Housing Will Lead the Economic Recovery

Long and Foster shares in the commitment to help our clients and their families grab hold of this great thing that we call the homeownership opportunity. As we all work together through this challenging economic time, it is so important to use history in balance with our view of the future to make sure we can provide the best advice and counsel to our clients and so that we can make the best decisions looking ahead.
History 1987: The market dropped from 1st quarter Dow Jones Industrial high of 2722 to 1739 in the fourth quarter with a one day event that dropped the market 22.4%. The market lost over 1/3rd of its value in just a few months.

Today, all of us are very concerned about the events that are occurring as we stare at the media’s review of these daily stock market adjustments, financial news, and speculative forecasts. We just need to keep perspective - it wasn't the end of the world in 1987 and isn't today.

First, despite the enormity and significance of these events, the market will find its bottom and the buyers will be coming back in. All cycles work this way.

Second, this winter will be hard on the markets for a variety of reasons that are natural beyond the financial services industry impact on the global economy. We are headed into winter. Energy prices may rise simply due to heating oil consumption. Retail sales will be low in the 4th quarter and will result in worse earnings for the large retailers. Many, or most, major companies will have worse 4th quarters and worse yearend earnings due to losses this year. We should just be prepared for this.

Third, if you compare to 1987, the market today even if at 8,000, if it bottoms there just to pick a low number, would still be 400% more valuable than at that time. Markets come back from corrections. Anyone who stayed in during that significant correction would be 400% better off today.


Fourth, Housing values are staying very stable this year versus other investments. Many of the weaker markets in our area are actually seeing significant sales increases over 2007. Add to this the fact that a significant part of federal policy to improve the economy is focused on housing and financial institutions that support housing, combined with the fact that pent up demand is at a near peak, and many still believe there we should all be feeling better about our industry forecast versus most others. Put another way, we corrected first then other industries followed. In that context, it is not a surprise that housing usually leads the nation out of recession.
Remember, market corrections lead to lower rates due to a slower economy. Lower rates bring buyers into the market. Housing ALWAYS leads the market out of corrections. Let's applaud each day of this correction because it means the end of it is nearing and, combined with almost three years of pent up demand, lower energy prices, and low interest rates, we (Real Estate Professionals) will be the ones on the forefront of this recovery to come.

This is not the end. It’s the beginning of the good market ahead.

Look at Warren Buffett. He is generally known to be one of the most brilliant investors in the world. Google him today and see how many companies he is buying right now. Warren is a buyer in this market. He already sees the bottom.

I know we are looking for the magic answer, but the reality is that we Real Estate Professionals sit in the best seat in this economy and home buyers will be the first to reap the rewards. Real Estate right now is the safest investment "bet" there is and financing is readily available. I still remain bullish on 2009, and it's our focus and optimism together that will help us all team up to focus on these wins ahead.



David Stevens is President of Affiliated Businesses at Long & Foster Companies and has held numerous executive positions at Freddie Mac, Wells Fargo and Golden West Financial Corp. David sits on the board of directors of RESPRO and is actively sought to testify before congress and other federal and state regulators on housing policy.