Do Market Conditions Really Count Part 2?
The real estate market is like that. When it was booming in one of its great expansions roughly between 1999 and 2006, a person who saw it only then would, naturally enough, assume that real estate values always grow 10 to 25 percent a year. Many, too many, people made that assumption and bought one, two, or a dozen homes hoping to multiply their profits.
When the so-called bubble burst in 2006, lots of these people found themselves strapped with properties they couldn’t afford. They tried to cut their selling prices to dump them. Many lost them to foreclosure. Those on the sidelines who would normally buy got scared and stayed out of the market. And when the inventory of unsold houses skyrocketed, prices fell dramatically.
To gain a wider perspective, let’s take a different but also recent example, one that too few people remember. There was a deep real estate recession roughly between 1991 and 1998 in most areas of the country. The inventory of unsold homes was huge. Prices not only didn’t move up, in many areas they moved down. Declines of as much as 25 to 30 percent were common in some markets. People couldn’t sell their property “for love or money.” Auctions of homes by lenders who had taken them back in foreclosure were common.
During that time, people who thought about coming into the market and saw only the hard times made the erroneous assumption that real estate would always be down. Hence, many stayed away. They frequently rented instead of buying. They saw those who had earlier paid too much for their properties now suffering, and they didn’t want any part of it.
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