The quick answer is that you don't know, and I don't know if there has been a bottom to the real estate market, or when there will be a bottom to the real estate market. Perhaps the bottom was 30 days ago, or it is now or six months from now. We will only be confident after we look back. Markets are not easy to predict, but the experts generally look for the length of the downturn as compared to past recessions, and the prospects for economic recovery. Some investers choose the contrarian investment method. A contrarian believes that the conventional wisdom of the moment, and the herd mentality leads to pendulum swings beyond the current risks, which leads to overly optimistic or pessimistic behavior. This certainly was the case in the optimism of 2005, at the very height of the market, and millions of investors, speculators, builders, and developers have paid dearly for that mistake, and it may be true in the pessimism of the moment. For most people in the United States, real estate has been their single biggest and best investment. Most Americans who have owned real estate for more than five years still have appreciation in their property, and some have huge appreciation. A high percentage of the senior population count on their home as their single biggest nest egg.
The market will begin its upward swing when consumer confidence is regained. Consumer confidence affects their purchasing patterns, as discretionary spending is impacted by how consumers "feel" about their jobs, life, and security. Major purchases such as automobiles and homes are greatly impacted by consumer confidence. The Consumer Confidence Index bottomed in October 2008, an all time low, with a 38.8 index rating (1985=100), and improved moderately in November to 44.9. Perhaps the 41 year low in October will be the bottom of consumer confidence. This low level of consumer confidence suggests the real estate market will not rebound in the short term, so we are unlikely to see a major shift in the real estate market in the next six months, and perhaps longer.
From a contrarian point of view, here are the positive considerations for purchasing in the near future:
a) Interest rates are at nearly an all time low. Yesterday, Wells Fargo offered 30 year financing with no points or origination fee at 5.5% in Durango. Low interest rates spur the purchasing of real estate as low rates directly improve purchasing power.
b) Prices have fallen nationally, regionally, and locally. Astute investors and home buyers are taking this opportunity to purchase at discounted prices.
c) There is a large supply of homes on the market, which means selection is greater, and it improves the purchaser's negotiation position.
d) The national news is doom & gloom.
e) A December 2, 2008 article in The Wall Street Journal quoted an economics professor at Massachussetts Institute of Technology that he predicts house prices to increase an average of one percentage point higher than inflation over the long term, and in the same article, a survey completed by Realogy Corp. found that 91% thought that owning a home was the best long-term investment they could make.
f) The huge bail out program, and other stimulus programs should begin to improve the economic vitality in the first quarter of 2009, which may help to improve consumer confidence.
g) The real estate market has fallen for three straight years. This is longer than previous downturns.
A contrarian investor would choose a time like now to purchase real estate. There are others that will want to take a wait and see approach. How about you? What best describes you?
If you would like to have further conversations on Durango Colorado real estate, please contact me, Don Ricedorff at The Wells Group 970-375-7014, don@frontier.net, or at my website at durangorealproperty.com.
Don Ricedorff is a licensed real estate broker in the State of Colorado, with 16 years of experience, and he resides in Durango Colorado. He has numerous real estate designations, which have provided him with an unparalleled education to assist his clients. The designations include:
CRS, Certified Residential Specialist
CRB, Certified Residential Broker
CCIM, Certified Commercial Investment Member
ABR, Accredited Buyer Representation
GRI, Graduate of Realtor Institute
RSPS, Resort and Second Home Property Specialist
CIPS, Certified International Property Specialist
SRES, Senior Real Estate Specialist
He is also an active volunteer in the community and his church. His personal interests include spending time with his wife and three children, playing tennis, fly fishing, hiking, boating, and water skiing.
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