Uncategorized November 9, 2010

Time for Reflection

Since real estate activity starts to slow down a bit as we hit the holidays, this is always a good time to take a deep breath and reflect on the year to date.  2010 started with the homebuyer tax credit which definitely put a “bid” under the market and pushed prices up slightly and cleared out some inventory.  The unintended consequence was that it pulled activity forward, which basically took some air out of the market, especially during the summer months.  However, activity recently has been slowly building up again as  historically low interest rates and low prices have pulled many buyers off the fence.  There remains plenty of overhead resistance as far as pricing goes because there is still a lot of inventory and a lot of distressed inventory- short sales and foreclosures.  But it’s going to be a process, probably a multi-year process, whereby the distressed sales need to continue to be flushed out before the market can really become truly healthy again. 

In my opinion, and for better or worse, the Fed is doing everything it possibly can to inflate our way out of this housing and debt crisis.  Unfortunately, that will continue to debase the value of the dollar as well as hurt those who have cash savings or those who rely on a fixed income.  But since a majority of the country seems to have much more debt than savings, inflating our way out of the mess is perceived to be the only “quick” way to reduce that debt to a point where it’s no longer a crisis.  Future inflation is obviously being anticipated as commodity prices have increased while the dollar has fallen.  Many in the financial industry see housing and land as commodities that could also benefit from inflation.  Given that we’re coming out of a housing bubble, it’s highly unlikely that prices will soar anytime soon, but over the longer term, history shows that it should perform at or better than the rate of inflation.  Therefore, as long as you don’t fall into the trap of overleveraging, it’s a great time to buy investment property, or upgrade or downsize your personal home, by locking in a very low interest rate and getting a great deal on a purchase.