The Perfect Real Estate Storm

There is a perfect storm brewing in real estate.  There have been hints of it's existence in the news and I can definitely feel it's rumbling.  Just as you can sense when it is about to rain I can sense this real estate storm churning just beneath the surface.  When this storm comes to fruition it will not bring destruction however, it is bringing opportunity.  What has started is the opportunity of a life time for those who are willing to seize it.

There are numerous factors contributing to this perfect real estate storm.  We are seeing historically low interest rates of under 4%.  This is historic!  We have never seen rates this low before and it is projected that the rates will stay low through 2013.  The second factor in the storm is that prices of homes have dropped by nearly half from the peak.  This means that home affordability is at a high.  Here in San Diego home affordability is at 62%.  These means that 62% of San Diegans can afford to buy a home.  In 2007 the home affordability level was a mere 10%.  This is a huge increase in the number of people who can afford to buy a home.

The economy appears to to be improving.  One of the biggest indicators is the unemployment rate.  The unemployment rate here is 8.2%, it has been decreasing for the last 2 years.  In 2011 25,000 new jobs were added.  This is a great indication that our economy is improving and will only add to the storm.

The next huge factor contributing to the perfect real estate storm is the inventory of homes for sale.  For the last few years the "shadow inventory" has been described as a black cloud hanging over real estate, preventing it's recovery and threatening a double dip.  It is not looking like all the doom and gloom was warranted.  Yes, the banks have a lot of inventory but they are not going to flood the market with new listings.  They are considering many options such as bulk sales to investors, principle write downs, shared equity programs, and renting the properties.  It is unlikely that all of the bank shadow inventory will hit the real estate market causing a flood.  The other factor effecting inventory is the lack of new homes that were recently built.  When the economy crashed the builders stopped building.  Last year in San Diego there were only 879 new homes built.  This does not nearly cover the new housing needed to compensate for the rise in our population.  It is estimated that 10,000 new homes are needed each year.  The biggest complaint I hear from fellow agents and buyers alike is that there are not enough houses on the market!

Another factor is the pent up demand of buyers.  For the last five years or so, buyers have been sitting on the fence.  Those that otherwise may have purchased were frozen with fear of the economy and the real estate market.  We basically have 5 years of buyers stored up and ready to buy.  Rents are going up.  In many cases now it is cheaper to own a home than to rent one!  The divorce rate goes down in a poor economy since people can not afford to divorce.  This is another group of pent up buyers.  They are not going to stay married for long once they can afford to get a divorce.  All these pent up buyers are beginning to come off the fence realizing now is the time to buy.  This trend is going to become stronger.

When we look at all the factors contributing to the perfect real estate storm, it is no wonder that the buyers are beginning to move.  I am currently working with investors who are already taking advantage of this.  They are buying multiple properties.  They are setting themselves up to be in a perfect position once the storm ends.  Remember at the height of the market when little track homes were selling at over $400,000 and you thought to yourself "I should have bought early" or maybe I "should have picked up a rental property"?  You were kicking yourself because you were thinking of the profit that you could have made or the money you could have saved.  Well, the forward thinking people have started buying again.  Ask yourself, do you want to be kicking yourself again in the future or do you want to take advantage of the opportunity created by this perfect real estate storm?