Real Estate, Interest Rates, Inflation, Oh My!

Real estate is often known as a slow moving giant.  So when it starts to bow under economic strife, over-leveraged homeowners, and collapsing financial institutions, we get the nail-biting task of watching the chart dive in slow motion. 

Taking the hardest hit in the the housing bubble, slow motion pop is new home sales which have declined steeply over the past two years.  It now takes an average of 9 months to sell a home that has recently completed construction.  Remember the days when the complex was sold out before the builder broke ground?  Yeah, they’re long gone.

But existing homes on the West coast seem to have had a small bounce in the grand scheme of a plunging market with a recent surge of 23% almost a complete recovery of August’s decline.  Which, dare I say, is a temporary stagnation.  Who would have thought this would be such encouraging news.  However, the Northeast housing market stats are still dismal, sitting at their lowest rate in 35 years.  The Midwest fairing only slightly better with home sales hanging at their lowest in 17 years.

Interest rates are still very low at 6.04% but with many home buyers not confident enough to buy and qualifying so difficult for those who are, the interest rates are not infusing the housing market with the same fervor as we saw a few years back.

Now factor in the dollar, worth considerable less than just a couple of years ago, and what that is doing to the average household’s expendable income.  It appears the slow moving giant of real estate has only one way to go.  But don’t be so hasty to give up on the old giant.

When the market behaves erratically, and steep declines like 700 points in a day spook investors enough to step out of the game, real estate looks like that old stand by investment.  After all, one cannot make more land like the government prints more money.

Another interesting observation… as the general public loses faith in institutional investing, the average investor will lean more on his/her own research than the advice of financial giants which, interestingly enough, are very large and quick moving animals.  (i.e. Today: Look at your hefty 401k! Tomorrow: How to live on pennies a day.)  This means investment dollars will infuse smaller, more fast-moving public companies and that people will once again turn to that old stand by, not-going-anywhere, real estate.