It's no secret. The real estate market in St. Louis and in many other markets throughout the country are sucking big time! Yesterday, the median home price figure was released and it was down 8.6% nation wide from a year ago. New home starts are also at historic lows. So, if the real estate markets are sucking that badly, why would you even consider buying a home into a declining market? Because it's not the real estate markets themselves that are causing the problem. It's the credit crises that is spilling over into the real estate markets that is causing the problem.
If you look at housing by itself, you'll see that the economic fundamentals are actually very sound. The US population just crossed over 300,000,000 people and is expected to surpass 400,000,000 people by the year 2050.
In addition to the population figures, housing formations are also expected to increase as family units get smaller. These predictions come from census data as well as Federal Reserve Bank publications, so barring any unexpected pandemics, there is a strong chance that they will indeed be right.
If they are, then all of these extra people are going to need roofs over their heads and this need should provide a long term floor to real estate values.
Something else to take into account is inflation. With home prices depressed at a time when commodities are seeing some of the largest price gains in recent history, builders are going to stop building. Being that all houses are in the process of falling down (albeit slowly) there are houses that are leaving the market all the time. If the builders aren't going to be building as many homes because they are being pinched by rising costs and a depressed housing market, then existing homes should start to rebound in value.
Also playing into the equation is that there is still a chance that the political powers that be will actually do something meaningful to stem the tide of foreclosures that we are currently experiencing.
In my opinion, it would have been better if they had bailed homeowners out rather than the JP Morgan/Citibanks of the world out. But even still, even if they don't do anything meaningful to bail home owners out, EVENTUALLY, the markets will sort this situation out on it's own.
True, it might take a while. My prediction would be 5 - 7 years for the real estate markets to rebound. Ironically, this coincides with what used to always be the "normal" holding period that would be expected to start seeing a return from your real estate investment.
So, gone are the days of buying a home and flipping it a year later for a profit. While it can still be done if approached right, we are getting back to what real estate has always been; a long term hold!
Real Estate is a long term hold that has, over the years, paid off handsomely for the people who have invested in it. For example, the number one source of wealth in this country is equity in real estate. It trumps all of the other sources of wealth combined!
It's also one of the only investments that the average person can take advantage of being able to leverage that investment. That is, with a relativity small investment (I can get you into a home with as little as 3% of the purchase price as your total investment and if your credit is exceptional or you're a veteran, I can still get you into a home with absolutely nothing out of your pocket) you can control an asset that is worth hundreds of thousands of dollars.
Getting back to the point that I made on inflation earlier, if you think about it...in the long run...if the price of nails and roofing shingles goes up a certain percentage each year, doesn't it make sense to expect a product that is made of these things to go up an equal amount?
Granted this might not work in a market that has a shrinking population or if we somehow go into a disinflationary period, but in most markets neither of these things is likely to happen.
So, all things considered, if you are fairly certain that you are going to stay in the area that you plan on living in for at least a 5 -7 year period and you're financially able to make a commitment for that time period, buying a home right now might be one of the best economic decisions that you can make!
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Contributor's Note
All real estate markets are local. Please consult a financial professional to help determine if buying a home is the right move for you!
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