subject: Real Estate's Future in Serious Trouble by:Rudy McCormick [print this page] We are truly in one of the worst economical disasters of the entire history of man on this planet, and there are a number of reasons for it, lets focus on one for now. Real estate as I am sure most of you know has been on a downward, self destructing cycle of foreclosures and falling values. This is a trend that the fed is trying to stop, and they will not. Real estate values in our country are a direct result of supply and demand, and right now the supply is out of control. Even though some people are claiming that they are busy selling, and I am sure some actually are, the general world of real estate is in serious trouble.
Let's start looking at this by removing the foreclosure situation for a moment and just focus on the general market and what is happening to values. Well values are down because there is very little demand. Demand is light because for the last 8-10 months banks would not extend credit under any circumstances. With Banks not giving out money the demand for single family homes fell to almost zero. This is one major problem, and one that could have single handedly wiped out most people's potential in terms of value.
So now we know that demand is basically gone, except for a few investors, which brings us to the second devastating hit to our market, foreclosure sales. There are two things people need to understand about foreclosure sales before you can understand the nature of the problem. First, people being kicked out of their homes tend to cause damage, they fail to pay taxes and utilities, and they don't generally have to foot the bill for any losses the bank takes. This means that a typical foreclosure home is in very poor condition compared to the rest of the homes in a given area. Second is that realtors can't use typical sales comps to value these homes. Because foreclosure homes are usually in very poor condition and realtors have to put a value on these homes which will actually sell them, the values tend to be between 50-70 of all home sales since November of last year are foreclosure sales and we are talking about a demand that is right around 20 per month, and that most of the activity is based on toxic purchasing of homes for half of what the values should be, which is a Molotov cocktail for an industry which is the bread and butter of over a million realtors, 7-8 million builders, hundreds of thousands of lumber yards/mills, furniture makers, stores, and everyone in between.
Now let's put back in some positive factors so we don't come off sounding like gloom and doom merchants. First, some banks have been attempting to modify people's mortgages, a great gesture which has a current re-default rate of 50%. So there are a percentage of homes being saved from that process. Second, there is an amazing tax credit for new "first time" buyers of $8500 which means for a high percentage of buyers out there that you can actually make money buying a home.
Other factors which include the state of the economy as a whole, bleeding jobs at an amazing rate, shrinking incomes, loss of savings, rising prices and costs, and the fact that there are way too many realtors practicing at this point in time, really put real estate in a unique position.
What real estate agents are saying? I speak to real estate agents almost daily, as someone who has been involved in real estate for over 10 years its always interesting to discuss the market with a cross section of the people who make it their living. Agents who are honest and forthcoming lately chuckle and make some kind of joke about the market being "great", or "Never Better", and with obvious sarcasm. There are those who are still making money, who honestly say it's down but they personally are busy. And some who simply lie through their teeth in hope that their obvious denial of the reality will somehow make it all better.
I do actually know a small few realtors who are doing plenty of business at this point and they are the oldest and wisest of agents who have been willing to look at the situation and change as drastically as the market has. Dan Bowden of Restaino and Associates in Madison, WI states that he has been working with some excellent buyers lately and that even in a slow market agent that are willing to work hard still have a good opportunity. Pat Mullin of RE/MAX Preferred stated last week when we talked that he was personally swamped and actually had 7 showings that week so far and I believe it was only Tuesday when we talked. These two agents are experienced agents with great ethics and even better customer service, which obviously has helped them to grow their sphere of influence.
In conclusion, real estate has taken a huge hit in terms of values, demand, and overall sales volume. I feel that it will continue on its much smaller scale well into 2010, and as long as 2015 before it truly fires back up and starts to take off again. As far as opportunities for investment, real estate could be the best return out there if you're in for the long term. It's affordable, easy to buy, and slowly positioning itself to once again rise. Will you be there when it happens? That is up to you.
About the author
Rudy McCormick is a forward thinking SEO and link building champion.
