On my way to Austin, TX this past weekend I happened to pick up the St. Paul Pioneer Press at the Minneapolis/St. Paul Airport. Truth be known I was looking to see if my beloved Iowa Hawkeyes had by some wild imagination won their game yesterday. But to my disappointment I found that they were beat by the rivals of Indiana pretty handedly. So, all of you Indiana friends, please refrain from sending your condolences. Pushing my disappointment aside, I went to my next favorite section: the editorial section. There are great minds in the Midwest….real common sense folks!

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This blog actually started to take root on Thursday morning when getting ready for class in Phoenix, I caught a snippet of the Today show. Yes, the foreboding news was “Whatever you do, don’t buy a new home!” For the last several weeks, I have noticed that at least once a month (if not more often) the Today show has had Barbara Cochran on giving her ‘sage’ advice about the housing market. Well, let me set the record straight. I travel all over the country educating REALTORS® on laws, disclosure, and how to be more professional. I am in a different market place every week, and the sky is NOT falling-everywhere! On July 31^st the Wall Street Journal featured my home town of Sioux Falls, SD stating that the market was swift, the prices good, and showed our average priced home and the one that just sold for $2.1 million. I kept wondering how to (in 1000 words or less) express my fear that if you say it is so – it will become so!

About 4 years ago, a friend bought a property in Naples, FL. I was tempted to join in on the frenzy but didn’t like the floor plan and thought I’d wait! Over the last couple of years the market kept rising and I kicked myself for not liking the floor plan. Then last year it happened! There was a correction in the marketplace and the 28% yearly appreciation rate had made a correction! All of the people (including REALTORS®) who had bet on the ‘come’ were now frantic and reducing the price of their not even yet built resale by the thousands weekly! My friend still has fabulous equity in her property and she is not turning it over to the bank because she was SMART about her investment. Smart about financing, smart about location, and smart about not wanting to make a fortune. Did we look at selling it for 2x the money? Sure….but at the time you couldn’t replace it for ½ the price so why do that? Greed is a terrible thing! For those of us who lived through the 80s and 90s, the lessons have already been learned, and not soon forgotten, or so I thought! What goes up, must come down, especially when it goes up fast! Anyone who doesn’t understand that has their head in the sand. Anyone who thought they could finance 100% at an adjustable rate and not get caught was not thinking! History repeats itself, and the wise will survive! The foolish, will again loose and that is sad. There are lots of people to blame, if you will. Promises of fortunes to be made; promises of low interest rates; promises, promises, promises! Who would have guessed that gas prices would go through the roof? Who would have guessed that the price of insurance would rise? Well…the sage writer in the St. Paul Pioneer Press has it figured out!

“A little deflation could make a house just a house again” is written by Jim Ragsdale, an editorial writer for the Pioneer Press. (you can respond to his comments at jragsdale@pioneerpress.com). He takes us on a tour of the housing market of the last 57 years and talks about growing up in a small family home that his father had paid in the teens as a sales price. (By the way, does anyone remember growing up in a small or moderate sized home with one bath and perhaps more than one sibling per room?)

When Mr. Ragsdale married he recalls buying a home in the low $40’s in West Virginia. He raised 2 children in that home before moving to Minneapolis. Unfortunately the coal mining business of West Virginia took a turn for the worse and they were unable to sell their beloved home with the front porch. After renting for a period of time in MN, they bought a home in the $70’s and now had 2 house payments, including one that had an interest rate in the double digits. They had by now 3 children, 2 cars, and the 2 mortgages (sound familiar?) They had rented their WV home and after a tenant trashed the place they offered it to a neighbor for the amount of the mortgage….loosing equity! When they sold their south Minneapolis home, years later, they got essentially what they paid for it. “That counts as a loss also when fees are added in. That means that yours truly lost money on two home sales in the ‘70’s and ‘80’s. I’ll put that record up against anyone’s”. His final home was purchased in 1987 for a modest $120,000…and they are still there. “According to the New York Times, federal housing agencies began keeping track of national home-sale statistics in 1950. Prices went up that year and didn’t come down until this year.” He notes that homebuyers are now being foreclosed upon in greater percentages than ever before, but reminds us that there were choices to be made and some were made foolishly, and probably with the assistance of REALTORS® and lenders, alike. Buyers with bad credit grabbed variable rate loans to get a low interest rate. The loans were sold as investments…ah, what an investment! So now the housing crisis could threaten the stability of the economy. Now the government is going to step in! The question is continually raised in my mind and hopefully yours, “What were these people thinking?” Surely the buyers are going to wake up and say…but my agent recommended this lender who convinced me to do this mortgage! Did anyone get a release of liability signed by these buyers? What about the areas of the country that allow the real estate agent to also be the mortgage broker and who knows, maybe the appraiser? Yes we have a serious problem in some parts of the US. Yes there will be a ‘correction’. But that has happened before, and the strong will survive. Perhaps the big screen TV didn’t need to be purchased. Perhaps the ‘keep up with the Jones’ attitude will fade. And after showing several homes in the upper range owned by young folks just getting started, perhaps people will buy houses that will fit the furniture they currently have instead of having empty rooms…or those furnished with furniture that is bought on credit at a rate that far exceeds their mortgage rate. There is no one to blame but one’s self!

I will quote his final paragraph. “…this real estate religion is based on a false premise. Rising home values ultimately help only those who buy and sell houses for a living. We owners do not really benefit, because, well, we have to live somewhere. The double –income treadmill for our children is set on sprint; in southern California, a beautiful place with friendly people and weather to die for, the median home price is approaching $600,000. What we need is a long gradual period of housing deflation. I don’t want the economy to go bust for my sake and I hope there is some way to protect those who just borrowed on a $600k rambler in Alhambra. But if the price of a house could gradually come back down to Earth, our children would benefit. The house would be a house again – a place where you can grow up, but not grow rich!” Ah……….the wisdom of the Midwest!