Summer 2006

REAL ESTATE MARKETS DO NOT "CRASH"

On October 19, 1987, known as "black Monday", the stock market lost 22% of its value in one day. No doubt about it, that was a Crash, but there never has been such a day in real estate. Granted real estate values have dropped 22% in some areas, but not in one day, one week or even in one month. Furthermore, there will not be a real estate crash in the future. Here's why:

The nature of the stock market permits buyers and sellers to be "whimsical." In other words, a change in the stock market can trigger "panic like" reactions. Sales can be made in a matter of moments. If there are more sellers than buyers, the results could be as dramatic as experienced on October 19, 1987.

On the other hand, real estate owners are not "whimsical." Home owners do not rush to sell their houses if they the prices drop 10%. After all, where are they going to go….they need a roof over their head! Home value declines usually are not immediate and occur over a period of time.

The characteristics of real estate do not allow owners to make "whimsical" selling decisions. First, the investment is large which in turn means that time is required to find buyers. Even after a buyer is obtained, more time is needed to prepare the title report, prepare legal papers, make property inspection and obtain loans. Even liquidation sales, such as bank foreclosures require time to complete.

So now you know! The next time you hear one of these doom and gloomers predict the impending real estate market crash, you'll know he hasn't a clue about real estate.