Housing market dynamics to keep on the look out for...
- there is some serious pent-up demand.
- price decline will only occur for so long.
- mortgage rates will not stay this low for too much longer.
- cash investors are buying
- investment property is finally beginning to cash-flow.
- divorcees/move-up buyers (aka-needs-based-buyers) are taking advantage of above details
Pent-up demand
We all know of someone (or are one ourselves) that keep on saying to their spouse - "if that big house down the street drops any further, then we HAVE to buy it". Believe me, you aren't the only neighbor saying that exact same thing. It's a sad day to realize you could of, should of, and would of bought that gorgeous home for that price, but delayed doing so. Too bad - you lost out... but don't worry - if you wait long enough, there will be more deals that you will procrastinate on and lose the opportunity...
Price decline will only continue for so long
There are many, many reasons why the real estate market is having a difficult time. If I had to (and I mean this - - if I was forced at gun point only) then I would point to only ONE factor that is making this real estate industry wane, slow, pucker-up and kiss someone ugly kind of day... and that is apprehension. The markets have no clear direction on what the debacle is doing. We have no clear insight into the depths of the mortgage meltdown. And finally the lenders have tightened so much - the liquidity crisis (the market's in a broad-sense) don't have anything certain about the future. This widespread apprehension/fear is causing major hesitation for every aspect of investment...
The good news - - once one industry facet finds it's footing - the next phase can move on... and then you have the pent-up demand issue to contend with. Again, once the damage has been assessed, the rebound will be felt almost immediate.
Mortage Rates are still very low
There has been major buyers of our Mortgage Backed Securities and this has mainly come from the Asia markets. This has caused prices to stay extremely high, and has resulted in low yeilds on our bonds. Thus, our long-term bond rates have been artificially low based upon an insatiable appetite from the Asia markets. Our Federal Reserve has been given the heavy responsibility to maintain low inflation by the use of a monetary policy. But if the economy is slowing (low inflation), and yet Asia decides to sell back our paper (MBS), then this will bring a reality back to our long-term bond market. The end result will be lower bond prices, driving yeilds higher and therefore rates will skyrocket.
Remember - the majority of the rate movement we have seen in the mortgage markets ahve been solely based upon the yield curve and the Fed's monetary policy towards inflation. But now, we have a bigger issue - - rates climbing, a slow economy, and there's nothing the Fed can do (since we won't have an inflation issue if the economy is slowing).
My point - rates can and will climb independent of the strength or weakness of our economy.
Be careful - we could see rates at the 8-9% level quicker than one might imagine.
Freddie Mac's Historical Rates
Cash Investors are Buying
Rental amounts for tenants have been stagnant for several years. The natural result of the rash of foreclosure activity is going to be positive news for those investors willing (and able) to weather this storm.
Once the rental market understands this dynamic - - it's back to the basics. Don't have the down payment, credit score, or a solid job - - renting is for you. And you might as well get comfortable in your new digs... either get the above or keep renting.
It will be the investor who bought in this season that will have the edge when looking forward into the new housing market for the 2010 season and beyond. It's going to be fruitful... why would these millionaires be buying up property? Just to take a tax loss?? I don't think it's for a few pennies here or there.
Cash Flow for Rental Property
Look at a few of your local areas. Even with a few burps and farts (high property taxes and escalating insurance premiums), many investments are starting to have positive cash-flow. Loss mitigation reports have dropped the insurance issues, and with a strong Gov Crist - we might solve the property tax issue (I'm quite ignorantly positive on this one).
Bottom line - run the numbers with your local real estate agent. It might just surprise you - it did me!
Needs-Based Buyers
Let's not forget about the inevitable - the couple who jumped out of the marriage and into selling the home and buying two more. Or the couple that did the exact opposite and enjoyed and celebrated their legal right to be joined in matrimony and now are popping out some childrenz. Or the baby-boomer gen that says - wow, what are we doing living in this mansion... let's drop the housing expense by 1/3rd and have some fun in this life.
These are 3 common thoughts of the "needs-based buyers". This market segment will always generate a strong underlayment of price appreciation. Certain neighborhoods have not experience extreme price erosion simply because of these 3 dynamic buying-segments.
