Hello All,
One thing about travel is the fresh perspective it can bring. While fighting a severe case of jet lag and a nasty sunburn on the airport van ride back to our apartment, I was able to look at the district of Colombia with partially fresh eyes after having spent two weeks in Hawaii. One thing I noted about DC was there is an awful lot of real estate available for sale. On the ride back in town, I observed that several apartment buildings are under construction and many new developments are offering incentives or price reductions.
Local conditions seem to be echoing in national problems, nationwide its becoming a lot harder to get a loan. Yesterday four major US banks borrowed nearly $500 million from the federal reserve. In other news, the US Fed injected a ton more liquidity into the market in the form of $17.25 billion in agreements to purchase debt securities.
What does all this mean for real estate? In a nutshell: declining demand. A lot of the big banks make loans to Joe average, and then turn the payments that Joe makes on the loans into bonds. Now that nobody wants to buy those bonds, the banks don’t want to loan to Joe. End result: Joe can’t get a loan and overall demand declines.
Not only is it harder to get a loan, a lot of local markets have been hurt by declining demand for housing. For example, San Diego is slowing down, in San Francisco people are selling their homes for less than their mortgage balance, Stockton is getting creamed, North Texas has record foreclosures, and Detroit and Las Vegas are near the top of the foreclosure lists also.
Quickly put, it hard to get a loan and real estate prices are falling in many parts of the United States.
Now, for the average consumer what does this mean? It means that for some markets: time to buy. What, time to buy – you DINKs must be crazy! Au contrare, dear reader — Several aspects of the current environment suggest that now might be the time to pick up some real estate. First, demand is low because of the subprime inspired liquidity crunch, and increasing supply of housing. Second, local conditions suggest that prices will be very low in some markets. When demand and prices are low, this means that if you’re buying, you could negotiate very good terms for your property.
But, before you rush out and call your realator, there are a couple of important caveats to keep in mind. First, sometimes low prices are driven by economic fundamentals. In a place like Detroit, where job growth is declining like the last days of the Roman Empire, economic fundamentals (jobs, wage growth, etc.) may remain depressed for a while to come. So, the decision to buy should be based on your view of your local economic conditions. Second, the decision to purchase should depend on your own situation. If most of your wealth is tied up in real estate, it might not make sense to add more. However, if you’ve got stocks or a lot of cash in a savings account, you might consider pulling the housing trigger.
At any rate, if you’ve got a clear head and some guts, a crisis can often spell opportunity.
Best,
James
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