Has the real estate market bottomed? No, nope, not a chance. We are through 1 of 3 storms and have a crippled economy and really high unemployment. The good news is that we are through the worst. With terrible times come tremendous opportunities. After the last up cycle where everything went way higher then it should have, this had to happen. It is inevitable. If you are like me, you see the next 3-5 years as the opportunity of a lifetime. Here is why.
Storm 1 – We have survived the 1st wave of foreclosures. Properties in some areas dropped 40% and the inevitable correction has begun.
Storm 2 – A 2nd wave of foreclosures is on it’s way and will do the same. Only now home values are already much lower so drastic home value declines are unlikely. This will however impact home values negatively and keep them down for some time, hopefully a plateau for a few years. This chart shows that delinquent mortgages are much higher in 2009 then in 2008 and the previous 3 years.
Storm 3 – The interest rate hike. It is coming. The Fed will eventually raise rates to fend off inflation. This will increase mortgage payments, decrease cash flow, operations and returns and people will not be able to afford as much home with the higher payments. Result? A negative impact on home values.
You can look at this outlook as depressing or exciting. I strongly advise the later. The next 3-5 years there are going to be tons of distressed properties and opportunities to cherry pick from. In 30 years we will look back and say “Remember when we could buy property for nothing.” Will that time is the next 3-5 years. So savvy investors get ready. We are through the worst part, now get out there and make it happen!
For those of you who want to see it broken down by State, here you go.