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By Michael Setz
There has been a lot of talk lately about the "Real Estate Bubble", and a lot
of folks are asking the question: "When it is going to burst"?
They are saying that the market just can`t sustain this level of growth and
appreciation much longer, and I heat them say that it is inevitable that it
must come crashing down soon. People are worried. They don`t think it can
last; That whatever goes up, must come down.
These folks have been conditioned to believe what they believe most likely
from the experience of the stock market bubble of 2000, and maybe the 1990`s
when the real estate market was hit hard in many large metropolitan areas
across the country.
Its human nature to feel this way. We all know the saying (or the 80`s tune
for you big hair folks), "Once Bitten, Twice Shy". Or what about, "All good
things must come to an end."? Its how we react to almost everything that
affects our well being and general safety. Its a subconscious reaction at the
gut level.
Just like in the stock market, there are bulls and bears. Bulls are typically
more optimistic about the market and expect it go up, and bears are generally
more pessimistic and expect the market to go down. They will always be there
to provide free advice and "expert consulting". Remember though, who you
decide to listen to will certainly have an effect on your decision making,
and ultimately your success.
Well, I`m here to say that there is no real estate bubble! There never was a
real estate bubble. Its a complete and utter fallacy.
"How can I say that?" you ask. I can say that because the real estate market
is in reality, a Wave. Its a cycle, and we just happen to be riding the big
swells, or the crest of this long, consistent, and fairly predictable pattern.
There is no doubt that real estate has been a rock solid investment for
decades, and will continue to be for the foreseeable future and for many
reasons that I would like to demonstrate here and now. Because you, as a real
estate investor, must be able to move forward with confidence when deciding
which projects and properties you want to buy and sell. That is the purpose
of my website, www.realestateinvestment.net (http://www.realestateinvestment.
net), to provide you timely information, strategies and techniques to help
you succeed.
But first, what is a bubble? In terms of economics and markets, the best
definition is probably something along the lines of "an isolated or ephemeral
situation or condition with little support or substantiation from external
conditions".
The best example, and the one foremost in the minds of us all, is the stock
market tech bubble of 1999 and 2000. We all rushed into the tech stocks and
the stock market in general as we saw the .com millionaires being made.
Y2K was a big factor in the tech bubble. People were buying new systems at a
unprecedented rate in order to prepare for doomsday. People were also buying
consumable goods to stock up for the dreadful event that never came.
So what was holding up, or supporting the "irrational exuberance" as Alan
Greenspan characterized it? Well, we learned soon afterward, not much. It was
an isolated, temporary incident that had little support from the other
conditions. It was indeed like a bubble that burst.
And it has had little support since then. Historically speaking, after the
stock market crash of 1929 and 1987, it took decades for the market to
recover, although it did eventually recover. Just look at the Dow average and
the S&P average for the last hundred years and see the pattern of recovery.
You can be sure that a slow steady rise for stocks is in progress.
Now back to real estate. Let me explain why this is not a bubble.
Real Estate is Cyclic
Real estate has had its ups and downs over the years, but it is generally
stable, with no drastic swings per se. If you were to look at the cycles on a
chart you would see a clear pattern of gently rolling swells. This pattern is
consistent across cities and regions all across the United states, although
slightly varied in degree.
In addition, the cycles tend to favor the ups rather than the downs. It is not
uncommon to see large cycles of appreciation and much smaller downward cycles.
In other words, the current double-digit growth we`ve all come to know and
love in recent years will likely be followed by downturns of single digit
declines. Its like taking two steps forward and one step back.
In the big picture you will still be further ahead than when you started. You
may see slower growth, but it will still be growth.
Real Estate is a Basic Necessity
People need to live somewhere. They need a roof over their head and their
children`s heads. Like food and clothing we must have a home. People don`t
need stocks or bonds. Therefore, you can be sure that whether the market is
high or low in growth, whether interest rates are up or down, people will be
buying, renting, leasing, and selling homes. It is as perennial as the years.
This Real Estate Wave Has Been Around Awhile
I don`t know when you first realized we were in an up market in real estate,
but it has been on a solid upward trend for at least the last 3-4 years. It
didn`t just happen yesterday. Of course like anything else, awareness of the
general public is a bit latent, and dependant upon the media. It has only
been lately that the media has really focused on it and thrust it onto the
front page.
The old adage "Success breeds success" is also true. The momentum will grow as
other more traditional investors continue to jump on the band wagon and pour
their money and resources into real estate investment. It tends to create a
perpetual, self-feeding market that is ideal for more seasoned investors.
Real Estate is Local and Regional
It is true that even in today`s real estate boom, there are areas in the
United States that are not enjoying the high rates of return that others are
experiencing. California is a fantastic place to invest, so is Arizona and a
host of other places.But the Rust Belt states are not as fortunate. Watch
what happens to Florida home values after this horrendous hurricane season.
This is because real estate is driven by the primary capitalistic force of
Supply and Demand.
Generally speaking, property values increase in areas where the job market is
strong, and where there are more people moving into than away from. Of course
there are other factors to consider; including interest rates, availability
of funding, climate, and governmental policies. These are all important and
you must be cognizant of their impacts to your strategy.
However, it is true no that matter what the rates are or how nice the climate
is, people will continue to migrate where there are abundant job markets and
affordable housing. If you can stay just slightly ahead of that migration,
you will profit immensely.
Real Estate Investing is Diverse
You can invest in so many different ways, from foreclosures and fix and flips,
to buy and hold and everything in between. Right now the commercial space is
relatively soft. It will recover no doubt, but people investing in single
family homes are probably doing slightly better in returns. Vacancies are up
and rents are down for commercial properties, but fortunately, the forecast
is for this sector to improve over the next few years.
The key to successful real estate investing is to understand the forces,
trends, and conditions that are driving the market. BE AWARE of your
surroundings; Read articles and stay on top of industry news; Look in your
own area at the job market and forecasts. Check my website www.
realestateinvestment.net (http://www.realestateinvestment.net) for all the
news and information you need to help you succeed in your real estate
investing career.
There is no real estate bubble, but there is a real estate wave. Like any
dedicated surfer, when the surf`s up, get in the water and catch a wave! But
watch for danger, be flexible, and be smart. Invest wisely and you can
prosper in any real estate market.
Copyright 2004 realestateinvestment.net (http://realestateinvestment.net)
Michael Setz is an author and the founder of www.realestateinvestment.net
(http://www.realestateinvestment.net) - The network for successful real
estate investors.
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