The Current Economy and Real Estate Investing

In Real Estate by admin

A new report from Forbes reveals a substantial difference between what is being heralded by the media, and what is really going on in many local property markets across the US.

The mainstream media has been spewing out a lot of hyper optimistic stories about the economy and real estate for the past few years. We hear about the Dow Jones continuing to set new record highs, strong GDP growth, the fast growth of the hard + private money industry and even fierce bidding wars over properties that lead to them selling above asking prices, and at negligible yields. This all sound so positive that we are now dealing with the Fed on a campaign of raising interest rates.

In contrast; coverage of Local Market Monitor data by Forbes shows that in 30% of 320 markets, jobs have been growing by less than 1%. In 50% of markets income has grown by less than inflation. In “two thirds of them, home prices have not fully recovered from the last recession.”

What we have is a situation of high concentration of growth. Just 50 metro areas are responsible for 75% of the national GDP. There we may find more job growth and slightly higher incomes in some job categories. Yet, we also have dramatically higher housing prices.

This is similar to a form of stagflation where inflation and living costs are soaring, yet wages and jobs, are not. Forbes comments that this may alter typical housing cycles and lead to faster and shorter boom and bust periods in hot markets.

This current disparity is certainly causing a lot of confusion and frustration. Especially between home buyers and sellers. Sellers hear that the market is red hot, and see neighbors listing high. Some are buying at any price out of panic, even if the numbers don’t make sense. Even though the economic fundamentals don’t justify it. This gets tougher when buying or investing in new areas. The market is not the same. Supply and demand can be quite different.

However, what the Forbes report may have conveniently missed is that not only is this not a new phenomenon, but the new technology which may be driving this rapid disparity is also freeing workers and businesses to move to far more affordable areas. You can live out in the suburbs of Tennessee, work for Google, Amazon, or Apple online, and make just as much money as if you had to pay rent to live in Silicon Valley. Or you can keep your mansion on the beach in Southern California, and invest for far higher returns and growth in real estate markets in the Midwest and Southeast. This could produce one of the largest shifts in supply and demand since the railroads began laying track across the US.

The bottom line is that all real estate is local, and it is constantly changing. To capitalize, the savvy real estate investor must pay attention to trends in their investment areas and adapt strategies.