Real Estate Mentor

Has The Real Estate Market Hit Bottom Yet

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.

Now, traditionally families prefer to move during the school summer break.  How many are content to transfer their family’s residence once school is back in?  Not most.  Hence, there is greater demand during this time and prices are logically driven upwards…….even if only a little.

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.

What, then, does this spell for the near future?  Well, peak season came to an end and September brought a new flood of foreclosures hitting the streets.  The tables had turned once again and now supply grew while demand diminished.  The massive number of foreclosure files yet to be processed is an indication of a steady supply from desperate sellers.  Thus the trend will likely continue in a downward direction at least till next spring.

Furthermore, the profiles of families in default have evolved from the subprime arena to “A paper” loans to families who could, in fact, stay in their homes but will opt out for financially sound reasons.  These are folks who are a bit more sophisticated and may have larger household incomes than the prior group.  Many could still make their payments but choose to get out from under the huge debt that the market has dealt them.  Many families see a quarter million dollar sink hole (or more) and will choose to short sell the home, wait 2 years and buy the same home for much, much less.  Notwithstanding the moral dilemma, many find that it just makes good economic sense.

The foregoing scenario presents some interesting real estate investment opportunities for the cash home buyer.  That’s why we buy homes all over the United States during these market conditions.  While the market trend may not be as favorable for the retail buyer, cash homes buyers in most U.S. markets are making insane profits by skillfully applying the simple principle of “supply and demand.”

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