Friday, October 5, 2012

Are the Best Barginas Gone?

An article in USA Today this week discussed the recent rise in home prices. The story cites CoreLogic, a major real estate market researcher, saying that prices rose 4.6% in August from a year ago. Other reports on housing prices are in line with this report. And in my own research, I have seen a slight increase in prices as well.  Does this mean that the days of real estate bargains are coming to an end?

I don't think so. I believe we are seeing an artificial tightening of supply, which serves to edge prices up. This is caused by many things:
  • Extremely low interest rates allow the people who are able to borrow money to buy.
  • The enormous shadow inventory - those homes that the banks own but haven't put out on the market yet - hasn't flooded the market but is being released in barely a trickle.
  • The rental market continues to be robust, so more and more people are renting out their homes rather than trying to sell them on the cheap.
  • An important Presidential election is close by, and a bump up in real estate prices helps the economy look better (again, think of that shadow inventory and ask yourself why those properties are being released so sparingly).
What this means for regular folks who want to get into real estate investing is that it's harder to find great deals today than it was, say, a year ago.  And while it's more difficult, it's not impossible if you have the right education, professional connections, and preparation.  I have written many posts on this very subject, such as this one:

That's all good stuff, but one important attribute of the successful real estate investor that's not covered in this article is patience. A buyer must be patient and wait for the best deals. A good real estate deal is kind of like waiting on a bus . . . if you miss one, don't worry because there will be another one along soon. It pays to patiently wait for and diligently pursue only those deals that will pay you over time. This is true whether you're thinking about buying a property just because you have money burning a hole in your pocket, or whether you're thinking about approving a questionable tenant just to get someone into your rental property.

So if you see a screaming deal that you really want because you know it'll work out, then by all means go for it. But if you feel like you've been looking at deal after deal after deal but they just don't seem all that great, you're not alone. Just be patient. Because those hidden gems, those great bargains that we used to just pick up off the sidewalks, are still out there. They're just harder to find now.

And be patient to see what the overall market is going to want to do. Are we at the bottom? Is it heading up or will it head lower next year? Nobody knows. But if you are properly prepared and fully educated, you can ride the wave no matter how it goes.

Contact me if you would like to discuss this or any other post. Happy hunting!