Bubble or Standoff?
I wrote the following regarding the bubble-babble in 2004: I think you’ll find that in 2007 despite the fact that we are in a buyer’s market, my assumptions were correct.
The Bubble 2004
The general consensus today is that there is a real estate bubble…ok…where? I just don’t see this bubble. Values in the mid-west have historically increased around 6% a year. I assume 5% to be safe. Are we seeing a devaluation in real estate? Everywhere I look I see new homes going up; I see recent college grads who don’t want to live at home with their parents, I see baby boomers who want a 3 bedroom ranch instead of their 4 bedroom colonial, I see Section 8 tenants who can’t afford a home, I see transient job markets where people move in and out of, I see investors who would like to retire before they turn 100 years old. The long and the short of what I see is, I see people needing a place to live. What market do I focus in? The first time home buyer, and the new markets.
“If the specter of a real estate crash keeps you up at night, here’s something to dream about: The biggest construction boom in U.S. history will unfold between now and 2030. According to a new report from the Brookings Institution, nearly half of the residential and commercial structures needed by 2030 — about 100 billion square feet — have yet to be built. That estimate includes 60 million new housing units.”
The Bubble 2007
Today supposedly the bubble has burst and EVERYONE is in foreclosure. While I do see a large increase in the number of foreclosures, I believe that my comments from years ago have proven correct! The bubble did not burst.
Stock Market “bubbles” do burst, because the asset is liquid and can be offloaded in seconds. Real Estate “Bubbles” do not burst. When real estate is overvalued, it takes months and even years to correct. Our current market is not a burst “Bubble,” rather this is slowly deflated a bit. This is somewhat normal. Yes, I said it, these times are back to normal. Homes are taking months to sell and there are huge levels of inventory sitting on the market.
But what has happened in my opinion, is a STANDOFF. Seller’s are NOT giving units away; buyers are still waiting, and what we have is a STANDOFF. Prices on High End real estate have fallen. Thankfully, if you work with me, you’ve stayed at the low end market which still has a pulse! Yes even in 2007 we are buying and selling homes for profit! Market times are longer for sure, but the model still works. More importantly, Investors who are buying and holding (which I highly recommend) are getting great deals.
The impact of the market has also caused rents to increase. In 2004 our rents were approximately 15% lower than 2007! So the smart investors are cash flowing better today than ever before. All the Bubble-Babble has scared off the rookies and hacks, and what you are left with is a market primed for savy investors to scoop up the best deals.
Buy TODAY!!! 2007 is a great year to buy undervalued Real Estate. In my estimation 2008 will be slightly stonger for resale and by 2009 we will have a tempered market that has “recovered” by the opinions of the experts (who own no Investment Real Estate).
Not Convinced?
In case you are not convinced, think about this. Every year lumber goes up in price, plumbers get raises, carpenters get raises, land becomes more scarce, etc. Why is it that people believe there is a bubble? Because they remember the 4th quarter of 1999 and the first quarter of 2000 when the stock market had been going gangbusters and then…it collapsed. After 9/11 Did people pull their money out of the stock market? Yep…to the point where the market was shut down and the Dow was around 7,500. People lost money. Did everyone fire sale their homes to get their equity out and move somewhere else? No. The market slowed, the whole nation slowed, the whole world slowed. But I was buying homes!
The best thing about foreclosed real estate is the fact that whether prices are up or down, we are still buying homes at 30 - 60% discounts. If the retail market tanks 4%, everyone freaks out. No need to freak out with my program. There is more than enough equity in these units to recover from small set backs. In addition, my investors DO NOT SOLELY buy and sell homes. My program is largely focused on creating wealth over the long run through holding and renting foreclosures. With this strategy, my investors are now getting more rent and cash flowing better.
When rates go up, prices hold and begin to fall eventually. This is exactly what happened in 2006 and the beginning of 2007. In 2008 rates are dropping, all the while prices are dropping. This is a fantastic time to buy real estate. Rates are lower, rents are higher and prices are still falling. Huh? I know it sounds crazy, but that’s what is happening. Rates will fall for in 2008 and prices will fall as well. By 2009 we will see the end of the price drop and the market will likely re-stabalize at lower prices. 5 - 10%, not 50% like people are guessing. There will not be a crash. There will be an adjustment. 2008 will be a year filled with incredible opportunities, keep watching your emails for the next great deal.