I've got some shocking news for you if you're a property investor, and hopefully this will put the confusion to rest as to whether the market will go up or down in the next 12 months.
Many of the negative views that relate to real estate are coming off the back-end of what is happening in the U.S. market.
Despite the information that we have put out recently about our prediction, some folk are still not convinced.
I suppose the reason why there is a strong focus on the U.S. real estate market is that it was the catalyst that started the ball rolling and has led us down this uncertain economic climate. Confidence is coming back – but not quick enough.
So I want to have a conversation with you as to where the U.S. is at and how we differ here in Australia.
Many experts in the U.S. still see housing prices as too high to attract buyers and too low for sellers who have got negative equity to get out with their dignity intact.
With such a crazy scenario, there is obviously going to be more problems in that market. The question is, will it effect you as a real estate investor?
Let's have a look at it closely…
The first obstacle the U.S. have got is a simple one… They've got too many houses that no one wants. I read a report recently that said that nearly 10% of all homes built this decade are sitting empty.
You're probably wondering how many are actually empty? Over 600,000 homes.
Who owns them? Well, it's probably a bank or a fancy financial institution that was silly enough to buy the mortgages two or three years ago.
So the guys that hold the asset have got a problem, don't they? If they flood the market the prices of those homes will come crashing down, which further destroys the value of the asset on the corporate balance sheet.
They don't want that – they would rather hold it and call it an un-performing asset at a reasonable valuation rather than what it's really worth.
These are the games that big companies play – it makes them sound smart, but it's a dumb move.
Anyway, so yes, it's bad over there and likely to get worse.
But I know what you're thinking…
What about us here in Australia?
Well, we have no such problem. In fact, we have the reverse. In Australia, there is a shortage of housing that is quickly adding up to 100,000 dwellings.
With no immediately solution…
It's really as simple as that… What forces prices down is something that most property investors don't think about. Supply and demand.
We're not going to experience the same fall-out that the States as suffered – that should be obvious to you by now. But I keep hearing these stories of how it's going to get worse in the States and how we're going to be dragged along and suffer the same circumstances.
It isn't going to happen.
To date, the US market generally speaking has fallen by 34% based on the Case-Schiller Index. It'll probably fall further, so if you're thinking about investing in the States – here's what you should do…
Research the market for the next 3-6 months and then consider buying some of the bargains of the century. Not many of you would consider that, however there is a real big opportunity emerging. (Best leave that for another day).
So what about Australia?
Well, here's what I'm doing. I'm looking for value in the market and a vendor that's a little bit worried as to what may happen in the next 12-24 months.
I wont be rushing in just yet, I think the free money out there that the government is throwing around has created a short-term spike in prices. Once some of the free money is taken out of the market, which begins in September, I'll be opening up the check book again.
For now, I'm doing my home work, researching, planning and getting ready to strike after September and through the early part of 2010.
I know some of the more astute property investors look to two other fundamental indicators that may suggest where the real estate market is going and they are… Unemployment and Interest Rates
Let's deal with them both…
Naive investors have got really short memories. It's handy to look back in history and at past recessions to see what the effect was on real estate.
In the 1982-83 and 1991-92 recessions, falling interest rates actually boosted Australian house prices as unemployment rose.
So can you see what happened back then? Cheap money out-weighed fears of job losses, reinforced by strong banks and a critical shortage of housing.
The governor of the Reserve Bank (Glen Stevens) said it himself, most missed it, “If new supply, now at long-term lows, doesn't improve, fresh demand will further inflate existing housing prices.”
…I know that's grammatically wrong – but he's got 4 MBA's so he can say anything he likes. The bottom line is, he's worried about real estate prices going up.
That means profit to you if you know what you're doing…
As a real estate investor that owns a substantial portfolio, I'm not worried – I'm looking to pick up more deals whilst the rest of the market is asleep at the wheel. If you've read this far, don't sit on the fence. Either you're going to get serious about real estate or you're not.
All the best!