Believing in the Real Estate Market
This article is about the state of the current real estate market. Ya gotta believe.
By Bob Stovall
When Tug McGraw popularized that phrase in 1973, it was pointed more at his team mates than the loyal Mets fans, but the fans took it to heart. Over the final months of that baseball season, the Mets overtook the leaders in their division and went on to the World Series with the lowest winning percentage of any Series participant to that point. They lost that Series to the Oakland A’s in seven games, but had made a pretty impressive showing of themselves. When you aim high you end up way ahead even if you miss your goal by a bit.
Over the past few months I’ve been hearing a lot about how the real estate market in the US has soured. Gone are the high flying, super-appreciation days of just a short time ago. And left in the wake are investors (more accurately real estate business-persons) who are suffering through the cold, dark winter of a market correction.
This can be devastating. Suddenly someone who was pulling down big bucks just a short time ago is having trouble making the mortgage payments on properties that are just not selling. Ask me how I know.
But the numbers say that the economy is doing just fine. And I believe that. It appears that consumers are rolling with the punches of higher energy costs and are still buying consumer goods. But they are holding off on the large ticket items like houses. So we see, hear and read that housing starts are at their lowest in years.
Housing starts and their ripple effect through the economy are the primary engine of economic growth here in the US. How long will it be before the lack of housing starts works it’s way through to the level of the consumer and propels us into a full scale recession?
Or will the housing market rebound in the nick of time and prevent further erosion in growth? To answer that question, I have to look to the mortgage markets.
We are seeing an unprecedented upward spiral in the number of mortgage loans that are going into default. The primary culprit seems to be the failures in the sub-prime markets. As adjustable rate mortgages adjust upwards, the unfortunate homeowners find themselves unable to pay their loan payments.
And in the No Income, No Assets (NINA) niche, rapidly rising payments are too much for the often inflated income statements of buyers to bear.
There will almost certainly be some sort of adjustment in the way money is lent under these types of programs. But don’t look for any radical changes or tightening that may delay recovery in housing starts. Remember that housing starts are to the economy as gasoline is to your car. If there’s just too little, you may get her to spark and sputter but you won’t get far.
All of this brings me to the statement that “Ya Gotta Believe.” Despite the yammering of the policy wonks, a good or bad economy has very little to do with who is driving the bus of state.
Yeah, they can make conditions more or less favorable, but it still comes down to belief. Do potential homeowners believe they will have the money to make the payments on a new home? Do the banks believe that they will get paid back? Do investors believe that they can plunk down their money on a house and expect a reasonable return?
It’s all a matter of belief. And believing is a choice, just like so many other concepts that we tend to perceive as happening TO us, not BY us. But it is a community choice – large numbers of people have to buy into the state of the economy to influence it’s behavior.
We will likely have a few more months of horror stories in the media that will dampen the natural tendency of the market to bounce back. But it will bounce back as soon as public perception and belief realigns with a growth mentality. Ya just gotta believe!
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Bob Stovall is a real estate investor and the Director of the Association of Real Estate Investment Professionals (http://AREIP.org), an information source for investors and real estate business persons. AREIP.org features a “Building Consumer Confidence” program to help you get more deals. Bob also writes the AREIP Blog (http://AREIP.org/blog/). Article Source: http://EzineArticles.com/?expert=Bob_Stovall |
