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1/6/13: Real Estate Perspectives, Predictions and Precautions for 2013

Even though we’ve survived the Mayan doomsday, we’re still paddling towards the fiscal cliff and Congress hasn’t produced a budget in over 1350 days. Plus we’re banging up against yet another lifting of the debt ceiling.

But don’t worry, the recession ended in June 2009, remember?

Meanwhile, real estate just keeps chugging along.

So what does 2013 portend for real estate investors?

Well, every year at this time, all the pundits and prognosticators whip out their balls (crystal, that is) and tell the world what they think is going to happen.  And just for fun, we sift through all the noise and try to pick out some interesting tidbits to comment on ourselves.

So sitting behind The Real Estate Guys™ big shiny crystal ball is your one and only intrepid host, Robert Helms.  Co-host Russell Gray had to sit out this session because his ball was too small to add any real excitement to the broadcast.

Now that we’ve gotten past our juvenile crudities (c’mon, you smiled a little), we’re really here to talk about the state of real estate and where the market is…and more importantly, where people who spend most of their time paying attention think it’s headed.

We know that the banks just bought another multi-billion dollar get-out-of-jail-free card for all their violations of mortgage and foreclosure law.     Billions may seem like a lot, but compared to the damage they did and the legal consequences they escaped, it was a bargain.

But whether you like it or not, the settlement moves the marketplace yet another step closer to flushing the foreclosure inventory.  This means continued downward pressure on pricing, more people renting, and lots of motivation for the Fed to hold interest rates at ridiculously low rates for a little while longer.

Now, what’s an investor not to like about lower prices, more renters and low interest rates?  Just be careful not to stand around admiring all the bargains and overlook actually getting in on the action.  We continue to think this will go down in history as one of the greatest real estate buying opportunities of our lifetimes.

Builder confidence is on the rise, but still very low compared to the heyday.  Still, more new product is beginning to come out of the ground.  Since some of the existing inventory is selling below replacement costs, it will either be very hard for builders to sell their product at a profit, or the new product will start to pull prices up.  Considering how much money they Fed continued to pump into the system, we’re betting on the latter.

The population continues to grow, but employment isn’t keeping up.  That means a more competitive labor market and downward pressure on incomes.  And if you’re a saver (noble ideal, but bad strategy when facing inflation), trying to live in interest income, you’re getting squeezed by higher prices and lower interest rates.  All that to say, that if the squeeze continues, people and businesses will continue moving to lower cost, lower taxed areas.  Keep that in mind when selecting markets and product types to invest in.

One thing the last few years have proven once again:  markets cycle.  Some of the worst hit markets in 2006-2009, have become some of the highest appreciating markets over the last 3 years.  Seems obvious in hindsight, but how often do we freak about about buying at the bottom?  That’s where perspective comes in.

So listen in as Robert reviews and comments on the chatter in the market.  Just be careful not to get lost in the forest of information and miss the big picture.   Worse, don’t let fear of uncertainty keep you from getting in the game.  After all, the only thing 100% certain is the past…but by then, you’ve missed it.

Your job as a real estate investor, is to study, think about the possibilities, and act on the probabilities.   As long as you don’t bet the farm on any one deal, even when you get it wrong, you should live to invest another day.  And since doomsday didn’t come, we can rejoice that (at least for now) we all get some more days to live.

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