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Debunking myths of the current housing market

By Justin Hunter

The real estate market is one of the most unpredictable business industries. Within a couple of months people who were once selling properties fast could then be paying three or four mortgages just to support their unsold houses.

The market is described usually as a buyer’s or seller’s market. While the in-between gray area has to be accounted for, a buyer’s or seller’s market does not guarantee a purchase or sale will be successful. Marcie Geffner’s article, “Unreal expectations plague real estate,” which was posted November 6, 2006 on Inman News debunks a few of the most common myths involved with the real estate industry.
There are several myths circulating the real estate world right now that need to be answered to avoid making untimely transactions.

The first thing to understand is the housing market has not “collapsed.” Yes, fewer homes have been sold in the United States this year and the decline has been more prevalent in major markets such as California.

“Yet plenty of people have bought a home this year. In September, existing homes were sold at a pace of 6.18 million units, according to the National Association of Realtors, while new-built houses were sold at a rate of 1.08 million units, according to government agencies. Those seasonally adjusted and annualized figures aren't a ‘collapse’ of the housing markets by any stretch of the imagination.”

The next myth is that housing prices are too high. Prices are never too low or too high, but are subjected to what the market dictates. When the demand for property at a given price is more than the supply, prices rise, and the opposite occurs, leading to falling prices when the supply at a given price expands faster than demand.

“What's more, home prices depend largely on location. A mansion on the California coast might be worth millions, but while a median-priced home in the Midwest costs just $169,000.”

Sales prices are still based essentially on the economics of supply and demand. Just because you cannot afford a home does not mean the price is too high.

The third myth is that everyone should own a home.

Everyone wants to own a home someday. Unfortunately, renting is seen as a negative lifestyle. As a result, many people buy property even when their financial situation does not dictate it. Since there are many “exotic” mortgage options, these under qualified borrowers buy a house that is too much to afford. Within a few months or years, the “exotic” mortgages will increase in monthly payments and cause the borrower to struggle month-to month or default on payment.

Myth number four relates to real estate equating to easy money.

“House flipping can be a lucrative business due to favorable capital gains tax laws for owner-occupants. But flipping for profits isn't ‘easy money.’ Rather, it takes an uncanny ability to time the housing market, a lot of hard work, the necessary know-how and experience to hire competent contractors, and a willingness to weather considerable disruption to one's home life.”

An unanticipated sudden shift in the market can turn a potentially hefty profit into a substantial loss.
The last myth is that Realtors make a lot of money.

“Rising house prices, the proverbial 6 percent brokerage commission and the high-rolling lifestyle of some top Realtors have enticed more than a million people into the business.” It is possible to achieve financial success as a Realtor but many new hires to the business stay in for a couple months, make a deal or two and realize the cutthroat nature of the business.

The best advice to avoid these myths is to do your own homework and use outside sources as tools, not instructions.

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