August 1, 2009
Unless you have been stranded on a deserted island somewhere for the past year, you are well aware of the bleak housing market. Foreclosures are at an all time high and CNN recently reported that new construction for residential real estate is the lowest it has been in 27 years. Things definitely look bleak in the real estate market.
Not only does the current real estate market look bleak, but so does the rest of the economy in the United States. Once the real estate market takes a dive, so does everything else. It’s pretty much like a domino effect. The stock market has also taken a hit and more large companies are announcing massive layoffs.
Right now is not the time to sell your real estate holdings. Those of you who have real estate investments who are thinking of getting out now before things get really bad are better off to hold on. Besides, things can’t get much worse than they are right now.
Most financial experts agree that the current outlook for the real estate market is bleak. This doesn’t mean, however, that real estate investing should be ignored. Now may not be a good time to sell, but it is a perfect time to buy.
This is the time to think of a long term investment in the real estate market. A few years ago, people were taking advantage of the real estate boom in areas such as Florida, California and Las Vegas to ‘flip” houses. The practice of flipping houses involved buying the property low waiting for the value to increase and then selling it to make a profit. The practice of flipping took place in areas where new home sales were booming and concentrated mostly on new construction.
Because housing sales have either, at best, remained stable or at worst, fallen, the short term real estate investment options have dried up. No longer is the “Average Joe” able to invest a few thousand dollars and triple his or her own money in a few months. Those days are long past. However, they will return. The question is “when?”
The current outlook of the real estate market, according to all financial experts, is that housing prices are expected to stay as they are for the next several years. It will take some time before the market rebounds,. The market will rebound, however. That is pretty much certain as the real estate market has been rising and falling throughout the past 50 years.
Today, we are gradually becoming a nation of homeowners. Homes were once owned only by the very wealthy or those who could manage to save quite a bit of money in a thrifty manner. Prior to World War II, America was a nation of renters. After the war, the GI Bill helped build some new homes and also created jobs for men who were returning from the war. People were able to purchase modest homes by taking advantage of the GI Bill.
The mortgage rules began to change as well. Where once mortgages were available only for those who could put down at least 50 percent of the price of the home. Homes did not rise and fall in value as they do today and pretty much stayed at a steady level. Banks wanted to make sure that they would be able to recoup their loss if the homeowner defaulted on the loan, so mortgages were only available to a select few and only for about 50 percent of the value of the property.
Things began to change as it became more desirable for people to own homes instead of renting. Gradually, savings and loans began to lower their expectations to make mortgages. During the 1970s, people began to get mortgages with as little as 20 percent down.
Today it is difficult for us to imagine that the United States was not always such a credit dependent society. The use of bank cards such as Mastercard and Visa were not always prevalent in society. While there were some people who purchased things “on credit” most of the nation did not rely on credit to buy things. There were no “credit scores.”
As the Savings and Loans began to fail in the late 1980s, mortgage lenders began to see a market in the home mortgage business. Traditional banks always made their money on business loans and never pursued the mortgage market. Mortgage lenders began popping out of the woodwork by the 1990s and loans were available for just about everyone, no matter how much they wanted to put down or how bad their credit.
A buying spurt began in the late 1980s when mortgage rates began to drop from 17 percent to a mere 12 percent. People soon found that they could afford to buy a home and were out in droves trying to find the perfect house. Home buyers had to act quick during this “seller’s market” as homes were often sold within 24 hours. Real estate investors with money began “flipping” at this time as the demand for housing grew as the interest rates continued to drop.
In the early 1990s, the housing market evened out a bit and it began to be a “buyer’s market.” There were more homes for sale than buyers willing to buy them. This was not a strong buyer’s market, however, and housing prices soon began to rise again as the economy began to pick up and more people began buying homes in the mid 1990s.
The influx of lending made it possible for people to begin to purchase homes with very little money down. Whereas residential real estate was always thought upon as a long term investment for the person who lived in the home, or rented the property to other individuals, it soon began to be thought of as a way to “get rich quick.”
The whole concept of average people who knew little about the market investing in real estate for quick money began in the 1990s as the housing market boomed in certain areas such as Florida, California and Nevada. Homes in these areas were in demand like never before as the economy seemed better than ever. The interest rates were very low and it was possible for anyone to buy a home with little or no money down. It was not long before everyone wanted to get into the lucrative real estate investment game.
Ads began to appear on television as really savvy opportunists began to see a way to make money off of the people who wanted to make money in real estate. Seminars were held and books sold, all telling everyone how they could make a ton of money “flipping” homes.
By the early part of the 21st century, the housing market was booming, particularly in upscale areas offering new construction. Real estate investors were making money by purchasing new construction properties at little money down, waiting until the home was built and then selling it after the closing. In most cases, the investor would not even take possession of the house; he or she would just turn it over to the new buyer at the closing.
In 2005, the market started to decline. The housing market today, for all intent purposes, has crashed. Many investors took a huge hit and many developers went out of business.
Anyone who has observed the real estate market over the past 30 years can see that it has had its ups and downs. Today’s real estate market has reached rock bottom when compared to the past 20 years. However, if you have been watching the market for any period of time, you can easily see that it has always rebounded.
One of the basic human needs is shelter. We all need a place to live. This is not going to change any time soon. Today is the time to buy real estate and hold onto it for a long term investment. Real estate will always be a tangible asset that people will need.
If you have money to invest in the real estate market today, look at it as a long term investment rather than a way to make quick money.
Quick Tip:
Look for a home in an area that is up and coming in growth rather than an older area for the best value in your real estate investment. These are the properties that tend to appreciate in value more than others.
