Investors are starting to pull back in expensive states because value is harder to find. I see the lemmings at open houses and you can see the drool at the side of their mouths hoping for a morsel of real estate. The Fed, for better or worse, has turned us all into speculators. Simply putting your money in a bank is a losing battle because inflation is eroding your buying power. Yet wages are not keeping up. What you have is people competing with investors, foreign money, and a market with low inventory and trying to guess the next move from the Fed. Yet the tech bust and housing crash (keep in mind these happened only since 2000) were major events not prevented by the Fed.
Does buying today make sense?
The big question for many is whether buying today makes sense. Hopefully the
7 million foreclosures within the last decade highlights that housing isn’t
always a simple buying decision.
Investors have been dominant in the market since 2009. Big money is clearly
pulling back from inflated markets like those in California. This trend is
fairly new but even with this minor twist, inventory is picking up and sales are
still very low.
It helps to understand that many foreclosures are happening because people
are spread thin. People are still maxed out. Unlike big banks with sophisticated
deals and systems in place, most households are living paycheck to paycheck even
those with higher incomes. First, take a look at some foreclosure history:
Print this chart out and just remember that housing is a big freaking
purchase. Probably the biggest you will ever make. Just because someone is house
horny doesn’t mean they should act on it. What fascinates me is that late in
2012, most of those in the housing industry failed to see the big run-up in
prices for 2013. Most were predicting 2
to 5 percent price gains. Instead, we saw double-digit gains. At the end of
2013, the predictions were incredibly optimistic for 2014.
If the trend is so obvious and clear, why do we see low volume in housing
Existing home sales are down more than 35 percent from their peak reached in
2006. Our population is growing and prices are going up. Yet the push for higher
prices has come from Wall Street, low rates, and normal buyers competing with
the investor group. A big question that many are wondering is what will happen
when big money starts to flow out of real estate. We are starting to find out
slowly. Rates are also likely to go up – so for those that believe the almighty
Fed can do anything they should listen to their leader that is utterly telling
the market rates will go in one direction.
What we don’t have to guess on is that this recent trend has made it tougher
for first time buyers:
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- Judy Chaffee
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