I've been researching on the Internet, looking for a credible set of predictions for the real estate market in 2012. There are plenty of prognosticators willing to promulgate their purview regarding the upcoming days. Unfortunately, a close read of their predictions reveals that almost all of them are biased towards their view of normalcy.
A brief description of the general features of the articles would include the generic statement that the market has reached the bottom and that things are getting better. This would seem to be justified based on the general behavior of the regional markets. Studies such as those published by Case-Shiller give a complete overall view of the statistics in the past months.
Where I get indigestion is when the prediction turns all rosy with assumptions that we'll be back to the glory days in just a few months or maybe a year or so. This statement is usually paired with some politically oriented hogwash that assumes that all we need for the recovery to become a reality is for our government to spend more money or for the right politician(s) to be (re)elected. This kind of statement is obviously self-serving and its validity should be questioned by any reader who is even mildly aware that the economy is unwell.
Our estimable NAR economist usually comes out with cheerful statements, but as far as I'm concerned, he's being paid to pump the consumer's confidence and that consideration moves his predictions from the realm of reliable to some spot in the "hopeful" spectrum. You can also look at nationally known economists who write columns, for example. Some of them may even have Nobel Prizes. Of course, a brief observation of the Nobel Prize awards in recent years might lead you to accidentally come to the conclusion that some of the more politically driven awards are relatively worthless as predictors of real-world (as opposed to academic) knowledge.
The main thing that I try to keep in mind is that the country is simply and obviously deeply in debt. The numbers may change from month to month, the fact remains that our government has grossly overspent and we, as a nation, have promised to continue overspending. Now, I'm a relatively simple guy, so I just like to think of it as similar to a family where the two parents work and bring in $100,000 jointly every year. The family doesn't like to budget, but likes to spend and they have 20 credit cards, all maxed-out. In my imagination, I can see them sitting around the dinner table discussing the situation. The father is saying that all he needs is to qualify for another credit card so he can use that to pay the interest payments on the 20 maxed-out cards. Then the mother interjects that if they can't get that additional card, they might have to do something radical like cancel their Netflix account or perhaps forego their daily latte at Starbucks. Needless to say, this dangerous statement brings a huge outcry from the non-producers in the family. None of the kids wants to miss the latest movies and dad just adores his morning latte.
This is obviously an unsustainable situation and, whether or not the adults or children want to take serious action, reality is just about to smack them in the face. I believe that our nation is in much the same situation. We can only temporize so long before the reality of the situation will force us to take action. Unfortunately, history seems to indicate that this sort of situation will lead to extremely unpleasant events.
Some people argue that it doesn't make any difference if we're in debt, because we can simply print as much money as we need. Once again, I like to look at this in a simple fashion. Despite the commonplace idea that you can, indeed, get something for nothing, the basic fact behind money is that it's supposed to represent work. Let's explore this in this fashion: I've got a black belt in Tae Kwon Do. I could have simply purchased the belt and worn it around. If I'd have gotten in a fight, the belt wouldn't have helped much. I actually practiced for 10 years and that practice and work would mean something in a conflict situation. The same can be said for money. Print as much as you want and pass it out to your cronies, Mr. Government. You'll find that there is a certain cushioning effect as it filters down to the general populace and it retains some of its value, but eventually, the idea of it being free will cause a gross failure of confidence in the population and it will become worthless in the real world. History says that this is true.
What does this mean for real estate? Traditionally, in times of economic turmoil, real property has served as a cushion and a store of wealth. This implies that the right property or properties can help you through a tough time. Of course, the lack of liquidity can be a hinderance, but rental property or agricultural property that can generate cash flow is going to be good.
The main thing that occurs to me is that I fully expect to see the real estate market come to an almost complete standstill as we get closer to the upcoming election. This is based on my memory of the last election and the one before that. People became so focused on the results and fearful about what the election portended that they were reluctant to commit their funds. Sure there were still some sales, but things slowed down to a certain extent.
My conclusion is that the first two quarters this year will represent the best time to work and will be a good time to sell property. If you're thinking about investing, you could hardly ask for a better time to get into the market. If you're a Realtor, remember that real estate is like farming; you've got to make hay while the sun shines.
Namaste!
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