All economists and our financial markets are betting on this quarter to produce positive GDP. Positive GDP marks the ending of the recession. Unfortunately with low wages and high unemployment the consumer will feel less positive over the next year. Still we are marking an end to the worst recession since the Great Depression and everyone should be pleased with this.
Road to REAL ESTATE RECOVERY
Now let's talk about real estate and recovery; The regional markets that had received the highest historical appreciation rates during 2003 to 2006 also had some of the largest price adjustments over the past 36 months. States that had these incredible high real estate returns, like California and Florida, have also seen the highest incidents of foreclosures. Logic would dictate that these markets will bounce back the fastest, but unfortunately they too will recover slowly as will the rest of the nation. An economic recession takes time to unwind and buyer exuberance usually only occurs once the entire nation is certain that the real estate market can only have one trend, up.
The psychology of man dictates that a deep recession brings about caution for some time to come (probably a few years). The States that had some of the highest swings will once again have the highest appreciation. Still it is best not to hold your breath for this in areas like California and Florida until old wounds heal (likely a few more years). In the meantime, recovery is with us. Recovery means price declines stop and appreciation kicks in. We are already seeing this in the hardest hit areas with homes priced at or around mean home pricing.
The June 2009 numbers just came out for pending home sales. We had the FIFTH STRAIGHT MONTH of pending home sales increases (up 3.6% month to month) and over a 6% increase compared to June 2008. Real estate, like any form of investment, has cyclical patterns that are dependent upon supply and demand. Optimism will once again kick in and sellers, buyers, developers all become happy over time.
Market Bottom
A market turnaround can only occur when the excess inventory is consumed by:
- Institutions (banks, lenders) that can weather a market correction.
- Financially qualified buyers.
- Current property owners who are financially capable of holding property for a longer period of time.
There is a silver lining to our current real estate cycle. Pending home sales indicate the bottom of the real estate cycle in the vast majority of all U.S. regional markets.
Locating Market Bottoms
New markets are already starting to emerge that produce optimal results for investors and homeowners alike. However, not every region moves at the same pace. This is when it is important for any real estate investor or home buyer to investigate their region to find out whether it has already bottomed. The only way to accomplish this is through understanding the regional real estate forecast in your area.
Experienced investors know the importance of measuring market trends and are rarely caught with undesirable properties during a market decline. Unfortunately most average investors and homeowners are completely unaware of how to do this. There really is no reason for this to happen since many resources now exist to help you measure market trends. It is far simpler and less expensive to know a regional market trend since the advent of the internet. Check your area forecast at my web site and see how your area “fairs”.
Managing Real Estate Trends
Investors realize faster returns under any market condition so long as they can learn to manage and calculate the timelines that produce equity and cash flow gains.
The rewards from sound real estate investing are tremendous. Real property has been and will continue to be the single most significant source for creating individual wealth in the United States. Perhaps one of the most important reasons for these results is that most people make their real estate wealth while sleeping. Property holders see incremental returns in value over time with little or no effort. This is what is referred to as appreciation in your asset. Almost every investor knows that this is the most compelling reason to purchase investment property. What is amazing is that the majority of real estate investors fail to calculate their expected returns from appreciation before executing a contract to buy a specific property. Instead, time and time again, buyers purchase with an expectation of both short term and long term appreciation without any sound technical or economical guidance. This in itself is not catastrophic since we all know that given enough of time the property almost always appreciates over the long run. But during an economical real estate slow down many regions may receive years of negligible appreciation and possibly even declines in values. Taking a little extra time to project how much time the appreciation will take and the amount of money you plan to make on every property is the solution. There is no reason for anyone to ever again be caught with unwanted property during a market slow down.
– Ed Ross, Author “Forecasting for Real Estate Wealth”
