Real estate has burned many people. The prudent investor knows how to see value. It’s been 5 years since the crash in the financial markets. Without a doubt it was heavily tied to the speculative activities going on in real estate. Those who got in early, made millions, those who were last, got hurt really bad. Many people ask if it’s a good time to buy a house. The answer is a resounding yes! We specifically follow the southern California makets and owe much thanks to Irvine Housing Blog, for contributing valuable information about our specific market. After analysis of the current market conditions there are a few factors that contribute to such a positive outlook.
Inventory Is Getting Smaller
Less and less homes are on the open market. The amount of foreclosures on the market is also getting smaller. There has been suspicion that not all foreclosures are listed and the bank have in their possession these properties. So the figures are said to be somewhat invalid. However, after personally speaking to a few development projects, they have cleared much of their unsold inventory as well. Of course this is not a valid research, but the talk of the town, is houses are being sold. There have been a few builders that have been bold enough to step up and start new projects as well. It’s good to see that things are moving along at a steady pace. Not as fast as we would like, but there is still life in the real estate market despite the 2008 bloodbath.
Banks Are More liquid
The transactions in real estate will be reflected in the banking sector as most bank hold a huge stock of foreclosures in their portfolio. Now that inventory is moving, so is the cash flow. Most people don’t understand that the banks never ran out of money. That money was in grid lock, in the form of real estate debt holdings. Thus they could not circulate or lend money to the public. Now that things are moving along, despite higher tax rates you can expect lower interest in borrowing money. The nature of currency and it’s representation of circulating debt requires that it stay in a state of liquidity for the economy to sustain itself.
Prices are “Normal”
What exactly is “normal”? Over the last few hundred years, the average appreciation of real estate value is 6%. So over the course of long term investing, that is the return in value you would accumulate. During that period of time there are booms and busts. The best time to buy with out losing equity in the short term, is to buy at or below that 6% level. This is what is call “Mean Revision” or what could be explained as a return to what is typical in the long term. Those looking to buy a home, should buy now. Real estate should never be speculated on. It is the most illiquid asset, and a holding period of more than 10 years should be considered to get decent returns.