Thoughts on Investing in Real Estate Today
In today’s market, you hear all kinds of good and bad comments so which do you consider when thinking of investing in real estate today? First, let’s go back to last year and see what happened. Initially, the market was much like the previous year with sellers still holding out some hope that their yesteryear value would still be there. It really took until the last quarter of the year before most have given up the ghost and surrendered. It took nearly five years of falling prices to finally convince people that they would have to market their homes at the current market pricing. When they did, not so amazingly the home sold fairly quickly. In fact, buyers started to really get serious and there was usually more than one buyer offering on a home. In a lot of markets, prices are still falling gradually which is due mostly to the foreclosure and short sale closings. These houses were mostly sold “as is” and were relegated to the lower level of home pricing. Fannie Mae and Freddie Mac were also part of the issue as their predatory method of marketing their homes which often times caused the prices to fall on their own homes.
So what else happened to help the market? One huge incentive was the extremely low financing that has been available for an extended period of time. These rates have made homes more affordable than most thought possible. There is one major bank that is even offering 100% financing! As if they haven’t learned from the fall in real estate. But, get it while you can. Now there are still those that are waiting for the mythical bottom before stepping out into the market but most people that have been waiting have begun to move towards buying. This is why there has been progress, albeit slow progress. So the lowest prices in many years combined with the lowest rates in decades has made this what one instructor coined the “Perfect Storm” in real estate.
Now what is still the biggest negative in the market? The foreclosures and short sales. These will hound the market for many years for a couple of reasons. Mainly, the prolonged weakness in the economy has cost many people their homes. This will not stop anytime soon. It takes years for an economy to rebound from the depths of where we have been. Yes, I did use the past tense. Most economic theories have the economy improving slightly as the indicators strengthen. In a lot of the country, the jobless rates have fallen and there is actually an increase in job creation. This is actually happening from the ground up as people are creating jobs. The government can only go so far to create jobs and it takes years for that to actually happen, so it has to come from the people. When you drive around, corporate America is building, this creates jobs and causes purchasing. The more the people spend the more the economy will improve. Yes, the Federal reserve will start shooting at ghosts known as the rate of inflation when purchasing happens to much but hopefully they will not stop the economy like they did the last time. Getting back to the short sales and foreclosures, we are getting into some really bad advice from some fairly intelligent investment advisors where they are actually telling people that can afford their mortgages to walk away from their homes because they are under water, the value is less than the mortgage. This is causing foreclosures and short sales not by need but by their advice. There is no guaranty a home will be worth what you pay for it any more than stocks. Past history has shown it to be a good investment but it’s not always. You just need to remember that you haven’t lost anything until you sell. The only way to recover what you may believe is lost value is to hold on until the same increase in value that you are hoping will happen again, will happen.
So how do you invest in real estate today? If you haven’t been in the market but want a home buy it now. If you feel you’ve lost some paper value, hang on if you can still afford the mortgage. By holding on you’re giving the market a chance to stabilize, if you don’t you’re just adding to the problem Don’t miss the “Perfect Storm”
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