Down Market US Real Estate Bargain Hunting
Not too long ago, many real estate speculators made a bundle of money through quick purchases and sales. Speculators and their followers were snapping up real estate without truly analyzing the market and forecasting changes. Then came the sub-prime crisis..
According to an article published on the Wall Street Journal a week ago, most Americans still see real estate as their best shot at wealth despite the current economic downturn. In October 2008, Zillow.com conducted a survey of 2000 adults and 61% believed that the value of their home would either remain level or rise over the next six months. Another survey of more than 1000 homeowners sponsored by Realogy Corp., found that 91% thought that owning a home was the best long-term investment they could make. An online survey of 5000 people commissioned by Citigroup found that only 32% believed it was a good time to invest in stocks, (One must keep in mind that Nasdaq has declined over 78% since its peak at the internet bubble and many stocks are trading below their cash value) - but 51% surveyed said it was a good time to buy a home.
In the same week, it was announced that the November payroll decline of 533,000 was enormous and biggest since December 1974. Some economist even predicted that the fourth quarter contraction in GDP could hit 8%., which is 0.2% more sever than the 1980 recession.
In this mix of bullish consumer confidence and bearish economic news, where should investors head? To real estate investors; research and analysis of the fundamentals must be performed and followed diligently. Many economists agree that fundamentals data such as immigration, birth rates, size and nature of households are difficult to predict on the long term basis, but it is not difficult to follow the trails of income and employment growth as well as increase in immigration rate to the next “hot” city with potential growth.
The same article quoted William Frey, a demographer and senior fellow at the Brookings Institution, Washington, says that young people and immigrants are likely to flow to Florida, Georgia, South Carolina, North Carolina, Tennessee, Virginia, Nevada, Arizona and more affordable interior parts of California.
Another researching firm, Newland Communities LLC based in San Diego named Washington DC, Raleigh and Charlotte, North Carolina, Atlanta, Dallas, Houston, Phoenix and Las Vegas as their top cities for growth potential.
For someone who are interested in taking advantage of the down market for the purpose of self enjoyment, second home investment, rental income investment; the above areas may be worth a closer investigation. Cities with low growth and falling populations must be avoided.
The real estate market is inevitably cyclical in nature. The market has seen its recent peak and has fallen hard to its bottom (?). At these conditions, and with a long term perspective in mind, the returns generated from tax deductions, rent, amortization, and property appreciation increases. After all, investing in properties with great potential in a down market is definitely wiser than buying and “chasing” the market when it is over inflated.