Experts vs. Neophytes - Who's Right About the Housing Market?
Every day we get to read another scare story about the real estate market. Some of these articles drive me up the wall because they are written by someone that has never spent a day working in the Real Estate industry, or they are written by a stock broker or some other neophyte.
However, the worst article I have ever read in my entire adult life, and I have spent my entire adult life in the real estate industry, was a recent column in the July 9, 2007, issue of BARRON’S. Before I address this article, let me give you a little background on myself. I have worked exclusively in the real estate industry for more than 35 years. I have owned and sold real estate companies, the most recent a six-office Prudential franchise with 200 REALTORS, 2,000 closed sales per year and almost $300 million in sales volume.
I sold the company at the very peak of the real estate boom because I took my own advice. I used to write a weekly real estate column for a local newspaper in Southwest Florida. In the summer of 2005, I predicted this exact market and, as a result, sold my company to a company that had been courting me for years.
My forecasts have been so accurate over the last three years that the local newspaper is running my articles from 2005 and asked me to write new articles on my view of the real estate market over the next few years. With that said, let me address the article that has my hair (what’s left of it) standing on end.
This article from BARRON’S was sent to me by my father-In-law. He is 88 years old and can’t stand the fact that I have as much wealth as he does. While all his friends over the years were becoming very wealthy men, he held to the notion that real estate was a bad investment and the only way to get rich was in the stock market.
He did all right, but not as well as his friends or my wife and I. During the last 20+ years I have listened to him tell me why I was wrong to believe in real estate. He conveniently tries to forget that, in just the last 10 years, he has made as much or more in real estate than in the stock market.
This article in BARRON'S was so full of rubbish that I Googled the author, to see who this guy was. What I found was not surprising. He is a British economist. That’s right, a British economist. So here we have a British economist projecting what the United States real estate market is going to do. That would be like me predicting what the British economy is going to do in the future. Not to belabor the point, he goes on with his drabble about how the real estate market will go down another 30%.
He conveniently leaves out several dynamics about the real estate market that can’t be ignored. However, I find that too few people tend to take into account a few simple dynamics. The first dynamic and probably the easiest to understand, is the simple fact that this country is growing every day of every week of every year. Every time another baby is born or another person immigrates to this country, we have less land available. God is not making any more land; therefore it is available in limited supply. I think everyone has been taught the law of SUPPLY & DEMAND. You can’t ignore this fact. It won’t go away. Real estate will return not to just yesterday’s value, but in 10, 20, 30 years, go up so much that today’s value will seem ridiculously low.
Natural Real Estate Market
The second item he left out is the reason that I believe we have not only hit rock bottom but the reason the market will return faster than most people believe. I call it the NATURAL REAL ESTATE MARKET. This market is not made up of investors. This market is made up of the everyday real estate buyer and seller. This market is the person that wants a bigger home, the person that wants a smaller home, the person that wants to move out of an area, the person that wants to move into the area, the person that gets married, the person that gets divorced, and the person that dies.
This market has virtually disappeared going into the third year now. That is unnatural. The public has been waiting patiently for the news media and the talking heads to say that we have hit bottom. Their patience will come to an end fairly soon, I personally don’t think it will be more than another year at most. When this NATURAL MARKET starts to move forward again, we will see prices start to rise, because new home construction is as dead as road kill.
We won’t see new home construction rear its head again for five years, for the simple fact that the new home industry won’t even consider kicking it back in gear until the resale real estate industry is down to at least a four-month inventory, It will take the new home industry two years to be up and going 100% again, factoring in time for permitting and design. As a result we will see increased appreciation in the resale arena faster than most people believe we will. My advice, for what’s its worth, is that It’s time to buy, because this is as cheap as it’s going to get.