Why do I say that now is the best time to buy real estate?
There are 4 Phases of a Real Estate Cycle :
- Sellers Market I (Expansion)
- Sellers Market II (Equilibrium)
- Buyers Market I (Decline)
- Buyers Market II (Absorption)
and
this repeats over and over. We just went through Decline, we are now i
n a Stabilization of the markets, next we have Absorption and Expansion. Now is when the money is really made. However, in a declining market it takes courage, ingenuity and innovation to survive.
Consider the following two cycles of median home prices:
The first, from 1983 to 1996, started with the economy in rough shape. Then an economic boom pulled both real estate and the DOW way up. It was a big party, everyone was making money, banks got a little crazy with their lending standards and the whole thing went off the rails– stock market crash, massive bank failure, real estate market correction and a serious recession. This was a Buyers Market I (Decline).
In order for a market to recover from this phase, national and/or local economic stimulus programs must be implemented to help stop the bleeding and to help restore confidence in the market. The cycle reset in 1997, and a very similar pattern started again. This cycle is now at the bottom of the trough.
A cycle is the time it takes to move from Market peak to peak. There is a huge swing between the price/rent levels at the peak of the cycle and price/rent levels at the trough of the cycle.
Next, lets look at the real estate cycle from the perspective of value increases. Property values and sales prices get a boost as the market moves from trough to peak . (Velocity) Buyers Market II – occupancy, rental income, and property sales increase. (Absorption) Sellers Market I – increasing property income increases property values. This reinforces expectations for continuing market improvements. (Expansion)
Now ask yourself, did we just have a meltdown, or did this market end the cycle much higher than it began?
Here’s the first proof that you can’t believe all who called this a housing freefall: Population growth in Greensboro, NC since 2000 = 13.9% – 30,000 moved to Greensboro. In 2000, Home Retail Value averaged $104,700 . In 2011, the same Home Value is $115,400. ( Info provided by City-Data.com & Zillow.com) That’s a 7.4% increase. If the property became a rental, then add Cash Flow of $200/mo X 120 mos = $24,000. Another rental bonus, depreciation offsets tax on profits.
Believe it or not, we just ended a very profitable real estate cycle that made a lot of people a lot of money. Sure, many investors got hurt in this cycle, but most of those ignored the fundamentals and tried to buy, flip, and speculate with no money down, without any business training and with no education or real understanding of their own markets.
Consider for your own business plan: property ownership can enhance stability and channel your rental expenses into equity building as it enables you to take advantage of tax benefits.
More reasons why this is the ABSOLUTE PERFECT time to work real estate into your long-term plan; you already have two very strong advantages — a long-term view and a well-timed cycle position to begin. Expect values to hit bottom in 2011 and stay flat for 3-4 years, only to go back up significantly over the next 5-10 yrs as the economy really picks up again.
So the good news is we’re in pre-boom all over again. The better news is you are aware of it at a very early point. The Great news is you have time to get in gear and take a position.
Warren Buffett’s advice: “Be fearful when others are greedy and be greedy when others are fearful”. The greatest investor of our times agrees that NOW is the time to get started in Real Estate.
