My Debate With Suze Orman

August 7th, 2011 by keithandkinsey

Many of you know I have some gripes with the how the media represents politics, current events, and the real estate market. Last night financial advisor, Suze Orman, aired a new episode about “real estate reality”. There were some major points in her show that I disagree with.

Suze said that if you bought a house near the peak of the market you are probably down 33% in value. She also said, that she thought real estate would take 14 years to recover to peak prices. Her thought behind this was based on the assumption that housing would appreciate 3% per year for the next 14 years. In my opinion, she is way off! According to the U.S. Census, average nationwide home prices are only down 21% from the peak in March 2007. Where we live in Dane County Wisconsin, average prices are down less than 10% since the peak.

Obviously, our market in Wisconsin is more stable than many markets around the country. This leads to my point… The slow and steady markets will probably recover at a slow and steady rate of 3-5% per year (just like history shows). In these slow and steady markets, this equates to a 2-3 year recovery period. The markets that are down 30% or more, are known as more cyclical markets (such as California), and often have huge gains and huge losses. I think Suze forgot how averages work. These markets had several years of double digit gains prior to several years of double digit losses. These markets will recovery at a faster rate, probably 5-15% per year. Again, this equates to a 2-6 year recovery. I would be completely amazed if most housing markets in America had not recovered by 2017. I think Suze Orman is way off base with her 14 year recovery projection.

Suze also talked to someone who called into the show who’s property was $100,000 underwater (worth less than what is owed). This caller said they were capable of keeping up with the payments, but they weren’t sure what to do about being underwater. Suze actually advised this person to short sale her home or walk away and let the bank foreclose!!! In my opinion this person made a commitment to the bank to pay back what they borrowed. They are still capable of making payments. They have moral and ethical obligations to follow through with their contract. Don’t get me wrong, I fully understand people that lost their jobs or are struggling financially going through the foreclosure process. Although, I think it’s completely wrong to just walk away from a house simply because it has become inconvenient for your financial plan. This is what is part of what’s causing the problem in the housing market. I agree with Dave Ramsey’s view on this.

In summary, ignore these broad generalizations of doom and gloom in the housing market that you see on TV. Look at the real statistics of what’s actually happening in your local market. Also, remember you bought your house, you made the decision, and you are responsible now. Don’t walk away unless it’s a last resort.

Posted in Blog, Income Property, Money, Real Estate