It is amusing to me to hear the variety of opinions on the economy. It’s funny how “experts” seem to emerge onto the scene while people grope for answers that would, hopefully, reveal a ray of hope. Nonetheless, our economy will do what it will do regardless of what the pundits predict.
Earlier this year many housing markets across the country saw a 60% decline in retail values before the summer. Then the typical occurred. The 2nd and 3rd quarters enjoyed a slight gain in some markets while in others at least a slowdown in falling prices. Now some realtors are so bold as to predict a slow steady rise in home values. Yes, they will have us believe that it will be smooth sailing in the housing market from here on in.
Let’s examine this line of thought. Better yet, we will look at the facts and see whether or not these guys are really in touch with reality. Most of us have heard of the principle of “supply and demand.” It’s really very simple. Price is predicated upon the demand for a product balanced by its availability. Back in spring 2007 potential buyers began to hold back after observing a winter where over-inflated home prices were no longer inflating. When the seasonal market opened in the 2nd quarter buyers were now reluctant to pay prices without regard for the usual cautionary considerations like before. It was a bit of a sobering time for many. Since then deflation has been the trend.
The usual time to move for most families is during summer break. The kids are out of school, and the transition becomes much easier. So when people purchase homes during this time, it’s no surprise that the prices rise, even if it’s only minimal.
Recall the federal mandate to banks temporarily holding up the flow of foreclosures hitting the market. This occurred nationwide during this time of greater demand. Where was the supply now? With a sizeable percentage of all listings on the market held back (foreclosures), the falling values across the board would naturally slow if not reverse slightly. And that is exactly what the market experienced. The supply was lower while the demand was higher.
So what exactly does this mean for the future? Well, once school rolled around, September brought about several foreclosures. Even though things looked great just one month prior, the supply started growing and the demand was falling short. Right now you will find a healthy supply of foreclosures that haven’t even been processed. So you can most likely see much of the same until next spring.
Another thing to understand is that many of these foreclosures are considered “A paper” loans. Those who have larger incomes realize what is happening, and decide to get rid of their homes and relieving a monumental piece of debt. However, two years from now they will be able to purchase the same home for much less and end up making out. You can see that this makes complete sense.
In the end, if you know when to make a real estate investment, and when to be cash homes buyers, you can make all kinds of money in this industry. Sure you can listen to the so called “experts,” but you may lose your hat in the process. Just keep the “supply and demand” scenario in mind and you’ll be able to be successful.
|
|