| Issue #30, October 20, 2006 |
Is Real Estate Still A Viable Investment?
As the real estate market adjusts, buyers and sellers face challenges while they deal with their property investments. According to the National Association of Realtors, existing home sales will drop by 8% in 2006 and another 2% in 2007. Looks like a pretty grim picture after the appreciation we saw in the last 5 years! The slowdown, coupled with the buyers’ waiting game, was bound to happen. House values more than doubled in the last 5 years and “you could see some ugly declines in some markets,” housing analyst Jack McCabe says. Now, with the residential real estate inventory rising, and buyers playing the waiting game, anxious sellers are forced to lower their prices creating new opportunities for buyers that couldn’t afford to enter the bidding games reserved for the privileged few. Of course, timing is everything.
Buyers are confused, they wonder if this is the bottom of the market, so they wait to see if prices will keep falling. In the meantime, pending home sales are up for the month of September, according to the National Association of Realtors, indicating stabilization is taking place in the housing market. Frankly, this environment could be a lot worse. Let’s look at the big picture, interest rates have been falling recently. According to Freddie Mac (FRE) the national average commitment rate for 30-year fixed-rate loans fell about a quarter-point in August to 6.52%, from 6.76% in July, and continues to fall. The favorable interest rates on mortgages and the falling prices should give buyers more purchasing power. Not to mention the numerous foreclosures on those adjustable interest-rate loans so popular during the boom because of the fast appreciation factor.
In South Florida and particularly Miami, we see the very high-end luxury properties over $4 million still selling well in areas like Coral Gables and trendy Miami Beach. The slowdown is mainly noted in the mid-range priced homes. Naturally, buyers in that market are more cautious and require more assurance regarding their investment. Like any financial speculation, you have to trust your instinct and rely on the facts to make a sound decision. In 2005 when the prices were higher, buyers were conducting bidding battles, placing contracts on anything that came along hoping to double or sometimes triple their investment. This practice left no room for others who actually wanted to purchase a place to live. Now that the price is right and the mortgage rate is low, there are fewer reasons to wait and miss out on an opportunity.
Buying a home is not a trend. It’s the ultimate goal of stability and prosperity. It’s simply the right of any working person not just the privileged few. So when the opportunity knocks, don’t just wait for something else to happen. Grab it, and things will fall into place.
Honestly, no one really knows where the bottom of the market is or whether the boom we saw will come again anytime soon. The flipping game is over and real buyers should now slowly replace this craze of speculative transactions we saw in the past few years. Home shoppers shouldn’t expect to make a profit if they were to sell their home within the first year of purchase. They now have to give it more time to appreciate. Now, we will go back to the old fashion way of purchasing real estate. Buyers who purchase residential real estate and keep it long term will always do well. In fact the majority of Americans still feel optimistic about their home value despite the slowdown in the real estate market.
In this market, buyers who are looking to settle down in the same place for a longer time should have no fear when purchasing a home, and those who are in a less stable situation should think twice before making such a commitment. So yes, real estate remains a solid investment and with the help of a professional and common sense, one can still accumulate wealth through property acquisitions. Just like the good old days!
Finally, we’re back to a normal market. Real estate remains a viable investment with a track record that goes at least 30 years back, but the get-rich-quick formula we saw lately will no longer apply. Prices will rise slowly above inflation rate and the long-term investment of real estate will prove to be profitable as always.
Farid Moussallem, RE/MAX Elite Properties, 283 Catalonia Avenue. Suite 100, Coral Gables, FL 33134. Call 305.572.1910, E-mail farid@miamilifestyle.com or visit www.miamilifestyle.com.
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