5 Things To Be Thankful For In Real Estate
Neal Sherman
If you're an investor that has been beaten down by negative media articles, let's look at where we are and put things in perspective:
5. Investors, hedge funds, REITs from around the world - Europe, Asia, India, the Middle East = are actively and quietly investing in U.S. real estate. One of the wealthiest investors in the Middle East stated on CNBC yesterday that he sees opportunity to acquire U.S. housing assets over the next few months. Hedge funds have contacted us recently out of Asia to initiate discussions on pricing for large portfolios of assets
The Europeans are gleefully putting investment dollars to work in California, New York, Florida and major metropolitan areas in the U.S. The significant depreciation of the dollar has made U.S. housing assets ridiculously cheap compared to expensive European real estate.
4. Expats and Canadians are actively considering U.S. real estate. Canadian Boomers are tired of living in severe winter conditions need a respite and Florida is just the place to offer it to them. Canadian real estate has held up extremely well and the depreciation of the dollar has many Canadians considering a second home purchase.
3. Interest Rates - We may have a 30 Year mortgage at 5.25% by April. The economy is weakening monthly. The subprime mess continues to worsen. At least 2 additional Fed rate cuts could be coming. An opportunity to lock in attractive rates and reduce monthly expenses is certainly thankful news for many investors.
Why is this important? Because are anecdotal conversations with renters indicate that the consensus whether it be Miami, Orange County or New Jersey is that people that are renting actually plan to buy once prices come down, rates come down, blah blah blah. Declining interest rates significantly bridge the gap that currently exists between buyers and sellers.
2. Inventories are stabilizing. New construction starts have plummeted, another piece of good news. Over the past couple months, we've started to make inroads into the rental inventory. Rental inventory in Palm Beach county where I reside declined from month to month for the first time in many months. It is possibly the start of a inventory reduction trend. Rental inventory has stayed relatively flat for the past 6 months and as the sub prime mess unfolds it is going to get tougher for buyers to get financing. Expect the numbers of renters to explode over the coming months and rental rates to go up.
Here's why rental inventory is more important that sales inventory. It is rental inventory that needs to decline before rental rates can stabilize and start rising, which will at some point make purchasing a better decision than renting.
1. And the number 1 reason to be thankful .... If you are a real estate investor or homeowner, congratulations! Real estate is the best long term wealth building asset available today, despite what the fear mongering media would have you believe. The media has made people fearful of real estate ownership. Ask someone that has owned a home for 20 years if they're glad they purchase. What do you think your home or investment will be worth in 2015. You have made an attempt to build financial freedom. All that is required is patience. Remember that even 3% appreciation in real estate is equivalent to 30% appreciation on your money at 10% down.
And worry not. Even if this deal doesn't turn out right. Because what you possess is the ability to make decisions, think ahead for yourself and take a risk in making an investment. You're focused on your future financial freedom and I'll put my money on someone looking to improve their lot in life any day of the week over someone that accepts their situation and is unwilling to do so.
Focus on ways to survive the current downturn. Unlike stocks, housing is a tangible asset and people need housing. People are living longer. New construction starts have plummeted. The population continues to grow every year by about 3 million people. Because the correction has been severe, there are a ton of buyers waiting for rebound and by definition the snap back will also be quite sharp. Happy Holidays!
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