Everyone is awaiting the miracle signal of a housing bottom. False media-hyped-market-predictions are certain to play an important role in each of our lives. Listed below are a few of the recent indicators that present opportunities for newscasters to call a market improvement or decline.
- May annualized sales pace of home resales expected by NAR are 4.8 million, down 33% from our 2005 peak.
- Annualized new home sales expected for 2009 are 360,000, down 72% from our 2005 peak.
- Depending on your location, average mean home prices are down by 5% to 38% from the 2005/2006 peaks. May 2008 to May 2009 has the worst statistic with a decline of 14.9% on average.
- Commerce Department reported a sales drop of 0.6 percent in new home sales in May.
- Sales of existing home sales rose by 2.4 % from April to May 2009. This represents the third monthly increase this year.
- The number of unsold homes inventory fell 3.5% in May. This means there is a 9.6 month supply of property at the current sales pace. Normal market is 6 months or fewer, however the 3.5% improvement shows signs of market turnaround.
- The worst hit markets are showing inventory improvements. For instance, California has market supply of inventory for average priced homes at a 6 month level. These levels signify a market bottom.
Enough of statistics, the numbers confuse the best economists, let alone you. The bottom line is that real estate has market cycles. What goes up, has its time to go down, and then to stabilize. For those of you who enjoy analogies, we are in the 9th inning of this market downturn. Our next game is market stabilization (usually a 3 year time period). This means prices are somewhat flat while demand and supply equalize.
Most buyers/investors prefer to only be in a market that is on the move upward. Those of you who have read any of my books know that most of the United States millionaires made their fortune from homeownership. These individuals were more likely to buy real estate during a declining or flat market. That way they were able to own property during the entire up market cycle (typically 5-7 years). Reaping the benefits of ALL the appreciation during a market cycle creates the greatest wealth.
My advice is for you to not worry about who is calling a market bottom and instead start considering the long term benefits of owning real estate.
My Prediction:
- Real estate decline will moderate this year. Prices will start to improve at marginal rates meeting or beating inflation during 2010 to 2012.
- Job creation is the primary indicator to follow. If you see unemployment claims start to decrease and various industry sector improvements, real estate values will start to increase in your geography.
- Inflation is good and bad for real estate. Properties are a hedge against inflation (i.e. if inflation goes up so to property values). Of course too much inflation means higher lending rates and therefore slows the buying of real estate. Yes, your property value still improves during inflationary periods, but selling becomes difficult. The only true killer to real estate is deflation and stagflation. Both of which we have been told by 90% of all economist are not an issue over the next several years.
Those of you who are owners of real estate, hang tight, your day will come. Those who are sitting on the sidelines, waiting for euphoria, stop waiting and jump in. Enjoy the next up cycle. Real estate is a long term asset meant to hold for an extended period of time. Investing in your future today is certain to give you future reward.
– Ed Ross, Author “Forecasting for Real Estate Wealth”
