Despite the constant media reporting of foreclosures, predatory lending, and falling house prices—people still would rather own a house over paying monthly rent. However, so much media talk about the “mortgage crisis” and “recession” is scaring Americans to thinking twice before considering buying a home.
Find any major daily newspaper or turn on your local cable news channel. News outlets cannot go one day without mentioning something related to the housing market. If they don’t directly talk about the housing market, they quote “analysts” who connect the fall in stock prices or the price of eggs to the mistakes of the housing bubble.
It is not uncommon for the media to quote statistics from the National Association of Realtors, Mortgage Bankers Association, or Realty Trac and use them to support a story. The media wants us to believe that we are in a huge crisis. Emotion and drama attracts and audience and increases advertising.
Don’t believe me? Look at the media’s coverage of the 2008 Presidential election. The media’s stories revolve around the “horse race” and not policy issues. We are constantly reading about what each candidate’s strategy is and what they did wrong or right in order to gain an advantage among voters. Where is the discussion of platform issues? Go up to someone who watches or reads main stream media and ask the what each candidate’s platform is. Very few will actually be able to answer you. The drama is in the horse race not boring policy issues.
Americans have a history of being skeptical of government, so when it is reported that the government is helping homebuyers, it is bound to stir up emotions. On May 19, 2008, media outlets in DC and Virginia reported that Va. Governor Tim Kaine announced that there will be free government sponsored foreclosure prevention clinics in various Va. cities. Peoples’ first reaction – if the government is getting involved, then it must be bad.
Of course we, as Americans, are planning for our financial future. Hearing the constant mention of “recession” by the media makes us dubious about our economic future. Hearing this creates an emotional bias that affects our economic decisions.
I am not saying that the stock market is down. It is true that people who should not have been loaned to were approved for mortgages that they could not pay. What I am saying is that the media has a tendency to distort the facts and report foreclosure numbers that are misleading. Media wants us to believe that we are in a huge crisis. The crisis is a fabrication created by the media to create drama. If enough people say it, people tend to think it is true.
This is not a crisis, but a natural market correction. A common mistake that the media and the public make is that foreclosure numbers are the result of falling house prices. There may be a correlation, but ask any scientist and they will tell you that correlation does not equal causation.
Instead, home prices fall when the supply of homes outweighs the demand for homes. Supply and demand is the heart of economics and the basis of house pricing. There was a huge demand for houses for five years in a row. Demand led to higher prices. We simply built too many houses. Now there is a surplus of homes and people don’t see the need to invest since people started to default on their mortgages.
People have a tendency to believe that if a foreclosure sign pops up in a neighborhood, the value of the surrounding houses lose their value. Once these foreclosure numbers are reported by the media, consumer confidence plummets and all of a sudden there is a media fabricated “crisis” that actually leads to reduced consumer spending.
The point is—don’t let the media scare you out of making the smartest investment move you can make. This is the best time to buy since house prices are so low and you can get a foreclosed property at a cut rate value. You are not going to be tricked into signing a mortgage agreement that will put you into poverty. Those days are over. If you can afford it, get in on the action. After the lenders and Wall Street got into trouble for giving out loans that should have never been given, they are going to make sure that you are capable of repaying them before they approve you.
Some simple tips that will help you after you buy and avoid financial stress:
- Avoid high purchases. Live within your means and limit the use of you credit cards and leisurely spending.
- If you happen to fall into debt, talk to a mortgage counselor or another financial professional before you apply for another type of loan (i.e, car or credit card). Once you become a homeowner, you will be bombarded with credit offers. Choose wisely.
- If you consider refinancing, don’t just look at your loan payments—look at the life of your loan. Think before refinancing with another 30-year mortgage, even if it lowers your payments. Do you want to tack another 30 years worth of payments or would a 15-year loan best meet your needs.
- Buy a property that is close to public transit and shopping centers so that you can cut down on gas mileage.
- Buy energy efficient bulbs and turn off the AC during cool summer nights in order to save on energy costs. Wash bigger loads of laundry to conserve water and reduce utility bills.