Posts Tagged ‘real estate market’
It’s the Uncertainty Holding Our Industry Back
You may be wondering what affect the recent double whammy of the debt ceiling apocalypse and U.S. credit rating downgrade will have on the real estate market. The real estate industry is a microcosm of the general U.S. economy. We can already see the affect in the overall private sector.
We entered 2011 coming off a relatively strong performance in 2010 considering the foreclosure devastation the industry was and still is experiencing. Investors were optimistic and it was reflected in the positive New Year predictions for 2011. What became reality is the optimism has been replaced with uncertainty three quarters of the way through the year.
When optimism was the private sector’s sediment, we saw slow but steady growth of the economy and most importantly, we saw the unemployment rate begin to drop. Later in 2011, as the sediment changed to uncertainty, we see the fall out in a stalling economy and up ticks in the unemployment rate.
It’s not that small and big businesses don’t think the U.S. will once again come out of the recession. It’s the uncertainty that positive action will not be taken in a timely manner. Reinforcing the uncertainty factor can be seen in U.S. Treasury Bill yields immediately following the U.S. credit downgrade. Yields actually decreased 38 basis points. The opposite of raising interest rates to offset the higher risk anticipated by the downgrade. More money actually flowed into U.S. Treasury notes seeking security from the uncertainty.
Major Banks Hiring Loan Officers
The real estate market looks to be gearing up for more sales after two major lenders announced they are in the process of hiring 1,600 loan officers. As one of the largest mortgage lenders in the country, JPMorgan Chase is in the process of hiring 1,200 mortgage officers over the next couple of years. While the company does not expect to be suddenly inundated with mortgage applications, they do anticipate steady growth.
Citizens Bank, the nation’s 24th largest lender has plans to add 400 additional loan officers before 2013. They anticipate increased staffing by 100 people in 2010. They increased lending in 2009 by 167% over 2008 and see continued growth going into the future.
The Mortgage Bankers Associate estimates the industry will grow to $916 billion over the next two years. That’s in comparison to this year’s forecast of $725 billion. The expectation is growth will be heavily in purchases by new buyers as the refinance market is expect to drop to $474 billion in 2012, down from $717 billion this year.
Buy Now to Prepare For the Future
With the real estate market near or at the bottom of the cycle, many investors are looking for opportunities. Not only do you want to buy at bargain prices but you want to buy properties that will deliver the highest return going forward. One of the attributes to that decision is the length of time you intend to hold the property. In the short term, you need only know what the market is looking for today.
A purchase and hold decision takes considerably more insight as to where the market will be in future years. Long after you’ve decided what and where to purchase at the bottom of the current cycle.
The Urban Land Institute recently released a report titled: Housing in America – The Next Decade. The most important observation made in this report is that “the old “normal” will not return”. As the market recovers, it will take on different characteristics than it had in the past.
Specifically, where people want to live will change from suburbia to urban settings. This fundamental change is being driven by the four largest demographic age groups in the country.
- The aging baby boomers, the oldest of whom are now in their mid-60s.
- The younger baby boomers in their late 40s and early 50s.
- Generation Y, the children of the baby boomers. Together they make up over half of the entire population.
- Immigrants, their children, and grandchildren, whose numbers are growing more rapidly than “native-born” households.
Buying at the Bottom of the Cycle
There are currently so many buying opportunities that the question is not ‘should I be active in the real estate market’? Rather, ‘which is the best strategy to use in this opportunistic market’?
No one is going to ring a bell to declare the nation has hit the bottom of the real estate decline and everything from here going forward will again be growth. However, we certainly are near the bottom. The market may slip a touch more or we may have passed the bottom and are returning to the normal growth market. It’s going to be a little different timing in different regions of the country. And we might even bounce along the bottom a little but not for long.
This is a great time for real estate investors. What more could you ask for? Interest rates are down, there is plenty of inventory on the market to keep prices temporarily low, and it’s near the bottom of the market.
The question is which strategy to use? It needs to be a ‘hold’ strategy. Could be a long-term hold or a short-term hold. That’s a bit fuzzy still. The low risk strategy would be a long-term hold. With that decision made, it becomes a question of structuring the deal.