I am often asked about the state of the real estate market. Investors are cautious. And, they should be. Since 2006, we have experienced the worst recession since the Great Depression of the 1930's.
After 5 years of turbulance, turmoil, and uncertainty, what is the state of the Real Estate Market today?
Here are some interesting facts:
- Interest rates continue to be at historical lows. In January, 2012, the 30 year fixed rate mortgage dipped below 4%. Unbelievable. While interest rates have fluctuated since, you can still find rates below 4%. Interest rates are now so low that, even with a quarter point change, the change monthly payment is fairly insignificant.
- Jobs continue to be lost in some areas, and gained in others. According to the Bureau of Labor Statistics, the national unemployment level has steadily declined each month since June, 2010. This means the employment rate and, therefore, the number who are gainfully employed, is steadily improving. Recently, I heard local experts and economists report on the state of the economy for the Charlotte, NC, MSA. In 2011, more than 55,000 jobs were created.
- New Home Builders are finding a shortage of available lots. From 2003 to 2008, there was a voracious apetite for residential subdivisions. When the market realized that there was a tremendous oversupply, building slowed from more than 2 million new home starts per year to less than 500,000 in 2010. And, development of new subdivisions all but stopped in 2009. For almost 4 years, there have been almost no new subdivisions created. So, builders and opportunists focused on deeply discounted subdivisions that had been foreclosed and owned by lenders. But, these are "drying up". And, the lots are being built and absorbed. It won't be long before builders will need developers to create new lots. And, this will drive up land prices. But, that is another story.
- In the last 2 weeks, I have been beat out on 12 different deals. I'm not talking about deals that have been flat out rejected by Sellers (due to our program of offering extremely low prices, our offers to purchase are often rejected). I'm talking about BEAT OUT BY OTHER BUYERS. In one case, the seller received 5 offers (mostly due to our offering an extremely low price, but this, too, is another story). This is the most relevant indicator that capital is coming back into the market. Capital exiting the market is what drove real estate into disfavor and made the "bottom fall out". With capital coming back into the market, prices stabilize and, ultimately, increase.
- In certain areas, building is rampant. Recently, I spent a few hours touring portions of the Charlotte MSA with an investor. I was amazed at the development that was taking place and the buildings that are being constructed. In one subdivision, homes are selling at 5 per month, similar to the "good times". If you were to drive through this area, you would think you were back in 2003/2004. It's like the recession did not even touch this area.
Back to the question. Where is the Real Estate market today? My opinion is that the market in many metropolitan areas (and the Carolinas in particular) has stabilized and, in some cases, is thriving.
How can this help you? Here are a few simple guidelines:
- Buy below replacement cost (yes, there are still a few properties that can be purchased at a discount. You just have to look and be patient).
- Buy in areas where the economy is improving or thriving.
- Buy based on today's fundamentals, not based on "pie in the sky".
- Have a prudent investment plan and exit strategy.
Here's to your successful Real Estate investing!!
DISCLAIMER: Please keep in mind that my opinions are just that...opinions. They are based not only on information received from trade organizations and the media, but also on "boots on the ground", current day to day experiences. Also, please remember that Real Estate is very much a local market. While we are bombarded by the national news, national events and averages may or may not have relevance to what is going on in your town nor where you invest. Be aware of what is happening in the areas around your investments.
