The Cyclic Nature of Real Estate

This is the first post in a series that looks at the current and past real estate market cycles.

The current cycle is starting to look somewhat like a 12 step program:

Step 1-Awareness of the subprime problem in late 2006

Step 2-Credit markets froze in July of 2007, which forced the Federal Reserve to step in.

Step 3-Losses start to hit at Citibank, Bank of America, Merrill Lynch and many others.

Step 4-Yet to come, but could be worst of it, accentuated by job losses, lower retail sales and housing foreclosures.

Step 5-12 Recovery?

Steps 4 and 5-12 are based on some speculation, but I think these might be close to the mark, at least at a national level. Keep in mind that local real estate markets will always behave somewhat differently depending on their demographics, local economies, availability and affordability of homes, just to name a few important factors.

In looking back at this last cycle it’s apparent that “easy” money, questionable loan practices, a friendly interest rate environment, little oversight and finally greed were the main culprits. This set of ingredients helped fuel the feeding frenzy for housing, not just by folks who should not have been buying from an affordability perspective, but also the many investors who took advantage of these circumstances in order to “flip” properties.

What we need to remember is that real estate is a cyclical industry and in hindsight I think we should have viewed the “flipping” craze that came at warp speed as a sign of the market top. The amount of zero down, no doc loans might have been a sign as well! Before my entry into real estate I had a 15 year career in the stock market arena, and I learned that you never try to time the market and that many businesses and industries are cyclical. Because real estate is not a liquid asset you won’t see the day to day gyrations of the stock market, but you will experience the cyclic nature if you own your home long enough.

So if you are in it for the long haul and are looking to buy your family’s “home” this could turn out to be the optimum time to buy in the coming months. We only see the recovery as we look back in hindsight, but keep in mind that, as a buyer, you have the following factors in your court:

• Historically low interest rates.

• Discounted housing prices, steep discounts in some areas.

• Inventories are at a 10.5 month supply level, which is the highest since 1999!

• Sellers are more open to negotiation if you are the only one at the table with them.

Remember that when things pick up there will be a whole lot of buyers jumping in with you. At the very least, make sure your financial house is in order and that you are talking to both a mortgage and real estate professional to help you make the right decision for your circumstances.

This entry was posted on 26. October 2007 at 07:56 and is filed under Seller Information, Buyer Information, Housing Information/Stats, Blogroll. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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