A Down Market with Huge Opportunity

Friday, October 23rd, 2009 | Uncategorized

Hi everyone,

This is Josh here, and I’m taking a quick break between conference calls to jot down some thoughts about the housing market before I head out for the weekend.   Everyone is waiting for the bottom to hit, and wondering what it will look like.  Well, if you’re in the Midwest, maybe it’s already hit. These areas didn’t have the explosive appreciation that other parts of the country, mainly those areas along the coast, enjoyed.  So in essence, they didn’t have far to fall before housing values came in line with local salaries.

But for many regions of the U.S., it’s going to be a long road.  Several weeks back Moodys, a highly regarded rating agency for investors, released a report stating that the California market wouldn’t come back until sometime between 2020 and 2030.  I know, that’s California, it’s a different planet, right?  Well, yes . . . except that if California were a separate country it would have a seat at the G8 summit – you know, that meeting of the eight richest countries in the world. So what happens in California, does matter. As for the rest of the country, look at Japan.  Their current housing prices went back to 1986 values after their economy went bust, and this is on an island with a high population and a First World country.

Okay, so some things to consider as real estate investors when looking at today’s market. In other posts I’ve talked about unemployment and the lack of a new industry that will create something tangible to bail our economy out.  Let’s look at two addition reasons, among many, why this housing market isn’t coming back any time soon.

We’ve overbuilt supply.  In the first several years of this decade, developers built enough homes to meet the needs of a growing population in the year 2020.  We now have a surplus of houses just sitting.  According to the latest data, the number of vacant U.S. homes touched 18.7-million in the second quarter. That is a daunting figure, of course, but it is more fun to put it in context. Assuming four people per household, the U.S. currently has enough surplus housing to put the entire population of the U.K., with room left over for Israel.

Baby Boomers –– those born between 1946 and 1964 –– are retiring and downsizing.  There are 77 million of ‘em and they’ve been a force in our economy for decades.  Part of aging is spending less and less money, which they are doing.  As a result, the economy is losing its largest segment of buying power.  Moreover, as they downsize from houses into town homes and condos, this will add to the glut of houses already available on the market.  Finally, only a third of the 77 million baby boomers have any kind of retirement, and that was before housing went bust along with their financial portfolios.  Let’s not forget what this aging population will do to Medicare and Social Security . . .

I know, it’s all rather gloomy, especially given that 10 years ago people were discussing a “new economy” that promised increasing wealth for everyone.  I remember one teacher trading stocks while students were taking tests, and making more than his salary! We all thought that we had it figured out . . . well human nature has trumped us again.

That’s why it’s important to have your eyes open and to begin thinking about what’s around the next bend in river.  As a real estate investor, regardless of what the economy does, people need houses that they can afford. That’s were you come in.  We can’t rely on the government, regardless of what party is in power –– politicians will always favor the banks’ interests and corporate interests over our own. The last politician we had stand up against these powerful interests was President Theodore Roosevelt, and that was a century ago!

So get out, get some houses, learn how to buy right, and build a business that both affects your family and your community in a way that will make us all stronger!

~josh

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3 Comments to A Down Market with Huge Opportunity

Jaime Knox

Great article…man I wish i could write that well…great information and thanks again.

Karl Kummer

We’re investing in FL and GA and have noticed that the condo and town house markets are starting to get noticed by retiring boomers down sizing into the sunshine for their golden years, but there’s something else going on. As the Panama Canal finishes its expansion, larger ships will come into Miami from China. The largest solar array is being built in central FL. CSX is planning the largest rail depot. These are indicators of a new surge of development.

We regularly have politicians and pundits shouting about the power brokers. They get swept off the stage and laughed out of the arena. I think the big mistake is to believe that the new economy can look like the old one. These things go in cycles and the more extreme the energy buildup the more likely that we’ll see the essence of our humanity. We’ll either come together as one people, one planet or we’ll be kept in this bickering mode. Divided, conquered, separated and alone.

I like to work with smart, fast team members who recognize the limitless possibilities and with tireless effort attack the problems at hand, each and every day. Those are the only people I want to associate with on a regular basis. Thank you SREC. This is a great organization.

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