Wednesday, August 16, 2006

Media Schmedia

One of the most frequent questions I've been asked lately has been is what I think about the market in Chicago, by clients and non-clients alike. Well, I know it doesn't seem like a surprise to be asked that kind of question, but there has been one specific common thread to all these conversations....the media. The media whether it is print, television or on-line has been droning on about how the housing market is slowing down and oh, no the world's going to end because interest rates are higher than they were 4 years ago! And while both of these are true to varying degrees I believe in many cases the message the media sends is out of context for two reasons. One, the housing market is very much a local phenomenon, but the media largely uses nationwide and regional generalizations. There are so many factors that affect housing and many are specific to that local. There are even differences between Chicago and the Chicago suburbs! One factor is demand. The demand or need for housing is not the same across the country. For example over the past few years demand for housing on the East and West coasts has driven the 20 and 30% price appreciation they had been experiencing, while in Chicago, demand was high and price appreciation was significant, it was not of the same intensity. While Chicago's growth was steady, the activity on the coasts is what fueled much of the talk of the housing bubble and leads me to my second point. Everyone seems to forget that the past five years have been a period of record housing growth fueled in part by record low mortgage rates. Well it's no surprise the market is slowing down, how long can record growth be sustained? Eventually it has to balance out and that's exactly what's happening. Is that a bad thing? From my perspective, no, balance is a good thing especially when it doesn't have to be the result of some "catastrophic" event. On a somewhat lighter note, in such good times, we often forget what "normal" is. Until the past few years 9 or 10% on a mortgage was considered a great rate and there actually was a period about 20 years ago where interest rates were 18%! Gasp!!!