I firmly believe we are one step away from drastically higher real estate values.
If you have been paying attention to the press lately you have likely noticed a significant change in sentiment around real estate and more specifically real estate investing. For at least 5 years now, most of the articles and messages have been negative but in the last 6-12 months, the message has started to swing back to positive.
My unscientific estimate is that 90% of the articles as of today are positive and trending higher. This fact means more individual or small time investors are at least starting to look at real estate as a positive investment option. Combine this growing demand with the reality that large and deep pocket investors are chasing single digit yield in a no yield world and you have a recipe for price increases and a positive trend.
While I am fully aware of the backlog of foreclosures, the trending of short sales and the sheer reality that we still have years of clean up ahead of us – I am also not blind to the fact that supply is being “managed” while troubled assets (loans and properties) are being dispositioned in ways in which individual investors cannot compete.
In the end it has been both frustrating and impressive to watch the amount of government intervention in the real estate market over the last five years. I wouldn’t have thought this amount of intervention would have been tolerated in a capitalist world where one of our strengths is to clean out the system of our mistakes. Capitalism has always been about taking risks, reaping rewards and paying the price for mistakes. However, given the size and consequences of the housing bubble it is obvious that the leaders chose the “extend and pretend” route as opposed to “ripping the bandaid off quick.” I get it and frankly probably would have made the same choice if I were staring at the abyss they saw in 2006.
That said I believe we are one final ingredient away from multiple years of 20%+ year over year increases in real estate values.
What is it?
The Missing Ingredient
Simple all we need is banks and/or the federal government to realize that real estate is once again increasing in value and that real estate investors does not equal speculator. If investors can secure near-unlimited financing with 30% down or 70% LTV the market will shoot up almost overnight.
Think about it. If you are an active real estate investor today with 20-50 properties you are locked out of the cheap financing world. So this means the most experienced investors have to pay cash, use hard money lenders or build a track record for private investors.
I ask you what is a safer investment than lending at 70% LTV on an asset that is increasing in value and has a ready supply of renters to experienced investors with years of experience and a portfolio of assets to fall back on?
Mark my words: it will eventually happen. Real estate investors will once again be able to secure cheap bank financing and when that happens we will have multiple years of 20% increases in property values.
In the meantime enjoy the slow build of progress as we are off the bottom and trending higher. I look forward to the day we can once again secure cheap bank financing.
Good InvestingThe Missing Ingredient to Wildly Higher Prices by Michael Zuber