The Silver Lining to Real Estate Value’s Dark Clouds
It seems to be common knowledge that our real estate market is in a “slump”. After all, we hear it from builders, mortgage companies and even popular media outlets. But not everyone believes our current “slump” is a bad thing. Or even a long term thing. With very little research, you will find the silver lining to our current housing market woes. As real estate professionals, an important part of each day should be spent reminding ourselves WHY we’re in this business and HOW we can continue to serve our clients’ interests in a market bombarded by gloomy predictions.
First, there still remain very few investments with the long term potential for return offered by real estate. True, buyers in today’s market should be prepared to keep real estate in a long term perspective. But, as populations continue to grow, especially in the areas outlying large metropolitan centers, real estate can only gain in value. It is important to keep in mind that few real estate ventures will suit the “get-rich-quick“ crowd. However, don’t let that deter you from keeping a career in real estate. Rather, use it as part of your “value added“ approach with prospective clients. Be sure they understand the nature of the purchase they’re making; seeing real estate purchasing as a way of building equity over time as opposed to seeing huge leaps in value in the first few years of home ownership.
Second, real estate occupies a rather unique position in relation to other commodities. Unlike regular commodities, real estate and homes’ values are determined by a wide variety of factors, such as location, lot dimension, proximity and view. While one area of the country (or county, or city, or neighborhood) may be experiencing a housing shortage, another area may be experiencing a glut. As populations are never static, however, neither is the housing market. And the movement of people is often tied to other factors, such as an influx of high-paying jobs or changes in other economic factors. The important thing here is to remember that fluctuation is part of any market, especially one as diverse as real estate. Unlike in other markets, however, real estate is assured a fairly consistent demand over time; therefore, it represents little risk, even in troubled times. Assure your clients that owning real estate is one way of avoiding the larger pitfalls associated with fluctuations in other markets, such as stocks and bonds.
Finally, and this should really hit home with anyone involved in the real estate “business“ right now, the market is flooded with homes that have had a “For Sale“ sign in the front yard for weeks or even months. In addition to homes for sale, there is a large market in many areas of newly-constructed homes and condos, originally built to accommodate the greater demand for homes. When demand for homes decreased as prices flew beyond the range of most potential buyers’ incomes, these new homes were left with no option but to sit vacant for long periods of time. This increase in days a home is “on the market“ will remain as long as home values, inflated greatly over the last decade, keep out a majority of prospective home buyers. As sellers and builders continue to drop their asking prices in an attempt to ease the financial burden of unsold property, more and more prospective home buyers will find their way into the housing market. Not to mention the large numbers of foreclosures that arose due to the default of many subprime buyers. As foreclosed properties begin to show up more and more in listings, the chances of first-time buyers grabbing the opportunity to finally own their own home are increasing. While crucial to remember that lending standards have tightened in response to this default rate, the fact remains that the housing market may now be more appealing to those buyers waiting in the wings for home prices to fall within their income range.
So don’t be fooled by the horror stories. Keep a positive attitude and encourage your clients to do the same.