MarketWatch published an article today, "Real estate downturn could last 8 years: IMF" in which they headline "The prospects in the global real estate sector are "dismal," with a downturn that could last eight years, the International Monetary Fund warned Wednesday" citing the threats of shadow inventory and resets on adjustable rate mortgages.
Sure, the real estate market is not as volatile as the stock market, but eight years?! Heck, a lot could happen in one year, for this to drag on for another eight years would require a lot of nothing to happen. To believe this requires a large dose of lemon-sucking attitude.
Real estate fundamentals are as good as they've ever been:
- Interest rates are at 40 year lows
- Home prices are under valued. I don't know the exact figure, but I would bet good money that to buy an existing home is noticeably cheaper than building the identical home from scratch.
- The affordability index is up.
- Areas traditionally used for appreciation investment purposes actually cash flow
- Baby boomers may be downsizing, but there are greater numbers of echo boomers coming of home buying age.
The problem IS NOT in the homes or directly attributable to the housing market.
The problem IS the economy. People are not buying due to fears of job stability or lack of a job as we drag along at near 10% unemployment and another 10% under-employment. As soon as the economy begins to recover, so too will housing (assuming you define that by increased sales volume and prices).
The housing slump will not last beyond job recovery. If you are predicting 8 years of a down housing market, then you must be predicting 8 years of high unemployment AND you are predicting 8 years of minimal inflation.
The moment the economy strengthens and people feel secure about employment, then we'll have more home buying.
The moment inflation (or hyper-inflation due to all the fresh fiat money) kicks in, we won't have any more homes underwater. People will be able to refinance and all these failed loan modifications will become irrelevant. Delinquencies will similarly dry up because people will want to keep their home/asset or will sell it for a numerical profit. Short sales will be a thing of the past (at least until the next cycle.)
When either jobs or inflation kicks in, we are actually at risk of rapidly increasing home prices. When will that change, I don't know, but if it takes 8 years we will most likely have gone through two more administrations.
As for me, I'm going to make my own economy to get back to investing in homes while they are cheap.
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