On Dember 5, 2008, we asked the question: Is Real Estate a Good Deal Yet? It did not appear to be a good deal then, and indications are only worse now. One of the biggest factors we looked at then was employment.
- Thirty days from today, I suspect that many companies who kept up appearances through the holidays will fold or begin massive layoffs. – TitleSearchBlog 12/5/08
Since that time, Circuit City has gone out of business, and just today Microsoft announced its first ever layoffs. They fired 5000 people, over 5% of its employees. According to Microsoft CEO Steve Ballmer, the layoffs are not about being in a recession. This downturn is about regaining the security of a sound financial level:
- “We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy,” – Steve Ballmer
What does this mean for real estate? If this assumption is correct, and I believe that it is, then real estate investors should plan for prices to stabilize at 1999-2000 levels. There is already property available at these prices in some areas. If you are a shrewd investor, you can actually make deals happen at this level no matter where you are. A few of the sellers in the seat of current listings will sell at that level. You need to find them and make it happen.
Investors who take the time to find these deals will have a few years of rental return under their belts when the dust settles. More importantly, investors with demonstrated profitability during a rough economy will be good lending risks to banks in 5 – 6 years when there are more great opportunities. Of course, another option is to just hold off until then, and look for deals when they are more plentiful.
This is not a recession, it is just the economy getting back on a true course. That means the changes to the market will be permanent. A real estate investment plan built around that idea will work in any environment.
What’s next? There are rumors that IBM may layoff 16,000 people soon……
1 Comment
January 26, 2009 at 7:17 pm
[...] foreclosures now. Prices are down by 35% because of foreclosures, and sale volume is up. I said in an ealier post that prices need to come down to historic levels to get the market moving. It might be starting to [...]