Are we there yet? Have we reached the bottom of the market?
Dave Kansas for the WSJ.com writes: Is It Time to Get Back Into Real Estate?
What I find especially interesting is where most of my risk-taking friends are headed. It isn’t the stock market; in fact, the only folks I know who have waded back into the stock market are the gunslinger types who never really left it.
Instead, they seem to be heading for real estate. At first I found this puzzling, given the brutal battering real estate has taken. But that’s the point: An increasing number of my friends see this as the perfect opportunity to find something at a bargain-basement price.
The people doing this are employed, feel confident that they’re not going to lose their jobs, and believe that while housing prices may fall a bit more the bottom is not too far away. Moreover, financing remains relatively cheap and, according to one lawyer I know in house-hunting mode, banks aren’t as tight with mortgage lending as headlines indicate.
As I wrote a couple of months ago, it’s always dangerous to hypothesize a global trend based on the all-too-limited view from your own backyard. But it’s also sometimes an insightful way to get a jump on what’s coming. And for me, what’s most intriguing is that, for now, most of this risk talk is prospective. There’s no sense of rushing, no desire to “stretch” too far in making a purchase. It’s like these people are permitting themselves to dream a little bit and get closer to pulling the trigger. But they want to be doubly sure before making a move.
What’s more, all of these people have a similar, cautious, mind-set. They don’t believe real estate will rebound or make a great investment. But they also don’t think real estate will lose a lot of value. Instead, they are focused on real estate as something they can use: a solid place to live or play that should also be, at worst, an OK investment.
Start Thinking About Investing
I can’t say that I agree with certainty that now is the best time to invest in real estate. However, I would definitely start to think about it.
Why start thinking about investing in real estate?
- In some areas prices have fallen 30% or more from peak market values. This is a huge drop and brings prices more in line with historical averages and growth rates. We are closer to the bottom.
- The foreclosure epidemic has not quelled. In fact by many standards there is still a wave of foreclosures coming. We are probably not at the bottom yet.
- If unemployment continues to rise, more foreclosures could occur. Unemployment is likely to cause higher vacancies in multi-family properties. The bottom could be a ways away.
- Credit markets are still stuck. Financing for buyers is difficult to obtain without a significant down-payment. Probably not the bottom.
- Banks continue to be closed by the FDIC. Meredith Whitney warned that 300 banks may fail before the end of the financial crisis.
Invest Now If…
- Invest now if, you do not need appreciation to achieve an acceptable return on your investment.
- Invest now if, you have enough liquidity (cash) to cover potential vacancies or repairs after acquiring your property.
- Invest now if, you have included 10% rent decreases and at least 10% vacancy factor in the near term.
What do you think? Are we at the bottom?