Where is the Real Estate Market Headed?

by | BiggerPockets.com

Those of you who know me, know that I am a numbers guy.  If after crunching the numbers a deal makes sense, then I will gladly endorse it to a client.  However, given the volatile nature of the current market, I’m finding it increasingly difficult to justify endorsing short term deals and the future of the real estate market seems bleaker.

Two key factors have me questioning the foreseeable future of the market:

  • According to the Mortgage Banker’s Association National Delinquency Survey the total delinquency for all mortgages is at mind-numbing 14%. FOURTEEN PERCENT!  How many of those will translate into foreclosures and/or short sales?  Well, the answer depends on how effective programs like Home Affordable Modification Program (HAMP) become in assisting homeowners from escaping foreclosure.  According to many industry analysts/experts, the current government programs are completely ineffective in producing long-term results and will  need major restructuring/overhauls  in order to reach their goals.
  • The unemployment rate in the US is at 9.3 %.  And states that help push/drive the economy are experiencing remarkably high unemployment rates:  California is at 12.3%, Florida is at 11.2%, and Michigan is at a staggering 13.7%.  All those numbers are about 7-8% higher than during the booming times of 2005-2006.  How much stability and long-term appreciation in real estate can we expect if Americans are having a hard time finding and keeping work?

As an investor, are you prepared to compete with the onslaught of distressed properties that are anticipated to be hitting the market (and potentially driving prices down) in coming months/years?  With fewer people qualifying for financing, due to job loss, lack of credit, stricter lending practices, are you able/willing to offer creative financing alternatives to expand the pool of potential buyers?  Are you considering changing your REI strategy from a flipping/rehabbing/wholesaling mindset to a more long-term buy-and-hold?  Your thoughts/comments are appreciated.

About Author

Alex is a real estate agent specializing in properties in south Maui. For an up-to-date blog on Maui and Hawaii news, events, and real estate trends, visit his blog at www.mauihomeandcondo.com or search his site at www.mauirealestatesearch.com


  1. Jeff Brown

    Your points are well taken, which is why I’ve been tellin’ folks for almost seven years to get their investment equities out of markets like San Diego, and places like it. It never ceases to amaze me how people look at charts as either always headin’ up or always headin’ down. Those who won’t adjust their mindset will look back with regret.

    Good stuff, Alex.

  2. Great post Alex!! An investor just ask me the same question about the future of the market. My answer was simply “Look at unemployment. When people are not working, its hard for the market to gain any momentum”. I’ve learned to always look at the numbers as well, numbers don’t lie. Thanks for sharing this valuable info.

  3. Bill Lassiter on

    This is great information Alex.
    As it’s been pointed out, the numbers do not lie. I think as in any business, and especially real estate investing, you have to always be prepared to refocus and change your business strategy to take advantage of where the market may be heading.
    Excellent post, thanks for sharing.

  4. I agree with your posting Alex. Even in New Mexico where the market wasnt hit as hard as other places, and were starting to see fewer homes listed each month, it still can be difficult to flip a property. To make it work your numbers must have a good spread from the purchase price to the finished sale flip price. Ive quit flipping for now, and Im focusing on buying and holding. Sometimes, Ive had to use unconventional means to sell a property. In 2009, I couldnt get a beautifully remodeled property sold. Building developers all around me were offering incentives to buyers that I couldnt match, and buyers interested in my property could not qualify for a bank loan, so I sold my house in a raffle. This proved to be a good way to get my asking price in this down market and help a charity too. I think we must continue to be creative in our thinking. Im curious what you might think of the new requirement taking effect on July 31st which would require those selling (except for primary residence) on a real estate contract to have a mortgage originators license? Many investors in my area are concerned about this, and at a time when buyers struggle to get a bank loan, is it wise for the government to make it more difficult for individuals to carry paper?

