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Suze Orman is selling fear. Don't buy it.

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Listen to yourself, not Suze Orman

Brian Powers

Home buying and home selling experiences you can enjoy. Real estate doesn't have to be stressful...

Home buying and home selling experiences you can enjoy. Real estate doesn't have to be stressful...

Jul 8 8 minutes read

What Suze got wrong.

In this video Brian gives you an overview of the 3 biggest errors Suze Orman made in her statement about buying a home in this market.

The business of fear

Noted personal finance / self-help "guru" Suze Orman stirred up some waves last week when she posted to her millions of followers that home buyers should "absolutely wait until September, October, November of this year, before I even consider buying a home". She then goes on to list her reasons and rationale for giving this advice, which I will unpack in the paragraphs below. 

Let's start with the obvious: I sell houses for a living. So I am fully aware that cynics will say all I care about is selling houses today to line my pockets. My answer to that is simple. If you want to buy a home now, it's a great time to buy and take advantage of generationally low interest rates. If you're comfortable buying a home today, let's do it. But if you're not comfortable buying a home today, that's ok too. There's a lot going on in the world and whether its a struggling economy, the global pandemic, or civil unrest - some people may have some trepidation about diving into a major purchase like a home. 

I've got zero problems with someone wanting to pump the breaks on a home purchase until things settle down. What I do have a problem with is someone in the position of Suze Orman, looked up to and followed by millions, using fear and misinformation to encourage home buyers to wait. 

When it comes to whether or not the time is right to buy a home, listen to yourself, not Suze Orman. 

The Post.

For context, here is Suze Orman's original post, so you can see for yourself what she said. 

Suze hasn't looked at the numbers.

"It's not impossible that your neighbors might have to foreclose on their home."

Of course it's not impossible. Nothing is impossible. You know what else it is? Highly unlikely. Did you know that nearly 90% of homeowners in the United States have AT LEAST a 20% equity position in their current home? 

Here are some more stats that back up the healthy state of home ownership:

~ 42% of homes in the United States are mortgage-free (hint: there's nothing to even foreclose on for nearly half the homes in the country)

~ Nearly 60% of homeowners have at least 60% equity

Orman paints a picture of your neighbors walking away from their homes and surrendering them to foreclosure because of the fallout from COVID-19. Does anyone actually believe that American homeowners are going walk away from that kind of equity in any significant number, so much so that it will depress home values? It's so unlikely it's hard to even fathom. 

The odds of 1 of your neighbors walking away are so low its insignificant, let alone worrying about multiple neighbors walking away and being foreclosed on and it having widespread affects on home values. 

Suze doesn't know how foreclosure sales work.

"Let's say you paid $300,000 for a home today, and your next door neighbor is out of work due to the coronavirus and can't afford to make mortgage payments, so they foreclose on their home. That house goes for $150,000."

Foreclosed homes rarely sell for 50 cents on the dollar like Orman is trying to scare you into believing. The truth is for the very few foreclosure sales that are on the market, most will sell for a minor discount, nowhere near 50% of a homes normal market value. 

Banks have actually started fixing up and putting updates into their foreclosed inventory before putting them back on the market because they realize they will get a return on investment in this current market. 

The likelihood of a foreclosed home selling for 50 cents on the dollar in your neighborhood is incredibly low. 

Suze doesn't know how home values are determined.

"Do you know what that just did to the property value that you just bought? Your property now is worth $150,000. Because when somebody goes to check the latest comp, they're going to see, 'Oh, well the house next door sold for $150,000. The house down the block just like yours sold for $150,000."

I actually had to re-read this part of her post several times to make sure I was reading it correctly. Because it shows such an appalling lack of understanding of how home values work, for someone who is giving advice on whether or not to purchase a home. 

She paints a picture of you buying a home for $300,000, then shortly thereafter the home next door gets foreclosed and sells for $150,000.  We already addressed how unlikely this scenario is, but let's play "worst case scenario" and play along with Orman's alternative universe.  Now she's got you worried that this foreclosed sale for $150,000 is going to be the neighborhood "comp" and all homes like it are suddenly worth $150,000. 

"Comp" refers to a comparable sale. Home A is non-distressed, in great shape, well cared for and nicely updated. Home B is distressed, uncared for, and in such rough shape that it just supposedly sold for half of what other homes in the neighborhood are worth. 

Is there anything comparable about those 2 homes? The answer is no. And a real estate appraiser will recognize it and will likely not give it enough weight to even affect the outcome of an appraisal. If every neighborhood in America was one distressed sale away from having home values plummet by 50%, no one would want to own a home in the first place. Thankfully, that's not how home values work. 

Suze Orman has amassed tens of millions of dollars in personal wealth. She's so wealthy she bought her own island to retire on. I don't begrudge her for that. Hell, I'd do the same if I had that much money. But it's pretty obvious that Suze has spent so much time accumulating vast amounts of wealth that she's a tad out of touch with how home values work in everyday America. 

Suze doesn't know this is NOTHING like 2008.

"There goes the price of real estate. And that's exactly what happened in 2007, 2008."

That is literally NOT what happened in 2007 and 2008. It is nothing like what happened in 2007 and 2008. In 2007 and 2008 we had a complete collapse of our entire economy and financial markets, lead by the real estate market collapse.

Today, the real estate market is one of the sectors of our economy bringing stability and leading the recovery. Here's an article I wrote a few months ago titled This is not 2008 - Here's why

If you don't care to read the entire article, here's 5 reasons why this is nothing like 2008:
1. Mortgage standards are not like 2008. During the housing bubble, it was difficult NOT to get a mortgage. Today, it is a lot tougher to qualify.

2. Home values are not soaring out of control like they did leading up to 2008.

3. We don't have a surplus of homes for sale like before 2008. Actually, we don't have enough homes for sale. 

4. Homes became too expensive to buy leading up to 2008. 14 years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then.

5. Homeowners are sitting on way more equity than they were in 2008.


Bottom line

 If you're ready to buy a home and comfortable moving forward now, then it's a great time to buy a home. But if you feel uneasy about it and want to wait things out, you absolutely should. Listen to yourself and your own instincts, not Suze Orman. 

While she may be a financial planner by trade, these days she's as much a media company as she is a financial planner. She doesn't make her money being a financial planner as much as she does selling books, subscriptions, and seminars. 

And unfortunately in today's world, fear sells. 

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