Real estate prices: The froth is gone

Today's Financial News - Posted October 22, 2008

The nation’s smart money is heading back to the real estate industry. Reports out this morning say investors are crazy not to take advantage of this market. That is why I am putting my own money on the line.

By Andrew Snyder

Baltimore – (TFN): If you read and believe the mainstream headlines, you would think realtors are jumping out of windows. The media makes it sound like absolutely nobody is buying a home right now and houses are plummeting in value.

In reality, it is a much different situation.

Just this morning, PricewaterhouseCoopers quietly announced it believes the real estate market will reach a bottom in 2009. The report goes on to basically say investors are crazy not to be taking advantage of the depressed markets in Seattle, San Francisco, and New York. They will make big money “riding the markets back to recovery.”

I agree with the report, but debate one notion. We have already reached a bottom in most markets.

All but the frothiest are settled

I do not care where you have been hiding, this market downturn should come as no surprise.

How many of us drove down a street over the last year or so, looked at home on the market and said, “They want how much for that place?”

Prices were over-inflated and we all knew it. That is why folks stopped buying and those outrageous prices are now falling. As demand falls, so do prices.

Just as we learned in Econ101, eventually an equilibrium is met, prices level off, and buyers flock into the market. That is where we are at today and the smart money knows it.

Despite what the headlines make us believe, realtors are not in a suicidal panic. In fact, most of them are just as busy as ever.

Just the other day, I spent a few hours of my evening at a local real estate agency. It is not something I do for fun. It is something I do because I consider myself part of the smart money and am investing in a property.

While I signed line after line and put a large part of my life into escrow, the office was bustling. There were still realtors hustling out the door to show properties. There was still a line for the copying machine. And there was still a brand-new Mercedes parked in the “seller of the month” spot.

It is business as usual in the real estate industry. That does not mean it is the same frenzied pace we saw just a year or two ago. That pace was unprecedented, unnatural, and obviously unsustainable. What we have now is an efficient market working the way it is supposed to be.

Back to basics

It may take a few extra years to see the value of your home double, but real estate prices will continue to appreciate and home buying will remain a solid long-term investment.

Already, we are seeing signs of a drastic improvement in some of the nation’s hardest-hit markets. Southern California has been making all sorts of negative headlines. But did you know sales volume in the area increased by over 65% on a year-over-year basis in September?

Smart investors are getting properties at great values. They realize that home values are back to historically average levels that make safe long-term investments.

Do not worry about the doom-and-gloom headlines. We have reached the bottom and the free market is once again in control.