Has the real estate bubble finally burst? Are we going to see another market crash? What will interest rates do over the next year and where is our market headed?
These are the questions everyone is asking and not just people here on the Outer Banks. The real estate market continues to make national headlines everyday in all the major media and for good reason. Real estate has been one of the driving forces of our economy for the last 5 years. So what does the future hold? Is there such a thing as a bubble? Let’s take a look.
The real estate market is very similar to other markets in that its values are primarily affected by factors such as inflation, interest rates, supply, demand, consumer confidence and media hype. The real estate market has been red hot simply because money has been extremely cheap and easy to get. People realized very quickly that they could afford twice as much home for the same monthly payment because they could borrow money cheaper and in some cases as much as 50% less than their current interest rate. This created a buying frenzy which increased the demand for new housing as well as providing fuel for the remodeling boom. This demand has driven land and housing costs as well as material and labor costs to record levels all across the country. The fed in an attempt to slow the economy decided to put on the brakes by raising interest rates and they will continue to do so until housing and energy costs start to decline. The strategy is definitely working as most indicators are that the market here is off by almost 50% compared to last year and similar reports are coming in from other areas across the country.
Does this mean that the bubble has burst? No. We are just entering a new cycle were everyone is selling and when you flood any market with product conditions and prices change rapidly. The market is simply adjusting to a more moderate rate of appreciation. However this is a good time to buy if you practice the investment strategy rule of opposites or contra cycle buying that tells us to look at what everyone else is doing and do the exact opposite. In other words the time to buy is when everyone is selling and the time to sell is when everyone is buying. This may sound obvious and simple but just take a look at what the market is doing. Sellers are flooding the market at a rate of almost four to one when compared to closed sales. The best deals are always made in the contra cycle mode.
Is there still opportunity to make money in real estate? Absolutely! More people have become wealthy through real estate than any other investment vehicle in our country.
Real estate has always been a sound investment and if you know how to buy property and choose the right kind of financing to achieve your goals the opportunities are unlimited. Structuring the deals with the proper financing is really the key to making money in real estate regardless of the interest rates. Let’s say you buy an income producing property. You really can’t make a bad purchase only a bad financing decision. No matter what you pay for your property today it will be worth more down the road. When you take in consideration a five percent appreciation rate and the fact that rental income will pay your mortgage you are already ahead even before you factor in depreciation. The key is to identify your short and long term goals choose the financing vehicle to achieve them.
Where is the market headed? Real estate will remain a very safe and strong investment especially in high demand high growth areas. It is a different market cycle and a different type of investment now than it was even last year but still one of the best you can make. Interest rates will continue to climb over the next 12 to 18 months and the housing markets will continue to cool off. The remodeling market will continue to grow stronger as the price of land will remain very high. New construction will fall off dramatically as homebuilders will most likely stop building spec homes and developers will have too much inventory on the books to warrant any new projects. Commercial development will continue to remain strong especially in the small retail and office sector as developers try to service the needs of all the new communities that have popped up over that past several years. There seems to be a surplus of properties for sale nationwide creating a definite buyers market. Take advantage now and do not get left behind on this one.
Greg Dickerson has gone from zero to millions by investing in real estate. To hear his incredible story check out the hottest real estate investing web site on the internet today!