Economic Real Estate Update

It’s the middle of the year and it’s a good itme to look at what the environment and climate of real estate is right now.

In 2009 we, as a nation, hit the bottom of the market and we bumped along the bottom until 2012.Regional submarkets fluctuate and function differently than the nation as a whole, but after the first quarted of 2012, nationally, we began to recover. And in my opinion, real estate has recovered.

Why do we invest in Real Estate?

We choose real estate investments so we have freedom over our lifestyle, for a return on our capital, and because real estate investing is something that is entrepreneurial at heart. Real estate investment gives us specific project management of a particular asset. In 2009, 2010, and 2011, many people told me they were finding amazing deals. This was because the real estate market in America is 12 trillion dollars big and we lost 50% of the value of real estate in the 2006-2009 downturn; we lost 6trillion. In 2006 lots of people had an incredible amount of leverage, 3%, zero down, etc. So when the downturn happened, people lost their position and the bank lost more, ultimately, there were lost of short sales of properties. Collectively, we lost a large amount of our personal wealth. There was an 8% reserve required, so when loans lost 20% of their value, the banks had the same crisis as individuals had. Banks lost the cash equity they had in their accounts and the banks were insolvent. They had too many loans out and as a result, companies such as Washington Mutual and Countrywide were insolvent; the value of their loans held wiped out the cash reserve they had in their vault.

Real estate information is time specific; the market curve or cycle changes often. We have recovered as of July 2014, we survived a three-year bottom. There’s higher sales in the summer months and pending sales are going up, meaning that there are people waiting for up to three months for their purchase to close. Bill Connely, my mentor, unbeknownst to him, says that intreset rates are deteremined by inflation expectation and economic growth. Rates rise when people feel good about buying homes and more people have jobs. The higher demand for housing sends prices up.

Understand the large economic as a whole if you’re looking to invest; read and understand the affordability index. In a few more years the market will be back down, so stay educated, look at the affordability index. Look both nationally and regionally, and do your homework.