A Counterpoint to the Naysayers?

I was in the Sacramento area over the weekend and perused through the Sunday Sacramento Bee. In the real estate section was an ad from a residential brokerage (which will remain unnamed). It was considered a “reality check” and was titled: Now May Be the Time to Buy: What Are You Waiting For? There were four subsequent bullet points in this one-page ad that got me thinking:

➢ Attractive Interest Rates: Historically speaking, the mortgage interest rates are relatively low.

Well, we all know we can bend the stats any way we want, and that looking at mortgage interest rates includes a lot of variables, but this statement seems accurate. I chose to look at fixed rate mortgage rates only for the last 37 years (courtesy of freddiemac.com). 2007 has seen fixed-rate mortgages in the 6% range. Only 7 years have seen rates at this level or lower. Thirty of the last 37 years had higher interest rates, with the 1980s being particularly horrifying with yearly averages between 10.19% and 16.63% (my first mortgage was at 10% back in 1987). So it is, indeed, a time of attractive interest rates (despite the sub-prime debacle).

➢ Sizeable Inventory: After approximately 24 months of a changing market, there is a great deal of inventory. In fact, in Sacramento County alone, there are 11,300 homes currently for sale.

Trying to extract this information from internet sources for Bay Area inventory was a bit trickier. I found that sales are down over this time last year (5,486 in the 9-county Bay Area for October 2007 as opposed to 8,532 in October 2006, per DataQuick). I was also able to find some basic info on Santa Clara County inventory on the blog, Bubble Markets Inventory Tracking (although SF data was nowhere to be found): Santa Clara County Inventory October 2006: 5,039 and October 2007: 7,400. In fact, in looking at all the markets shown on Bubble Markets Inventory Tracking blog, it appears that inventory is indeed high across the board, so this bullet seems correct.

➢ 2008 is an Election Year: Historically the economy and the housing market have been strong during election years.

CNN Money published an interesting report on this phenomenon back in 2003 during the 2004 presidential cycle, which supports this bullet point. But then again, MarketWatch wrote in 2006 that the presidential election year cycle has no validity. Who to believe? Again, I think it’s one of those instances of interpreting data in a way that suits your theory. But in the interest of hope, I am voting for the strong economy in 2008/2009.

➢ Real Estate is a Strong, Long-Term Investment: According to the California Association of Realtors, the average home purchased five years ago has appreciated 49%. Over the last 37 years, California real estate home prices have only dropped four times and yet prices have increased more than 2,100% during that period of time.

Most of us have always known that real estate is a strong, long-term investment. Yes, there are the stories of “flippers” out there and developers trying to make a quick buck, but overall this statement has been true, especially in California. We purchased our current home back in 1995. It has appreciated 317% in 12 years. Our equity has put our kids through college, financed remodeling projects, and will help to fund our retirement. Not every state in the U.S. has had such soaring appreciation, but it is rare that people holding on to a property for 10-20 years would sell for a loss.

I’d love to hear what you think about this ad.