Ok so I’m not a realtor or an expert on mortgages. But taking a common sense approach to analyzing the market, free from prejudices and more importantly without an immediate vested interest in an improved market, has its advantages.
I first became seriously interested in the market and wary of it during a trip to New England nearly 10 years ago. I was encouraged by many to spend big on real estate. These advisors were heavily mortgaged but making a killing off of property they claimed “always went up”. One bragged his property values had more than doubled in ten years.
Fortunately for me, I didn’t take the plunge and mortgage my home for a second or third one. I reasoned that salaries hadn’t doubled, nor had rents and something was going to have to give. Noting bricklayers in New Orleans buying $400,000 houses only reinforced this notion. In 2006, Sir Newton won the day.
So, post real estate crash, I’d like to take the same approach to analyzing the current “recovering” real estate market. Experts in the field, mostly realtors seeking customers and homeowners swimming in debt, point to prices increasing across the nation and shortages of homes in some areas. Detractors look to a coming surge in foreclosed properties hitting the market. Who’s right?
The situation I see is this. Thanks to decades of low interest rates and government backed loans for qualified and let’s face it less than qualified folks, the percentage of people who can afford houses actually owning one in the US has been growing for decades. Great news, yes? Great news No. Traditionally, a large percentage of home turnover is from folks trading up. There’s also second home buying using equity. And then there’s mom and dad helping finance the kids first home. The perceived recovery can’t rely on this in the current environment. Too many people lack equity. This is a huge negative. And yes there is a huge inventory of foreclosed homes coming to the market soon. On top of that, banks are making it a lot harder for anyone to qualify. True this would have been a good idea 20 years ago. But it doesn’t help us out at the moment. Want more bad news? The economy still sucks.
Depressed? Ok, so some good news. The market may be stable for now. And prices are more in line with salaries and rents. So a purchase might be in order, if you can afford it. But don’t expect to make a killing off of it anytime soon. Maybe the grand kids will cash in and think what geniuses the old grandparents were. But if you’re looking to make a quick buck off the current market, good luck. I especially like rental property. Prices are even lower for larger complexes and rents aren’t likely to go down. If you can turn a profit early or immediately, go for it. Property values won't be an issue.
So that's my sort of kind of unprejudiced view of the real estate market. I admit some prejudice I see myself buying some of those low priced rentals in the near future.
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