Like other investments, real estate has its cycles and this is obviously a down trend. The big question is where is the bottom and can you take advantage of it or will real estate be a bad investment for the next ten years no matter how you play it?
I hope not, because a lot of people are sick of the current direction. Millions of families have lost their homes and are now living in less favorable housing. Yesterday I read about how many of these families have begun savings money for a down payment so they can get back into a house like the one they lost. Once you have lived in a house of your own, its painful to move into an apartment or rental house and that pain is cause for millions of people to re-think their budgets to get back into a house of their own.
A lot of things can happen in the next three years, but I think we are going to finally see a bottom in the housing market. Like many others, I would like to make a move into a different house and sell my house for a good prices and here is how I plan to do it. In my case, my family is growing and I would like to move into a larger home.
I bought a new house in 2001, when the housing boom was just getting started. I watched the value (and property tax) go up and down. When the housing market started to topple in late 2006, the builders began going out of business and today most new housing construction has stopped. That means that when the millions that lost their homes to foreclosure get their down payments saved up and start shopping for a home they are probably going to be looking for newer starter homes - like mine. But, because construction has stopped for several years, starter homes will be in high demand and short supply - which means that I should be able to get a good price for my house.
At the same time, high end homes should be in very low demand with a high supply. Therefore, high end homes should be down 40-60% in value, while my home should only be down 10-20%. This will be my opportunity to take advantage of the house market correction and move into a much larger home with a very good value exchange.
My guess is that it will take another 2-3 years for the market to get into this opportune position and at that time interest rates are likely to have also risen significantly. But if I purchase the home with mostly cash, the higher interest rates should only help by putting further downward pressure on the price of the larger home. I'll let you know how this plan works out over the next three years.
What do you think about this plan or do you see the housing market playing out in different way?
This week I participated in several blog carnivals
They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.
Festival of Frugality: Singles Awareness Edition
Money Hacks Carnival #51 - The Office Edition