Fortune Magazine
and The Wall
Street Journal: Time
to Get Back Into
Real Estate
RealityCheck
Ok, I know many of us have been saying this for some time now,
but when the news media starts saying it – well, I guess that
makes people stand up and take notice. A number of recent
articles in the national press are now saying that it might be
the right time for consumers, who have largely been on the
sidelines, to jump back into the housing market.
I understand why potential buyers, whether first-timers or
move-up buyers, remain cautious given all the economic
headwinds and bad news out there. Economic growth has been
slow, the jobless rate too high, and don’t even get me started
about the politics in Washington, the euro-zone debt problems
and the challenges facing Greece.
But I often urge buyers to examine what I like to call your
“personal economy.” That is, if you have a steady job, reasonable
credit, and enough savings for a solid down payment, you might
want to take a deep breath and think about taking the leap into
the housing market while prices and interest rates are so low.
Read what two of the nation’s top business publications, Fortune
magazine and The Wall Street Journal, are telling their readers:
➢“Forget stocks. Don’t bet on gold. After four years of plunging
home prices, the most attractive asset class in America is
housing.”
–“Real estate: It’s time to buy again,” Fortune Magazine article
by Shawn Tully.
➢“Two key measures now suggest it’s an excellent time to buy
a house, either to live in for the long term or for investment
income.”
–“It’s Time to Buy that House,” The Wall Street Journal article by
Jack Hough.
Tully in the Fortune piece interviewed Mike Castleman, founder
and CEO of Metrostudy, who has spent more than 30 years
tracking data on the inventory of new homes in the United
States. Each quarter, inspectors go through 45,000 subdivisions
from California to Maryland. According to Fortune, inspectors
examine 5 million lots and record whether they contain a house
under construction or completed.
What has Castleman observed? The glut of new homes that
the U.S. had a few years ago at the peak of the market has
rapidly disappeared. Instead, he told Tully that he has seen a
rapidly declining inventory that could force prices higher. In the
41 cities Metrostudy looked at, there are just 78,000 houses
vacant and for sale, or under construction – less than a quarter
of the 343,000 units at the height of the market in 2006 and less
than the total a decade ago.
“The talking heads who are down on real estate will hate
to hear this, but America needs to build a lot more houses,”
Fortune quoted Castleman as saying. “And in most markets the
price of new homes is fixin’ to rise, not fall.”
Metrostudy collects figures on the number of homes that are
vacant and for sale in each city, and the number of months it
takes to sell all them to determine whether individual markets
have a surplus or a shortage of homes. “If we had anything like
normal levels of buying, those houses would sell in 2½ months,”
Castleman told Fortune. “We’d see an incredible shortage. And
that’s where we’re heading.”
Fortune says that consumers may be confused by conflicting news
reports on the housing market, and that could be impacting their
confidence in buying a home. On one hand, housing affordability
has never been better. But on the other hand, they continue to
RealityCheck
see housing starts falling and home prices still heading down in
some markets.
Tully said economists Robert Shiller and Karl Case, authors
of the S&P/Case-Shiller Home Price indices, have different
views about where we are in the cycle. While Shiller remains
pessimistic, Case is more optimistic that things are starting to
turn around, telling Fortune that “the lack of new home building
is a huge help that a lot of people are ignoring.”
While no one can predict with certainty the future of home
prices and sales volume, it is safe to say that a turnaround will
eventually happen. Timing the market is very difficult because
you will never know the absolute bottom until prices have
started going back up again. My advice is to look closely at your
own “personal economy” and talk with a professional Realtor
to see if now might be a good time for you to take advantage
of low prices and rates, and join others in taking the plunge into
buying a home.
In its analysis of the housing market, Fortune noted that it’s
important to look at the economic fundamentals of home
ownership to see where the market is headed. As home prices
rose sharply over the past decade,Tully said the magazine warned
that a bubble was forming due to the level of new construction
and the cost of owning a home compared to renting one.
“Eventually reality set in, and prices plummeted,” Tully said.“Our
current view focuses on those same fundamentals – only now
they’re pointing in the opposite direction,” Fortune noted. “So
let’s state it simply and forcibly: Housing is back.”
The Fortune article said what will drive the recovery of the
housing market is a sharp drop in new home construction,
as noted in the Metrostudy research, as well as a big drop in
home prices. Home prices have fallen about 30% nationwide
since 2006, Fortune said, and more than 50 percent in hardest
hit markets. With unusually high affordability levels, the article
noted, Americans will start returning to the market.
The Heinrich Team
Coldwell Banker Office
831-626-2434(Direct)
831-626-2435 (Fax)
Team@TheHeinrichTeam.com
www.TheHeinrichTeam.com
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