In response to how popular my post regarding the 12 bold predictions for the 2009 Nashville real estate market was with my readers, I have been asked to pontificate on when rest of the US markets might turn around. We’ll, I have taken your requests to heart and dove into a huge number of publications, predictions and have only been able to conclude the following:
#1: What a mess – I mean seriously. No publication or online news journal seems to agree and it’s almost like we have a two party system in real estate (the industry versus the consumer). It is the industry’s job to take the facts and paint a rosy picture and it’s the consumer and consumers’ advocates job to take the facts and spin them in favor of the consumer. I could write a whole blog post about this first point, but the real estate facts are the real estate facts. It’s simple; money buys real estate, people either have it or they do not, then they decide rather or not to pay or accept that money for what they have or want…a free market economy at its best people!! Obviously there are a massive number of factors that affect these decisions, the supply and the market, but boil it all down and it is a human decision that involves an exchange of monies for a product created within the real estate industry.
#2: Yes it’s bad, but not that bad. Parts of the US has been dealing with a real estate decline for more than 3 years and the rest of the country is certainly at least finishing up their first year. As such, a lot of builders have stopped building or someone has stopped them from building. Now take into account that the US population is still increasing year over year. What this means to me is that the “Housing Want” factor is now greater than it was just a year ago. BUT, the need and certainly the ability to fulfill that want has greatly diminished since the record purchase highs seen just 2 years ago. This is obviously a result of the current financial woes and “credit crunch” being experienced nationwide. It does not matter what industry you are in (well, maybe not those dirty bankruptcy Lawyers), you are most likely feeling the trickle down effect of the loss of wealth.
#3: How will it turn around? The answer is a set of simple equations: want/need + ability = demand. When demand begins to increase faster than supply, we have a “turnaround” (let me be clear, a turnaround does mean that prices start going back up, it just means exactly what the formula states). When demand equals supply, we have price stabilization, normal market appreciation and a “healthy” market. When demand is greater than the supply, we have price spikes and housing shortages.
#4: When will the markets turn around? Now here are the BOLD predictions most of you are looking for! In most markets in the US, it will get worse before it gets better. Banks need to clear the toxic assets and just plain bad REO from the books and that will most likely happen between now and mid Q4 2009. All markets will have buyers for this property, the only difference being the price paid. So, in the good markets, the price stabilization will occur much faster than in the worse off markets. What differentiates a good market from a bad market? Population trends, income, unemployment, supply and all of the other wonderful statistics that you have all read so I won’t rehash here. So, using the simple formulas and the simple capital market theories:
Good markets will see a turn around no later than Q2 2009, if they have not already turned around already (and some have including Nashville). Prices in these markets may not begin rising for another year, but property will be moving and changing hands.
Okay markets will also turn around in 2009, mostly by mid Q4. Prices in these markets will generally continue to be soft for the next 12-18 months, but property is moving.
Bad markets, and I’m talking about the few fundamentally unsound markets (you know who you are), are still in trouble. A turnaround is probably not coming in 2009 without divine intervention or a government bailout for that matter. Don’t fret, you’re going to be just fine by 2010 so hold fast, keep your heads down and persevere; after all that’s what we Americans do. If you need help, let people know that you need help. Call the bank or mortgage company and start a dialogue for God’s sake!!
Take this advice for all its worth, do your own research and remember this EXTREMELY important fact: The American dream is to become a home owner. This dream has not changed and it probably never will.
Note – this is a residential markets prediction, not a commercial real estate prediction.