Real Estate As An Investment? Why You May Want To Consider A "hold" Pattern For A Few More Years

But everyones telling me its time to buy

But everyones telling me its time to buy. Lets strip away all the noise that is abundant regarding finances and investing, and look at the landscape from a basic investment model that simply exercises common sense. To me, this means to view things from what I learned (by my mistakes), review the lessons that Ive been taught, and finally, to see what lessons History can teach us (most roads have been traveled before to similar degrees). To form a hypothesis on the state of the U.S. economy and perhaps your overall investment strategies, the three key areas above can assist greatly in a successful investment approach. However, if you allow your thoughts to get shaped by outside influences (hello CNBC, media and politicians), then the obvious points that I will discuss below can simply be disregarded because multiple experts have just placed a new statistic (which can be shaped) into your mind. I believe that a basic, common sense approach to investment will allow anyone to clearly discern what could very well be the writing on the wall for any market.

To be clear, no one can be certain of any event in the future except of course death and taxes. Regarding the U.S. economy however, you can accurately predict events that could possibly occur with a 90% certainty with Predictive Modeling Analytics. I wont go into the finer points of this model, however, to simply take the three key points mentioned above, lets take a quick review of events, history and lifes lessons to see if we can formulate a correct (and perhaps profitable view) of the current Real Estate environment.

For starters, most of us were taught the value of savings. We all understood this wise action even as children. I believe most of us were taught by our parents the value of simply saving for a rainy day. Sadly, and probably at no surprise to anyone, most people seemingly forgot this lesson during the Real Estate boom and subsequent bust. America has been the leader in consumption basically since the 1920s, and this wise lesson of savings that was seemingly ignored by many doesnt begin and end with the individual household.its in the fabric of our government. This lack of savings FACT has impacted the housing market greatly (foreclosures/short sales), and will continue to do so regardless of any short-term government intervention.

I also learned at a very young age that I worked hard for my earnings, and I didnt want to risk it away with foolish investments. This personal view was of course reiterated numerous times with my own foolish investments (hello dot.com bubble). My issue with todays Real Estate market and this learned lesson is that its very disturbing to see the numerous experts and political figures trumpet out encouraging buy signals per se to the masses, when in reality, absolutely none of todays cheerleaders of the economy correctly foresaw any of the massive corrections that are before us now. In the simplest terms.if you are seeking advice about where we go from here, look to the actual experts who saw many of these conditions forming; Nouriel Roubini, Martin Weiss, Peter Schiff, David and Robert Wiedemer. No, most people wont recognize these names, but they will listen to the politician, the Money magazine article, or the regular on CNBC tell them why now is the time to buy.

So lets breakdown Real Estate as a current investment from a common sense standpoint. Many seem to be certain that now is a great time to buy real estate, yet what does history tell us? History tells us that no bubble has ever burst and quickly corrected itself to its former glory in a matter of a few years (if at all). Remember the Dot.com bust the NASDAQ peeked at 5,132, and corrected all the way down to 1,139. This was 10 years ago, and as of this writing, we stand today at a NASDAQ of 2,284 points. If you remember history, you will remember all the experts telling investors why each move lower was now the time to buy. Hundreds of millions of dollars were lost with this poor advice. The time to buy actually did emerge when everyone was convinced that you would never make another dime in any technology stock again. That was when a true bottom was in effect. Now, where are we with real estate in relation to the Dot.com bubble/bust a very comparable model to measure due to the unrealistic euphoria of both markets? Well, many are convinced that with this move lower in home values that we are at a bottom in real estate..absolutely no one is saying you will never make a dime in real estate again. Everyone is convinced that you can make money now in real estatehistory tells me that this certainly isnt indicative of a bottom. In fact, ask the many buyers of short sale properties one and two years ago how they are doing in Florida, many are already upside down in value.

Lets look at one simple fact that I believe is the biggest deterrent to a real estate recovery for many years. Forget about what everyone else is trying to sell regarding positive real estate numbers, and just think about the rest of this paragraph. This is a fact.the lending avenues that allowed a stated income earner to purchase a 500k home do not exist any longer, and will not emerge anytime soon (perhaps not in our life times). As a result, a huge percentage of possible buyers do not exist on paper any longer. If I wanted to sell a 500k home, I have to hope that perhaps the 5% or so of the population that earns 175k/year will purchase my home in my particular state in my particular neighborhood. This is not a recipe for a recovery by any stretch of the imagination, at least not without a continued move lower in values. Add into this equation the over abundant supply of homes for sale, and we are at a minimum of two years or so for any real bottom.

Moreover, we have seen real estate values rise by hundreds of percents in many areas over the past 10 years. However, the income earning dynamics of individuals/families have remained steady to slightly lower during this same time period. In a normal market, home prices generally only rise when the income increases proportionately. If it rises by other means.then you have a bubble dynamic that enters into the picture. The buyers are simply not there, and unless everyone receives a dramatic raise very soon, the buyers simply wont emerge because they cant emerge at the current home prices. This indicates that whether we like it or not, at the very least, property values can return to pre-boom levels (roughly 2000 2001), at the worst (and my opinion), we retrace in value to 1998 levels (a level that is simply supported by the income per household of most states). Every bubble that busts ultimately corrects generally to a price point where the numbers make sense its really that simple. Governments can artificially inflate numbers in the short term, but the numbers always come home to roost at some point.

When I review the financial landscape and try to formulate an opinion based on lessons that I was taught, personal lessons learned, and history as a guide, I dont feel encouraged about any type of turnaround in Real Estate. The danger flags appear loud and clear, and the unemployment picture wont be helping for quite some time. I may be completely wrong, and we may see a remarkable turnaround in the economy, but from a basic keep it simple stupid approach, Im not buying what others seem to be selling me. When a bubble bursts, you cant simply declare that values have fallen far enough, and things will be getting better. Thats a magic pill that many seem to be swallowing. Unfortunately this Real Estate correction could still have a sizable move lower in values across many parts of the U.S. This bust has to overcome a major income per household dynamic, oversupply, stricter lending guidelines, less credible borrowers with little or no savings, high unemployment, and historical bubble/bust cycles that confirm corrections generally stabilize to the pre-bubble beginning price(s). Moreover, higher interest rates arent an if event, but a when event. Many will offer multiple reasons for recovery, but until these items are satisfied..dont hold your breath. When the items listed above reflect what they do be very cautious with YOUR investment dollars. Stay alert and be prepared, opportunities always arise for those wise individuals who are prepared.

Please note - This article is exploring real estate as an investment not real estate as a primary residence for years to come. If my intent is to purchase long term as a primary residence, then possible opportunities are beginning to exist. As an investment however, be prepared for a bumpy ride for perhaps many years.

by: Michael S. Peart

POST COMMENT

Awfully Low Prices In Florida's Real Estate Market 24 Month Line Rental Contracts - Convenient Approach to Availing Access to Easy Connectivity Colorado Real Estate - The Reasons You Have To Consider Buying Now Luxury Real Estate: 5 Tips to Help Sell Your Luxury Property About The Right Rental Contract Preparing to Invest in Real Estate Is Financing Why My Home Has Not Sold Yet? Selling Property Online: How To Use Craig's List And Other Online Resources Water Purifiers Gift To The Society Multiple Things To Be Noticed Before Investing In Real Estate A St. Albert Remax Agency Is Your Best Bet Best Apartments In Dallas Manila Real Estate Is On The Rise