Opportunities and Attitudes

Please forgive me if I tend to be relentlessly optimistic. Believe me, if there is anyone who understands that the last several years have been a real estate horror story, it’s me. Having said that, we have to work with what we have to work with. Even in the most challenging times there remain ways to take advantage of the circumstances and use them to your benefit. It just might make you some money. It also just might make you a person who finds that today is a good day.

So it is with some pleasure that I found some great information in two recent editorials by Robert J. Samuelson. Mr. Samuelson is a contributing editor for Newsweek magazine and for The Washington Post. He has been writing about business and economic issues since 1977.

I’d like to share with you some of his recent commentary:

Young buyers to catch a break
Published on May 9, 2011, this editorial focused on the benefits that the recent housing market holds for young buyers. The benefits are two fold. First, prices have plummeted. “Up to a point, the lower home prices merely deflate the artificial ‘bubble.’ But there’s evidence that the declines transcend that. The National Association of Realtors routinely publishes a housing ‘affordability’ index, which judges the ability of median families to buy the median-priced home at prevailing interest rates. By this measure, existing homes are the most affordable since the index started in 1970.” This means that young buyers have a better opportunity to enter the housing market. Second, today’s new construction is coming down in size. “From 1973 to 2007, the size of the average new home grew by about 50 percent, from 1,660 square feet to 2,521 square feet. By 2009, that was 2,438 square feet, with more declines expected.” Being less expensive to heat, cool, and maintain, these smaller homes are also a boon to home buyers. Samuelson argues that the main beneficiaries of these changes are young buyers. “…crisis pass and have unintended consequences. The young just might catch a much-needed break from this one.” As a Mom with 2 kids about to have their first taste of home ownership, I hope this is true.

Greatest barrier to recovery could be pessimism”
This commentary was published on May 23, 2011. In it Mr. Samuelson states “It may be time to move beyond pessimism. Ever since the financial crisis, Americans have wallowed in fear and anxiety.” While acknowledging that there remains real hardship, he also points out that “the recovery seems increasingly self-propelled. Americans are shopping again, albeit with less fervor; exports are improving; companies are hiring. Massive government spending and the Federal Reserve’s low interest rates seem less crucial to growth. Although this is good news, the pervasive post-crisis gloom prevents us from acknowledging it.” Mr Samuelson sees 3 imbalances that abetted the recession: consumer overspending, the trade deficit, and the housing “bubble”. Consumer spending has dropped way down. Consumer debt service (repayment of principle and interest) has gone from 14% of personal income to 12%. At the same time the saving rate has gone from 1% to somewhere between 5 and 6%. “The difference exceeds $200 billion in potential annual purchasing power.” As for the trade deficit, “By 2010, the overall deficit had dropped by $496 billion.” Yep, billion. Finally, housing: “True, it’s still depressed. But the worst may be past. Mortgage delinquencies are falling. Meanwhile, pent-up demand is growing.” He concludes with this observation: “…the larger message is that the recovery is feeding on itself. Healthy economic growth doesn’t have to be supported by government and, ideally, is not frustrated by perverse policies. The greatest barrier to recovery now could be psychology–stubborn gloom–which conditions household and business spending decisions. There is a curious role reversal. Foolish optimism led to the financial crisis and recession by assuming things would work out for the best. Now, reflexive pessimism weakens growth by ignoring good news or believing it can’t last.”

I found both of these commentaries really informative. I have no idea how long this housing down turn will last, but I find it helpful that within the National media there is now a dialogue that is suggesting both an economic recovery and a silver lining that can be found in the current economic climate.

Thanks for reading,
Dianne

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