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EXCITING NEWS ABOUT OUR
AREA
The Wrong Correction
BY LAWRENCE YUN, NAR
SENIOR ECONOMIST
Consumers are hearing a
lot in the media about
the correction in
housing, and they’re
understandably concerned
about whether now is a
good time to get into
the housing market. This
hesitancy is evident in
home sales volume: Even
though interest rates
fell to 6.2 percent in
early 2007 from 6.8
percent in August 2006,
and the economy added
3.5 million new jobs,
existing-home sales were
down 8.5 percent in
2006, with further
softening expected in
2007. The irony, of
course, is that although
declines in sales volume
have hurt real estate
practitioners, they may
be a plus for consumers.
To a great extent, we
can thank steady media
coverage of the real
estate market
“correction” for
unfounded consumer
concerns. In Columbus,
Ohio, for example, the
median home price is
about $150,000, and
price appreciation
during the boom years
was modest. So when
Columbus buyers stay out
of the market, you know
there’s a lot of
misunderstanding about
today’s markets.
If there’s a correction
in markets today, it’s
in home sales volume and
housing starts, not in
home prices. You see the
effects of those
declines in weakening
practitioner income and
construction employment.
There’s pain out there.
But there’s no real
correction where
consumers are concerned.
Yes, home price
appreciation has slowed
considerably, and
nationally we’re
expecting a price drop
of 1 percent for 2007.
But that drop comes at
the tail end of a
five-year spurt that
increased home prices by
53 percent. We may have
taken one small step
back, but that’s after
taking 53 steps forward.
Even a relatively large
price decline, such as
the 12 percent drop we
saw in Sarasota, Fla.,
cannot reasonably be
called a correction when
that market had a 150
percent price increase
during the boom.
When today’s consumers
look at real estate
markets, they need to
use the same analytical
approach as investors in
the stock market. Those
buyers aren’t generally
concerned about the
volume of stock trades
on a given day. Why
should they be? They’re
focused on price trends.
And by that measure, now
is a great time for
consumers to be in the
housing market: Prices
have steadied, and
inventories are healthy.
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