The receding economic recession left behind chaos and disaster in the financial and the real estate sector. As a result the confluence of these sectors that is the real estate investing and the mortgage industry have been worse affected. The result is that even in 2011, the real estate market in the USA was generally dull and several investment portfolios performed poorly. From the point of view of investment, it seems that the same issues will haunt us all through 2012. While many of us may think that way, the truth is that this can also be quite a good opportunity to invest money into the real estate.
Now, before we go any further, make a note that this article is quite generic in nature and applies to most of the regions of the United States. However, in high real estate markets, some of these facts, equations and theories may not apply because the market still remains driven by factors such as prestigious locations and also prices of surrounding estates.
Economics of Real Estate Investments
The aforementioned ‘weird’ trends in the real estate markets have arisen as a result of the sub-prime crisis and also the overall recessionary cycle. The problem plaguing the real estate market is that in several places the market and equity value of the real estates have been in limbo as a result of the market conditions. Nevertheless, with the speedy recovery of the harsh economy, estate markets can be attractive investment tools to make decent money. Let us understand the general scenario of the estate markets.
The real estate markets operate on the basis of the laws of demand and supply.
- In a nut shell, these laws principally imply that more the demand for a particular property, the more is the cost of the property, and hence the high real estate cost in New York City or other desirable places. Conversely, when the demand is less, so is the cost of the property.
- Usually, the supply side of the graph also affects the cost side of a commodity. However, the supply side is absent for the real estate market as let’s face it, we cannot produce land and we also cannot increase the land area of earth (beyond a certain extent).
The reason that the real estate market collapsed in the United States, in the last couple of years was because of the sub-prime lending and the recession. There are a lot of factors to blame.
- When the sub-prime crisis led to the recession, foreclosure and bankruptcy become rampant and people even resorted to short sale. In such a case, the market saw time where the properties were sold or were valued for much lesser than their prior valuation.
- Further due to the drastic fall in the economy due to nationwide job cuts, unemployment and salary delays, it meant that the demand for properties dwindled even further, decreasing the market prices.
- After the end of the recession, as of now, bad credit scores, unemployment and a general decrease in the growth rate of the economy have affected the real estate and mortgage markets.
- As of now, in 2012, reports from several industry specific magazines and sources have indicated that foreclosures in 2011 were lesser than the previous year. So, it can be believed that this year will propel the real estate sector, faster than ever.
Owing to the general negative atmosphere regarding investments in property and difficulty in availability of capital to buy the property, real estate markets have shown a relatively slower trend. Nevertheless, under the guidance of expert brokers, dealers, best property deals are still very much possible. By properly analyzing budget, chalking out a timeline to buy the property and planning carefully about the return on investment, one can make successful deals. However, some questions like the kind of real estate one should invest or how is the investment to be done, must be pondered. Let us understand more about them.
Insights into the Real Estate Market
Some common trends of the real estate investments have been suggested in the following paragraphs.
1. Mortgage Loan Trends
Now when you consider investing in the real estate, you will have to obviously take a mortgage. In such a case, the common problem that is usually faced today by a number of people is that lenders simply refuse to grant loans owing to falling real estates market rates. In such a case there are two good alternatives which would help you to get a loan: proof of steady income and a really good credit report, with a rating that goes beyond 600 or 650. Apart from these two conditions, make it a point to purchase a real estate, in a locality where price fluctuations have been relatively low.
2. Smaller and More Compact Homes
The usual market trend of the larger suburban homes, has given away to smaller compact homes and in certain cases, even apartments. Hence, buying a villa or a large house and then, separating its rooms into independent units and selling them or even better, renting them out is a great option. Of recent, houses and bungalows which are quite nearer to the cities and urban areas are being torn down and converted into big apartment complexes with the intention of selling or renting the property.
3. Buying Foreclosed and Short Sold Homes
Purchasing and using short sold homes always proves to be beneficial, there is only one problem which would be experienced. Foreclosure or short sale would usually bring down the market prices and values of all the real estates in the given area, and it would be a couple of years before the price rises. Assess the economic premise of the real estate for clues such as crime-free or beautiful locality or even proximity to commercially important places such as business avenues or prominent business complexes because such properties tend to have good value projections.
As the value of real estate is determined on the basis of demand and supply, you need to worry about the value rise of property. Since the world population is always on the rise and the real estate supply is limited, the price or value of your real estate is bound to go up in years to follow. The rate of rise however, differs quite a bit. Actually, this factor makes the real estate one of the best investments.
While buying any real estate, think and analyze the situation of the real estate, also analyze the locality and the geographical location in which it is located. Such things often serve to be great pin-pointers as to the value projections of the real estate.