Tuesday, May 27, 2008

You Can Bend, Twist and Skew Numbers, But You Can't Fool Me!

Turn on the news, radio, or open a newspaper and you'd think the majority of homeowners are out on the street or close to losing their homes.

Hmmm, something is very, very fishy here. You see, I like to engage in this little thing called "Fact Finding" before I get my underwear all up in a bunch. In 2007, there were 2.2 million households going through foreclosure. Now you may be saying, "WOW, that's an incredible number of people losing their homes", but what you should be asking is, "What percentage of American homeowners does that figure represent?". At the end of 2007, there were 128.6 million homes in the USA. The 2.2 million households losing their homes to foreclosure in 2007 made up only 1.7% of all homeowners. Do you see how unimpressive the true number of foreclosures are when compared to the overall number of households?

Truth in numbers doesn't make for exciting headlines, so the media will bend, twist and skew numbers to support their agenda which is sensationalism. Foreclosure numbers are just one example of how things aren't always what they seem. In 2007, 98.3% of Americans were not in default on their mortgages...WOW, 98.3%...now that's impressive, but you'll never hear or see that figure in the media. I'll make sure to give you the truth when I blog not sensationalized fiction. Trust me, there is a lot of hype out there that is presented with no relativity.

I've mentioned before that "fear" is to blame for real estate collapses. If you think a home you're interested in buying is going to be worth less next month than more, you will probably wait on the side lines hoping for a better price. When everyone interested in buying thinks the same way, this can cause a domino effect of declining prices that can snowball out of control. Now why would potential home buyers think a property they're interested in would be worth less in the future? I have the answer...they believe the ratings motivated twist on numbers put out by news sources that leave them feeling like a housing crisis is either here or eminent. This fear becomes a self fulfilling prophecy that is responsible for each and every down cycle in recorded history. There lies the opportunity for the Real Estate Investor. When Warren Buffet, arguably the greatest investor of our time, says "Be fearful when people are greedy and greedy when people are fearful", what he's saying is fear is temporary and in fearful times, the best investment opportunities lie in it's wake.

When people make their way out of the cloud of fear, it can be a very painful reality. They will have a front row seat to the price appreciation cycle that follows every down cycle and in more cases than not, they will witness their once owned property rise rapidly in value, potentially costing them hundreds of thousands of dollars in lost equity. When a homeowner buys a property for lets say $300,000 and sells it for $250,000 because of fearful market conditions, it can be very painful to see the new owners enjoy a rise in value to $400,000 or more during the following appreciation cycle. That's when the second guessing comes in and you start to get this sick feeling in the pit of your stomach. I've talked to many homeowners that have experienced the mistake of selling into fear and I can tell you it has left an indelible mark on their lives.

Don't make the mistakes others have made when it comes to your real estate investments. Do your homework and invest with facts not emotion or media twisted numbers. This will separate the successful investor from the money losing speculator.