The Myth of Real Estate Market Crashes

According to the news media, we recently experienced one of the worst real estate market crashes on record in North America. As we listen to the stream of bad news, we are forced to accept and believe that we have undergone a crisis. Yet, does that mean that all of us have been crushed by the economic collapse of the housing market?
In the early 1980s, mortgage and loan rates skyrocketed, with hundreds of thousands of homeowners forced to give up their real estate dream because of the debt burden. Many times that number of aspiring buyers was crushed by the reality that they could not afford to purchase that dream home immediately.
In early 2008, the outlook for real estate sales & purchase across North America was the most optimistic in decades. Houses were being built and bought at a frantic pace.
By early 2009, the outlook was the most pessimistic in decades. Houses were being defaulted into bankruptcy and construction projects abandoned at a furious pace.
Such is the nature of a housing market bubble bursting. Yet, there are significant flaws in the “universal housing crash” stories.
Without a doubt, millions of North Americans have been deprived of their homes, and the real estate industry has suffered a huge hit.
In the US, cities like Memphis have seen as much as 30% of its housing stock subject to mortgage default, while places like Phoenix have been struck by declines in home values exceeding 60%. Condominium construction in Las Vegas has been decimated, with a huge overstock of unsold homes.
In Canada, Vancouver, Calgary, Edmonton & Toronto have experienced pressure on home prices, even though cities like Regina, Winnipeg and some Maritime communities have seen continual upward climbs in home prices.
But, in cities where sales have escalated, there are communities and market sectors where the “bubble has burst.” And, in the housing “death zones” of Toronto, Vancouver and Calgary, there remain vibrant segments of the housing market that have continued to do well in the crisis. In fact, the crisis never actually reached the magnitude in Canada that many experts were predicting. The bubble that stimulated the federal government to change mortgage financing rules may not have posed the threat that the media suggested, either.
Even with the market poised to collapse in 2008-09, the real threat was not to housing stock or to the existing homeowner, but to the financing of home ownership. So, if the quantity of houses continued to climb, there must be an opportunity in that market! Indeed, an astute buyer, throughout the past 3 years, could find a real bargain in most cities hardest hit by the downturn.
The crash of the 1980s, too, was caused by financing problems, rather than housing availability. Still, homes were available, at great prices, for the person who had saved enough for a sizeable down payment.
Much of the media focus on the impending housing bubble burst is directed to pockets, or areas that are at risk. Rising prices have moved many homes out of the reach of first-time buyers. But that has happened in the past, and the market has corrected. Yet, new homeowners continue to show up, as they adjust their budgets and saving habits to enable their purchase.
Those corrections are not immediate. When a mid-range price market folds, new construction may move to entry-level or upscale homes. When new homes become too pricey for many of us, older homes, character homes, or existing starter homes fill the gap.
The media succeeds when people view, read or listen. People view, read or listen when the news is exciting. The media hype would have had us believe everyone was going to die of Ebola 15 years ago, Legionnaires disease 25 years ago, West Nile Virus ten years ago, or terrorist-generated anthrax five years ago. As serious as the threats may have been, catastrophe was not inevitable. As serious as the economic collapse of the past two years may be, home ownership collapse is not inevitable.
With the challenges that the housing industry faces, the reality is that, like Julie Andrews says (paraphrased) in the Sound of Music, “Whenever a door closes, somewhere a window opens.”
Today’s housing market should be looked at not as a wasteland of crises, but a field of opportunities, where, in the right area, the right market, at the right price, there are fantastic prospects for acquiring your dream home, or making a lucrative investment. Perhaps, even, you may be on the vanguard of a new real estate “gold rush.” The window is open.