It finally happened. The housing bubble burst, with home prices finally reaching an unsustainable point above home values, and housing prices began to plummet. Credit standards tightened, shrinking the pool of potential buyers and bringing home the first rule of economics, supply and demand's interrelation. Those expecting to sell homes at a profit suddenly faced a harsh reality, and real estate investors panicked, selling below market value, resulting in even lower prices. Today, more and more people are upside down on their mortgages, and the positive market of only a year or so ago seems as far away as the moon.
So why are some real estate investors starting to buy, instead of continuing to sell? Is the market finally evening out? The good news is that when the market prices drop, it may be bad for sellers but it's a great positive market for buyers. For the first time since the early 1980s, the housing market is genuinely friendly to buyers because of housing prices, not because of artificial things that have nothing to do with real estate value like cheap loans. (Keep in mind the difference between prices and value: you want high value and cheap prices when you buy.)
Who Should Buy?
While we haven't quite achieved a positive market yet, it's time for certain home customers to look at buying. Why? Because real estate prices are low compared to values, loans are still cheap, and the number of houses on the market is large and growing. Smart real estate investors will start looking for the right customers now. But who are they?
It turns out that the top of the market, luxury homes held by the most affluent, is also the most stable part of the market. Why? Because these buyers didn't fall into the gimmick-loan trap, both because they understood the disadvantages of ARMs and because they didn't need them. Moreover, despite gloomy protestations about the economy, the number of millionaires has increased 6% over the last year. Because the increase is largely due to the increasing population vested in the stock market, this is a trend that will continue. This is great news for real estate investors, especially since in certain regions, the luxury home market is still robust enough that real estate investors can flip homes for a good profit, or purchase homes at estate auctions for a healthy resale value.
A second excellent group to sell homes to right now: dual-income couples. Even in a poor market, couples with two steady incomes accumulate cash fast, especially if they have chosen to delay having children. For them, the new housing situation is a positive market. A good real estate investor will sell them the future: buy a great home with room for growth now, before the market tightens up again.
And a third group, related to the others, are people purchasing second and third homes, either for vacation purposes or as a way to balance their investment portfolios. Real estate investors who understand how to show these potential buyers how to use new homes to generate income are going to sell plenty of houses.
No matter what the market conditions, wise real estate investors can create their own positive market. You're an intermediary, and can make money on either end. Don't panic because home sales are slowing - instead, look for where the market is moving, and go there.