  5. Thank you all for your comments. Sorry I didn’t reply earlier but I was mourning our World Cup loss. Nonetheless, I appreciate you all taking the time to comment. With bleak market outlooks, investors can certainly benefit by adjusting to market conditions (those who don’t will be left in the red). Mahalo.

  6. Thanks for mentioning unemployment, and for giving us these valuable stats! I have long held that if people are not working, no economy anywhere is solid, BUT people always need a place to live, don’t they? I have shifted my focus from short term flipping to buy and hold, or sell with owner financing. Now I’m waiting to hear on this latest HUD legislation that may make even owner financing illegal (unless you have your mortgage originator’s license), on which I have also followed your comments (thank you very much).

    Here’s the link to that, for reference:

    As one of my colleagues noted: “If the answer is government, it was a stupid question.” Biggerpockets is one of my favorite reads – it confirms many of my own suspicions, and informs me of things I had not yet thought about. Thanks, and keep it coming!

  7. Nice Post Alex,

    Let’s remember to consider how long many of those Unemployed have been unemployed. Pretty scary stuff to think how many times the extended benefits have had to be extended.

    Also… it’s not always obvious to what type of properties an investor should be buying. In Las Vegas, there are no shortage of lower end properties, condos, etc… that investors have been snapping up and putting back up for lease.

    I had an investor insist on a certain type of property which flew in the face of SFR investing but they have turned out to be extremely easy and fast to lease out with multiple applicants as soon as I put them up for lease.

  8. Sometime ago, I wrote about the Looming Double Bubble, which for the most part was ignored by many Investors. After being through 4 real estate market cycle recessions, I have gained enough insight and wisdom to know and to plan for what is now turning out to be true. Without REAL JOBS, Real Estate will never really recover to what one might consider to be normal. Today’s market is filled with Phony Facts and False Optimism which doesn’t lend itself well for Investors, whether you are thinking,buy and hold or fix and flip. My advice is; There is no hurry! The best deals are yet to come! Be patient! Don’t look for houses to buy-Look for Stable Neighborhoods to buy in!! Thanks Alex for a great post!

  9. Lisa Herendeen on

    We find that we flip when we can, which has been minimal since our market in Florida continues to decline. However, if you are a numbers guy then I encourage you to look at the rental numbers. Our rental inventory has been declining steeply over the past 6months while the for sale inventory has once again started in increase. I think this may be an indication of those facing foreclosure and still needing to rent which would be a great reason to buy and hold (as long as they can find jobs!).

  10. Very good post. It is all in the numbers, which are very difficult to argue with regardless of any spin. 8 million jobs have been lost since 2008. That is a primary reason why foreclosures have continued to increase and we are at a mind numbing 14% delinquency rate (up from 10% just a few months ago). Option ARM’s are very likely to add an increasing inventory. There may be better opportunities later for buy and hold purchases.

  11. Stephen Modica on

    I am glad I came across you site.

    I am wondering if you can offer some advice. I have a 2 family house on Staten Island, NY and just finished with a lengthy eviction process that had to end up with the City Marshal removing the tenants; I suppose some people need to get that Jerry Springer drama to feel alive! Anyway, I am exhausted with renting, plus the crash in the market has not helped the area become more attractive as it is fringe area, but when I brought the house in the “pre boom” I felt it was a good investment. We actually brought the worst house in the block and made it one of the best; we even won an award from the Staten Island Preservation Society for the restoration of the 1913 home which turned out to be a great thing as many of the home owners on the block began to refurbish their homes.

    What I really want to do is sell, but I do not know if that will make sense as maybe I will be lucky to walk away from closing without having to bring money to the table. So my real question is…Do you see the market turning around any time soon? I want to retire and I do not want to have this ball and chain around my leg. If the market was going to turn around in 2 or 3 years, then I could hold out, but if it going to be a long protracted climb back up to prosperity, I might be in a wheelchair or dead by the time that happens again. What do you think? Thanks for the help.

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