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WHERE IS THE REAL ESTATE MARKET HEADING TODAY?

WHERE IS THE MARKET GOING? History gives us the answer to this question. Market Cycles in the D.C. area and nationwide tend to be about 12 years from peak to peak. The market in Northern Virginia peaked out in August 2005 and then immediately trended downward. Now we are exactly two years into this cycle! One past cycle bottomed out following the stock market crash in 1987 in approximately 1996/7. In this case, the peak was reached around 1992/3 and then headed south until 1997. Properties were slowly bid down until the market bottomed again in 1997. This peak to trough half cycle lasted approximately five years! If this current cycle follows historical trends, we will see a bottom of the market in 2010. Signs of a bottom will start to show in 2009 and the market will move sideways for two years. Once the market bottoms, we will begin to see signs of upward momentum. Momentum will be slight, but prices will tend higher. Once prices tend higher, we will see a steady increase in price appreciation for a period of about five years. Look for a peak in the financial markets, the DOW Jones Average or the S&P. Currently these averages are increasing about 7% per year. The real estate market is mirroring this 7% rate with a negative 7% rate. Most of the declines in prices occured in the first year and now we are seeing a slow trickle downward in prices. Prices will show a decline of around 30% from the peak in 2005 and the decline will last 5 or 6 years. This means the negative market is nowhere near its bottom and we will have approximately 4 more years of pain before strength returns. If you have any questions regarding these comments, please contact me at (703)855-8674 or by email at tombellanca@dullescorridor.us. -Tom Bellanca

Tom Bellanca currently is a licensed Real Estate Broker for Dulles Corridor Real Estate in Dulles, VA. He also holds a Master's in International Finance from George Mason University, the Certified Commercial Investment Manager from the National Association of Realtors, and the Real Property Administrator designation from the Building Owners and Manager's Institute.

Posted by Tom Bellanca on 08/30/2007 07:42 AM

Comments (5)

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5 Comments on WHERE IS THE REAL ESTATE MARKET HEADING TODAY?

Thanks for the historical perspective. Tell that to the Economists working for the National Association of Realtors.

The fact is, no one can determine when a market will bottom or peak. There are good economists on both sides of this issue.

I tell people we will only know the bottom by looking in the rear view mirror. By that I mean, by the time we know the bottom has ocurred, we will have moved past it already.

08/30/2007 08:05 AM

by Bradenton Florida Real Estate - Dan Forbes (Sarasota Metro Properties)

With current conditions this market will take at least 24-36 months to level off and go back up..I doubt government will allow the big profits we were seeing.

08/30/2007 08:33 AM

by Neal Bloom-Realtor ® Assoc.-CRS-Weston FL (RE/MAX Premier Associates)

One more tool to indicating a bottom. There is an easy tool for finding a bottom in the market. Simply look at what a property in a particular neighborhood rents for. If the rent is higher then the respective costs of ownership of the same property, then you are entering or nearing the bottom. When it is much cheaper to rent then to own, the market will lean toward renting. It is an issue of opportunity cost. Most consumers are forced into renting versus owning because the cost of ownership, all things included (including the tax breaks) is higher then the cost of renting. In our market here, you can rent the same house for 30% of the cost of owning. Rents are going up each year and prices are coming down. At some point, there will be an equilibrium of home ownership costs and rental costs and true investors will reenter the market. Right now we are seeing a fall out of investors who "speculated" and have lost. In 2005 when speculators were active in the market, prices doubled and half of all transactions were qoute unquote "investors." In fact these were speculators and not investors. Investors understand the underlying fundamentals of owning a property and getting a return. Those speculators got no return. Anything they made in the previous bull real estate market they are now losing in the bear real estate market.

08/30/2007 09:06 AM

by Tom Bellanca (Dulles Corridor Real Estate, Inc.)

24 months is optimistic! 36 months is more along the five years I state in my blog! More then likely it will be even longer. 36 months from today is 5 years from the peak in 2005!

08/30/2007 09:09 AM

by Tom Bellanca (Dulles Corridor Real Estate, Inc.)

>In our market here, you can rent the same house for 30% of the cost of owning.

Doesn't sound right. Do you mean 30% less than cost of ownership?

10/01/2007 12:31 AM

by Lou The Landlord

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