How Distorted The Perspective Can Become

When you look at demand for housing, you often hear the statement “Everyone needs a place to live “.

That’s true. But if we go back to the financial crisis and look at the counties in the US that had large numbers of foreclosures, a disproportionate number of those foreclosures were in fact on second homes.

The outsized number of foreclosures in Miami Dade county and Broward county were among the highest in the country. Maricopa county which comprises the municipalities of Phoenix, Scottsdale, Mesa, Tempe, Glendale, over 20 municipalities in all had some of the highest foreclosure rates in the country.

What distinguishes these locations is that a large proportion of these residences are in fact second homes. In moments of financial distress, people will sacrifice their second homes to protect the family homestead. That makes perfect sense. Most rational people would do the same thing.

On average, prices fell about 33% as a result of the financial crisis.  But prices in Maricopa county fell an average of 56%. A disproportionate number of these properties were second homes. There was a similar phenomenon in Las Vegas and in south Florida and Orlando.

We are not accustomed to managing price volatility. In the moment, the heat of the current market conditions, the price today seems to make sense. At least it’s possible to explain why the price is what it is.  But with the wisdom of hindsight, it’s easy to see how distorted the perspective can become for periods of time.

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Host: Victor Menasce

email: [email protected]

episode # 1279