Question from Scott: What is the reason behind the slow down and when will real estate be a good investment again?
Answer from Jeanette Joy Fisher
Real estate markets always go up and down. The market slowed because of negative talk and investors pulling out, rising interest rates, mortgage lenders tightening qualifications, and the amount of houses for sale became even with the number of buyers. A larger inventory of houses was fueled by sellers who can't keep up with their rising payments on easy refinancing.
For many reasons, the real estate market soared. Here are three:
1. Low interest and easy loans. What many people don't realize is that extreme mortgage programs made it too easy for home buyers. I don't think we will ever see interest rates so low again. Today, lenders offer 50 year payment plans to make homes affordable.
2. Housing need and desire. People always need housing. Instead of renting, people want the American dream of home ownership. Besides making money from appreciation, home owners get to decorate their homes the way they want. Home improvement catapulted to new heights over the past five years. Even if home owners don't get the appreciation, they get tax advantages and the right to make changes. The right to fix up a home is a powerful motivator.
3. People saw real estate investors making money and they wanted some of the same. More investors purchased houses than ever before. The stiff competition drove prices up.
When will real estate be a good investment again?
David Lereah, the National Association of Realtors® chief economist, said "We've never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy in growing and interest rates are favorable. Psychological factors are causing some buyers to remain on the sidelines, waiting for prices to stabilize or for more favorable news about the market and the economy. Contributing to this hesitancy is a lot of negative news stories, but in the end we believe that underlying market fundamentals will prevail."
Real estate is always a good investment when you buy right. Because of all the negativity about the "real estate bubble," too many houses on the market, and a buyer's market, investors are pulling back and looking for other ways to make money. This means less competition for serious real estate investors.
People continue to get into financial trouble and need to sell their homes. Just because they can't make a fortune in appreciation doesn't mean that they won't lose their jobs, get divorced, get transferred, or get in over their heads in debt.
Investors will have an easier time picking up these bargain houses because there won't be a horde of other investors knocking on the seller's door.
One segment that seems to hold strong in this "normalization" of housing prices is the second or vacation home market. Baby boomers have the money to buy a second home. They want the fun experience and don't care about appreciation as much as they care about owning a vacation dream home.
Short sales, REO foreclosures, second homes, and fixers will still make money for seasoned or educated real estate investors. They key is to buy low and sell at market value or to hold for future appreciation with tenants paying for the property.
Learn how to fix houses with the interior design psychology advantage: Fix and Flip Houses or increase your rental income.
Copyright © 2006 Jeanette J. Fisher