You can handle the truth about the market

I'm frankly amazed every time I see another report from the National Association of Realtors given their recent track record (also here). You’d think they would throw in the towel and get out of the prediction business.

That said, the latest headline "Sales to Stabilize before Upturn in Second Half of 2008", might not be that far off - but probably not for the reasons they cite. To be clear, I see increasing foreclosures, rising inventories, and other ugliness ahead. But many that hang in there will find a silver lining. During the boom, folks like David Leraeh said that affordability was a "growing concern", while simultaneously forecasting future price increases. These two views, of course, are diametrically opposed. As we learned in economics 101, you can't increase price when people already can't afford the product.

The NAR needn’t have perpetuated this fallacy. For while many Realtors cling to the idea of homes as investments, in reality they are far better served by affordability. People want to be homeowners. Even as I saw the housing market disaster coming and sold nearly 20 properties, I couldn't bring myself to sell my own home though I was certain it would decline by 25% or more. Why? Well, I didn't buy my home as an investment, I bought it as a place to live -- one that I happen to really like. So while everyone is focused on the very real and serious pain that this correction is causing, the reality is that it has also created new, and more sustainable, opportunities for buyers, investors, and, yes, Realtors.

You'd think my Realtor friends in Stockton, Manteca and Modesto – communities at the epicenter of the housing shock -- would be near suicidal. Not so. Prices are now down 40%, and at that price you can actually buy rentals that cash flow. Renters can afford to buy with traditional 30-year fixed financing. Smart parents that thought neg-am ARMs were lunacy are now willing to help their kids with a down payment and traditional financing. And enterprising Realtors capitalizing on this new opportunity by letting buyers know they can help find bargains are doing just fine.

Not that things are great - but they are whole lot better for buyers and Realtors now that there has been a significant price correction.

If you are in an area where sales are slow, and prices have not yet corrected, you may want to secretly hope they do soon. And stop working against yourself by trying to convince everyone that your market is special and can't possibly go down. Buyers won't come knocking until you do. It is going to be a really hard transition for banks, builders, recent buyers, and owners that used their homes as ATM's, but despite the best efforts or legislators and regulators, only lower prices will get this market going again.

And don't buy into the message from doomers that prices have no bottom. They absolutely do. Largely determined by rents and cap rates.More on that next time.Sean