensive" or "unaffordable" has no basis in fact. Prices overall are never "too expensive" any more than they are "too cheap," rather, they are a function of how much sellers are willing to accept and how much buyers are willing to pay in a specific market at a specific time. When demand exceeds supply, prices rise and vice versa.
Myth #4: Real estate is "easy money."
While many people earn large sums of money from their investments in real estate, buying, selling and owning property is by no means "easy money." Rather, making smart investments and managing property takes hard work, know-how, experience, patience and an ability and willingness to take appropriate risks for equivalent rewards. Investors also need the stamina to stick with their good investments through the ups and downs in the real estate market. Those who have the right mix of skills, commitment and passion for the business are most likely to succeed.
