By Nancy Russell, Vice President CBRB
The “Gold Bugs” are out in force. Recently, the price of the precious metal moved above $1,800 per ounce. In the last five years, gold is up a staggering 200-plus %. In 2006 the price hovered around $600 per ounce and barely received any mention as a good investment. Yet when the price pushed above $1,500 an ounce there was a buying frenzy. The real opportunity in gold was years ago before the run up. The winners were those who recognized the buying opportunity. I believe that the same buying opportunity now exists in real estate.
Real estate activity actually peaked in the summer of 2005. And yet, home prices continued to rise when they hit the highest point in the spring of 2006. In May that year, the average (inflation-adjusted) home price hit an all time high of $280,000 nationally. Today, the national (inflation-adjusted) average home price is $170,000 – down, on average, a stunning $110,000! It is at the same level today as it was in 1990. The housing bubble has popped and five years later is now completely deflated. Taking a look at the historical pricing trends, peak to valley and back to peak traditionally happens in 10 year cycles. If history is any lesson, we are now at the bottom of the market.
Another thing to take into account is Homes Price versus Owner Equivalent Rent (OER). OER is the amount of rent that could be paid to substitute a currently owned house for an equivalent rental property. In other words, OER is the dollar amount a homeowner would pay to rent or would earn from renting his or her home in a competitive market. Things like prevailing interest rates, property taxes, available mortgage products and insurance are used to calculate the number. The Home Price Index and OER should increase at the same rate. And, historically, it had right up to 2001. In that year, the Home Price Index went well above OER when it peaked in 2006. In 2006, it was much cheaper to rent a home than it was to buy a home. Today, the numbers are back in line and home ownership essentially cost the same as renting.
Another piece of evidence that shows real estate is now a great buying opportunity is interest rates. You have seen the headlines “Interest Rates Lowest in 60 Years!” Here are some of the recent mortgage rates I found from mortgage brokers: 30 year fixed – 4.22%, 15 year fixed – 3.44 %, 5 year adjustable rate – 3.07%. When taking a look at a 30-year fixed rate mortgage – still the most popular – and adjusting for inflation, rates are back to early 1980s level. Money is cheap to borrow, and it simply will not stay this cheap.
Finally, today home sellers are simply saying NO. For almost five years, buyers have had their way. Whether it's been low ball offers, requirements to address even the most minor issue that came up at during home inspection or far reaching requirements put into the Purchase and Sale Agreement, sellers have reached their limit. I actually had an offer on one of my listings that stated that my home owner's jet ski was part of the deal. The strong buyers market is reversing to a neutral status.
The nature of markets is that they go up and they go down. Real Estate is no different. We had seen a strong sellers market that collapsed and reversed course in 2006. Five years later, the buyers market is weakening. We will look back at this time as a great opportunity to buy real estate. That noise you hear is opportunity knocking. Let me help you become a real estate winner!
“Whatever Nancy touches turns to SOLD.” Contact me at 1-508-243-8128 or [email protected]. Visit my website, www.nancyarussell.com, for more information or stop by the office located at 2 Maple Ave. in Shrewsbury.
