Once in a while, a kindred spirit writes an article that brightens my day with analytical clarity. In the midst of the current housing market doldrums, this article by MarketWatch's Brett Arends makes a ton of sense. While the housing market continues to suffer and works through what appears to be another tough summer, the signs are pointing savvy investors to buy.
I've also been expecting a bad report from Zillow. In fact, I'd been hoping that the published headlines are terrible as I'm sensing one of the greatest buying opportunities in housing is about to open up. Just as Zillow made the call for a further 8% appreciation at the peak of the housing bubble, this call today evokes signs of a market about to approach the bottom. In every opportunity, there are winners and losers and unfortunately, this situation is bad for beleaguered homeowners and great for investors and home buyers.
The truth is, the housing market has not recovered. Even though it is recovering, there remains a
potential for a further 8-10% downside as the market sets a bottom in the next 12-18 months. Some analysts are even arguing that prices can dip a further 30% to retrace all the gains back to the very beginnings of the current housing bubble in the 1980s. While it definitely can happen, I think that's excessive. Prices have already retraced 10-15 years, completely erasing all the gains from the bubble.
Here Miami's example:
But, you can just check virtually any city that had a bubble on Zillow and see the same result.
So, while current homeowners are looking backwards and wincing, investor buyers are looking forward to the future gains. While people are not talking about housing at every gathering, investors are quietly coming out of the woodworks. At every party I go to, I inevitably meet a few people in hushed voiced looking to invest in housing for the first time, a far cry from the ebullient days. These investors are all pretty realistic about the long-term hold required for real estate and are not looking for a quick flip. They are more reflective and have a clear grasp of expected investment returns instead of leaping on pure optimism. Most importantly, they have lots of cash. This is all extremely encouraging since we ultimately need to have zero-leverage buyers to find an absolute bottom.
All of this makes my job of getting them a great deal on investment properties much easier, whether it’s a single condo or an apartment building. These savvy investors are willing to sit down and actually deliberate on the financial analyses I generate for them. Being so grounded, investors like these have staying power, the key to success in real estate. Once the current inventory gets absorbed by them, it won’t be back on the market for many years if not decades. So, available inventory will shrink quickly over the next 12-18 months and remain tight for years until builders rush back to fulfill demand again.
Of course, most people will likely disagree with this view and insist that housing will never recover. So, as with all investing, it's best to stick with your own convictions and keep working on getting better at it. This type of investing is not for everybody. Jumping in with the latest fads is a trait that’s only too human. You should make your own judgments and find the most astute advisors to help you.