subject: Home Prices will Stabilize Where Jobs are Stable by Kathy Fetke [print this page] Home Prices will Stabilize Where Jobs are Stable by Kathy Fetke
Not everything on sale is automatically a good deal.
Sometimes a fire sale is simply an attempt to get rid of something no one wants.
To make a smart real estate investment, you need to be able to sell the property for more than you paid or earn income from it while you own it - and preferably both. Unfortunately, many buyers are doing the opposite today - gobbling up properties that don't provide positive cash flow now or a profit when they sell.
Investors accounted for 23% of real estate purchases in January, up from 17% last year at this time. All-cash transactions rose to 32%, the highest level since the National Association of Realtors started tracking it. While some of these investors are picking up steals of a lifetime, others may find they are the ones who got taken.
Domestic and international real estate investors are touring high-foreclosure areas literally by the busload.
Many of these buyers believe they are getting a great deal if the price is 50% below what it was at the peak. This makes as much sense as rushing to buy rugs or furniture from a store that claims it's having a "50% going out of business sale." Often the prices actually reflect current market value, and are simply 50% lower than an inflated, non-existent value.
In the former bubble markets of Arizona, Nevada, California and Florida, home prices doubled during the mid-2000's. This dramatic increase did not happen because salaries doubled, but rather because banks offered half the payment through 1% teaser rates and interest-only loans. When it came time to pay the piper, borrowers realized they bought a pipe-dream.
People who believe values will return to those levels are still buying that unrealistic dream. Prices will stay exactly where they are until salaries increase, and is anyone predicting salary increases in the former bubble markets? Not until unemployment gets under control, and that isn't happening quite yet.
Nevada's unemployment rate continues to register the highest in the country at 14.5%, California comes in 2nd at 12.5% and Florida in 3rd at 12%. These are states that were thriving with construction jobs during the boom. Those jobs are now gone and probably not coming back anytime soon. Michigan was never a bubble market, but job losses in that state are still in the double digits.
February's US jobs report was the best in three years - 8.9% unemployment.
The private sector created 192,000 new jobs. The states that are creating these jobs, like Texas, are the best places for investors to buy rental property.
Areas where the average worker can afford the average home price have the greatest likelihood that tenants will pay their rent, homeowners will pay their mortgages, and prices will increase steadily with inflation. As investors, that's music to our ears!
