In each real estate cycle, investors as well as home buyers wonder and speculate when is the right time to buy. Realtors and their national and state organizations are not helpful. According to them, the best time to buy is always now! The argument for urgency is derived from low prices, falling prices, rising prices, low affordability, high affordability, low interest rates, rising interest rates, the impending rate increase… And then there is the ever present theory of that this time it’s different.
National HousingAlerts Chart
The government intervention in the real estate market following the collapse of Lehman Brothers and the government takeover of Fannie Mae and Freddie Mac in 2008 were unprecedented. It really WAS different!
Nobody knew what the real long term and medium term effects of this interference would be. So how could you tell where the real market forces were headed, and how could HousingAlerts have helped you with clear insights?
Supply, Demand and Shadow Inventory
Supply and demand is usually measured in terms of MLS inventory: How long would it take – at the current rate of sales – to deplete the entire current inventory of houses for sale through the Multiple Listing Service (MLS)? This is typically measured in months – the higher the inventory, the weaker the market. What was different during the crash? The theory of “shadow inventory.”
Through the peak of the foreclosure wave, banks repossessed more houses than they put back on the market. Since banks don’t want to be home owners, they must eventually sell all this inventory, which is artificially held back from the MLS. Speculation about shadow inventory (and still MORE foreclosures) hitting the market were rampant beginning in 2010. The predictions never manifested in the market.
For almost a decade, mortgage lenders have been able to run the exact same radio ads: “Rates are at all-time lows. That can’t go on forever. Rates are bound to go up soon, so it’s time to refinance (or buy) now.” I’m sure you recognize the message. What else was different then? Ironically, the current “all-time low rates” were only available to a very limited pool of home buyers. Additional conditions and limitations were imposed on the state of repair of the houses that the best loans would finance. Foreclosures and bank owned homes rarely qualified in as-is condition for purchase by first-time home buyers with FHA, VA or conventional financing.
Interest Rates and the Feds
Using a wide arsenal of tools which range from interest rate cuts to buying debt instruments to controlling the money supply (aka “printing money”), the Federal Reserve did everything to shore up the housing market. This amounts to nothing less than a massive manipulation of the real estate market. “Natural” market forces were changed to move in the opposite direction when key factors like interest rates, and money supply were altered. Among other effects, these policies made it possible for banks to sit on much higher housing inventory levels than ever before. In addition, large equity firms, hedge funds, and REIT’s (as well as individual real estate investors) came into the housing market because real estate is perceived as a shelter against potential inflation.
Dangers to a Solid Market
If you have experienced HousingAlerts before, or even just seen some of our free training videos, you know that real estate markets traditionally move fairly slowly, and once they change trends they move in the new direction for a while. All of the factors mentioned above can have destabilizing effects on that general rule. Upward swings in some local markets can be short lived if any of the artificially created market conditions change. The characteristics of local and regional markets can be significantly different from what local experts perceive or predict, because too many factors that have never played a role before are now the driving forces of the market. How do you know whose advice you can trust, and what can you do to protect yourself from devastating losses?
The HousingAlerts Protection
The HousingAlerts investing tools are solely based on “technical analysis”. Without going into too much detail here, that means two things for our users:
1. ALL of the above mentioned uncertainty factors are captured in your data feeds and research and decision tools.
2. None of these factors (or any other “fundamental” market criteria) can nor should affect your “investing psychology”.
The bottom line: Even though there are many factors and forces in this (or any) current market, know that local markets respond differently and that the HousingAlerts tools cover and protect your investing decisions and give you the peace of mind you need to invest with confidence and still sleep at night.