Most of the following is entirely my opinion.
Like so many of us, you may be planning for the new year which is comin’ on way too quickly. Planning these days is far more difficult than in OldNormal times. When things were normal, they were at least somewhat predictable — or so we believed. The problem with apparently foreseeable events is that they’re often completely foreseeable only in hindsight. 🙂
Sure, everyone says they knew this or that was inevitable, but finding evidence of that belief online before it happened becomes somewhat of a challenge. Go figure.
Last year at this time I predicted Fannie ‘n Freddie would merge. Oh well. Another prediction was massive gains in the House and Senate by Republicans. But what objective observer couldn’t have foreseen that one?
I said FHA would become the lender of 2010. Check.
That folks in ever growing numbers would convert 401(k)s to IRAs, then take control via self direction. They did, they still are, and will continue doing so.
Many predicted 2010 would be the year real estate would show solid signs of recovery on a national basis. I disagreed. The lowest interest rates since Eisenhower notwithstanding, when 1-2 of every 10 adults is un or under-employed, the interest rates can be minus 1% and they still can’t buy. Ask all the 20-30-somethings who’re either renting rooms or back with Mom and Dad what they think of the 2010 real estate recovery.
We’re now seeing some seers calling for a net positive real estate market for 2011, whatever that means. To me it’s akin to those who’ve been proclaiming we’re out of the recession — not that we’re improving, mind you — we’re out of it.
Our unemployment nationally is known by all, with the only debate being how much it actually is. Many our there have pretty much bought into the myth that the foreclosure tsunamis are over. They still think it’s a huge problem, but that it’ll work itself out. Don’t wanna be a wet rag, but remember all those ARMs? A Titanic size shipload of ’em are resetting in 2011. Unless lenders radically change their M.O. in mass, those resets are gonna be real estate’s version of pouring gas on a house fire.
Here’s a factoid about the Great Depression that almost nobody I talk with knew. A colossal real estate bust preceded the stock market crash of 1929. The approach taken by government to generate a recovery ASAP, was the same approach being touted now. The game-changing difference now though, is that unlike the Fed of the 1930’s, the money supply wasn’t purposely contracted while simultaneously increasing interest rates. As recovery began to become a real possibility, we experienced a double-dip depression in 1937. Again, most are unaware of this fact. I was myself till about a decade ago.
What we have today, economically, is a bifurcated nation. By no means is this news, as the trend has become brutally apparent the last several years. If real estate investors do their homework and put their capital in those regions remaining relatively strong economically, they’ll look back at 2010-11 as the pivot point of their investment career.
On the other hand, those who insist on installing price as the dominating factor is their investment decisions will, ironically, pay a price for which they never bargained. I learned long ago that reasoning with ‘price people’ is doomed to failure.
What we’re experiencing in real time isn’t just another cycle, it’s a sea change in real estate as it relates to both demographics and geography. From 1977 to just a few years ago, I wouldn’t be caught dead talkin’ out loud about investing in states like Texas, Kansas/Missouri, Idaho, and a few more. This is especially true of Texas, the poster state for boom/bust economies. I’m convinced Texas real estate is the origin for the ancient joke — “How’d’ya make a small fortune investing in Texas real estate? Easy — start with a huge fortune.” BaddaBoom.
Happily, that’s no longer true for Texas, and many other regions.
In my opinion, if the last decade or so has taught us anything, it should be that the theatre of real estate investing has changed the movie. So-called axioms are crashin’ and burnin’ everywhere when it comes to where capital is now headed. Those who refuse to adjust will pay an ugly price as retirement approaches.
Again, just some food for thought as we attempt to map out our journeys in 2011. Reality is a merciless disciplinarian.