The Silver Lining in the Real Estate Market
There is a silver lining to the current real estate market. Honestly.
Don’t consider me out of touch and completely out of my mind. Just bear with me and hear me out on this subject of a SILVER LINING IN THE CURRENT REAL ESTATE MARKET.
Back in mid-2005, I was writing a weekly real estate article for the local newspaper. One article I wrote at that time predicted this current market. I said we were about to enter into the market that we are experiencing today and that this current market would last for three years. I think most of you now would agree with my assessment that this market will last at least three years.
During that same time, I also predicted that by 2011 we would once again experience rapid appreciation in our real estate prices. I admit I’m not always right, though, because in that same article, I predicted that we would see national appreciation this year at around 2%.
However, here’s why I think by 2011 we will see rapid appreciation again and why I believe there is a SILVER LINING to our real estate market. Back in 2005, I said that new construction would be as dead as road kill for the next five years. Once again, I think most of you would agree with that assessment. I can’t speak about every area in this country, but I can tell you that this year in our area of Southwest Florida, we only pulled approximately 10% of the building permits that we pulled in mid-2005. My guess is that’s a fairly accurate number nationally as well.
So, the builders aren’t building and they are doing everything to sell out their inventory except giving you a free new Mercedes to buy their inventory. (Nope, that’s not accurate; I believe some builders are offering a free new Mercedes … )
Where does this leave the market? The builders are now whittling down their inventory, interest rates are becoming hugely attractive, investors are buying short sales, and consumers are now actively thinking about finally buying that next home. With the current resale inventory, the market will soon start to reverse directions. I don’t think it would be too much of a stretch to see current resale inventories decease by 10% in 2008.
Now let’s step back and look at the new construction. Would it be safe to say that most builders will be ecstatic when they finally unload their current inventory? So next year when most of the builders have achieved this goal, they’ll sit back and breathe a sigh of relief.
So for the next couple of years the new home builders will spend their time reorganizing and being very careful and conservative about bringing new products to the market. Most won’t even think about the next new product until the current re-sale market is down to a three-month inventory of product.
This is where the SILVER LINING is. For the next couple of years the resale inventory will continue to decrease and the builders for the most part won’t be bringing on any new products. Then once the builders start thinking about bringing on new products, it will take them another two years before they actually have a product for sale.
So by 2011 I believe we will have a significant shortfall in resale and new product inventory, and that is going to drive up prices significantly. So we may have suffered with a bad market for three years, but the market was so bad it’s going to cause a reverse effect and cause prices to escalate rapidly in the future.
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