Saturday, January 28, 2006

Here’s a shock.  Another negative headline appears in the Peoria Journal Star on 1/26/06, page A7.  This time it is in relation to the housing industry.  The headline reads “Housing slow down may hurt rest of the economy, too.”  Then, of course, it may not.  Economically predicting the future is not an exact science although these writers seem to think it is or should be.  

Of course, the headline emphasizes the negative.  In the article itself we learn that for the last five years the sales of existing homes have set a new record each year.  That’s rather impressive.  But, the story dwells on the negative.

I personally know of these two examples.  They both occurred in the Tucson area last year.  In 2000, a couple bought their first home for about $130,000.  It was a new home just built.  Last year, five years later, they sold it for about $230,000.  That’s about a $100,000 profit in five years.  

The second couple had owned their home for years.  They owned it free and clear—no mortgage.  For 2006, it was assessed at about $170,000.  By state law, the assessment for property is supposed to be at full market value.  I know a member of the Tucson assessor’s office who told me they try to assess houses at about 80% of full cash value.  Assessing homes is not an exact science either.  This home was sold last year also.  It was sold for about $310,000.  Since another home will probably not be purchased, that is $310,000 to be put into the economy one way or another.

Maybe, it is a good economic occurrence that the housing market is cooling down.  Maybe, the housing market was experiencing an instance where purchasers were willing to spend more money than called for based strictly upon supply and demand principles.  Maybe, the housing market was approaching or had already arrived at a bubble situation.  The same type of bubble situation that resulted in the implosion of the over valued high tech industry a few years ago.  Maybe just maybe, a slow down is exactly what is needed for the housing market and for the economy.  

None of this was addressed in the article.  I would suggest that it is better to think than to just take newspaper articles at face value!  Too bad reporters seem not to do a lot of thinking!  


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