The two large questions on the minds of real estate investors are: when will the economy recover? and when is a good time to reinvest in the housing market? We think the economy has reached the point where aggressive investors can find good opportunities in selected housing markets. Although the national economy will just be creeping along for another couple of years and home prices will be weak, some local markets have enough long-term potential to warrant taking investment chances.
The latest bad news for the housing market is that the fall in home prices in the last four quarters was worse than expected, showing weak demand for housing and competition for real estate rentals from vacant properties. Overall, home prices fell almost 7 percent, whereas the fall for the four quarters of 2009 was 5 percent. Although the biggest drops were in Florida, California and other markets out West, the effect was felt across the country. The good news is that rental vacancy rates seem to have stabilized most everywhere, and are falling in large markets like Atlanta, Chicago and Miami. On balance, we seem to be looking at a housing situation where the downside in some local markets has become quite small.
Even though the economy grew at a 3 percent rate in the first quarter, the job situation has not improved very much, indicating a much longer recovery period. Over a million jobs were lost in the last 12 months, many in construction and manufacturing. We expect job gains during the next year, but in lower-paying areas such as retail trade and health care. And the number of temporary workers will continue to grow.
Another reason to expect a sluggish recovery is that consumer credit continues to fall. Credit has its own boom and bust cycles and during previous recessions fell by 15 percent before consumers were ready to borrow and spend again. So far, during this recession, its fallen only 8 percent…
We fully expect better economic performance during the next six months, and improvements in the housing situation. The slow pace of recovery will deter more conservative real estate investors, but those with a higher tolerance for risk should be scouting right now.