SEEING THE BIGGER PICTURE.....For those of us involved in the Real Estate business, it's more than a trite metaphor. Just as this view from inside the new Lucas Oil Stadium in Indianapolis frames a distant image of downtown Indy, we must look far into the future to see the business in perspective as well.
There's little doubt that our country and more locally our region and city are being affected by challenges in the housing market. Excessive supply, marginal economic growth, subprime mortgage defaults and property taxes all are contributing to our current real estate stagnation. Unlike the early 1980's when the overriding factor was interest rates in the upper teens, this troublesome market has little to do with excessive mortgage numbers. There has been in a sense a perfect storm of issues in our local market across Indianapolis. All of the above factors have forced the housing market into a slowdown. The only real question now is when will we see the up side of the trough?
Again, unlike the early '80's, there are potential home buyers in the marketplace actively looking at real estate as an investment. The first time home buyer market has moved steadily forward in 2007 with sales in the 1st time purchaser market remaining relatively strong. For that prototypical initial home buyer, it's been a simple question of 'how much down and how much a month.' While a higher than normal supply and overall stagnation has slowed their decision process, they still have moved into the market and made acquisitions. They don't care about a quarter of point extra in interest from 18 months ago. In the historical sense, interest rates are still incredibly low. That fact is the reason first time buyers have continued to seek the American Dream.
The issues of property taxes, over supply and recent foreclosures have been an enormous burden on the resale market for both seller and buyer. Those individuals have a home to sell, seen their equity slip, watched other properties in their areas fall into foreclosure and overall values fall. Then consider the effect of slightly higher interest rates for those move up purchasers. If they must look at 1 1/2 times the the value of their current property in order to be motivated enough to move, the end result is much harder to reach. With higher rates, in many cases mortgagees could be facing double the monthly house payments to actually make a move to a better home. Simple economics dictate a much lower success rate for that equation.
So where is it all leading us? I recently had a prospective home buyer who had viewed dozens of properties tell me he was waiting for the market to hit bottom before he actually bought. As I shared with him, virutally NO ONE actually buys at the very bottom. Like the stock market, most who want to buy at the bottom in real estate usually end up doing so when the market has in fact turned and is on it's way up. That risk carries with it the potential that long term interest rates will have turned as well and are higher than they are as the market nears the bottom on it's way down. Much of where our current real estate market exists now is psychlogical and in fact has been hugely influenced by the media. The day is coming when some positive news eminates from the media regarding the real estate market. When that happens we'll see a mini stampede to buy property from the current pent up demand. It won't drive prices up 20% locally in a year like one of the coastal markets but it will result in unquestionable equity growth for those that purchase now in Indianapolis.
AS always.....contact me at 317.848.GREG (4734) or Greg@GregCooper.com
