Uncertainty in Economy vs. Opportunity in Real Estate

by The KCM Crew on February 9, 2011

There are many people sitting on the sidelines right now afraid to pull the trigger on a real estate purchase. Some are first time buyers; some are thinking of moving up to the home of their dreams; others are looking to purchase a vacation home or perhaps a future retirement home. Fear has prevented them from moving forward. Though their concern is understandable, we must never allow fear to ultimately determine who we are nor what we do. We must live our lifes.
The fear causing so many to hesitate comes from three areas:

1. The lackluster economy
2. The unemployment numbers
3. Real estate’s performance in the recent past

Should they stop us from moving forward with our dreams and aspirations.

The Economy

Actually, the economy is doing much better. The news is more positive every day. Consumer Affairs said this:

The U.S. Federal Reserve, which has administered life support to the economy over the last two years, says it’s seeing some promising signs of life.
In its “Beige Book,” containing reports from the twelve Federal Reserve Districts, the central bank finds “moderate expansion” of economic activity at the end of the year.
It said conditions were improving in the Boston, New York, Philadelphia, and Richmond Districts. Activity increased modestly to moderately in the Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and Dallas Districts.
The economy of the Minneapolis District “continued its moderate recovery,” while that of the San Francisco District “firmed further”.

This is most easily seen in the increase in the Dow which has shown a 20.9% in increase in the last twelve months.

Unemployment

Though still too high, the unemployment numbers are getting better. The recent drop from 9.8% to 9% is proof that things are, if nothing else, at least stabilizing. Though the job losses have been deep, they have leveled off. We can see this in the graph below from Calculated Risk:

The greatest fear was created by the uncertainty by many that their job could be in jeopardy; that they could be next to join the ranks of the unemployed. As the economy grows, any increase in unemployment seems unlikely. That should remove most of this fear.

Real Estate’s Performance

There is no question that real estate has had a difficult last five years. However, real estate was never meant to be a great ‘short term’ investment. It has, on the other hand, always been a good ‘long term’ investment. Let’s compare real estate to the returns in the stock market since January 1, 2000.

In the long term, real estate has always been a safe investment.

Bottom Line

We should make sure that the financial uncertainty of the present does not prevent us from taking advantage of the opportunities available in the real estate market currently.
Donald Trump probably put it best last week when he said:

“I’m pretty sure this is a great time to go out and buy a house. And if you do, in 10 years you’re going to look back and say, ‘You know, I‘m glad I listened to Donald Trump’.”