Posted by: union03g | March 15, 2010

Thoughts and Theories On Real Estate

Here are a few ideas that I have brewing on the real estate market:

  • The first time homebuyer credit is not currently supporting housing sales from a supply/demand view even though it may be influencing buyer psychology. The $8k credit is currently baked into the price of real estate and if it expires we will see an immediately correction in home prices to the tune of $6k – $8k. We learn in economics that the only causative exogenous shocks are those that are unexpected. Just like every other indicator and metric, the size doesn’t matter in the short run but only whether we can accurately predict/expect the size. Unfortunately, the government only had the opportunity to shock to the positive side by announcing the first time home buyer credit unexpectedly, and now all they can do is remain neutral and extend the credit again. It’s as if the government had no credit exit strategy and we are now waiting for the shoe to drop.  In other words, the effects of the credit has lived its life and is now harming organic price growth and buyer faith.
  • When companies start hiring more aggressively and unemployment begins to decrease, real estate will be the first asset class to benefit. Newly employed homeowner’s will give their mortgages first priority in their budgets. To the extend that unemployment decreases, foreclosures will begin drying up and home-equity will begin to build again (relatively faster than 401k’s, IRA’s and spending on retail, etc.). One person getting a job means one bank is getting paid again, which means easier lending, which means there are more buyers and prices can creep up again.
  • Real estate technology will influence both agents and homebuilders much more than anyone expects in the next 10 years. The most successful agents will understand how to adopt searching and analytical technology and the homes with tech seamlessly designed into them will be all the rage. Homebuilders will race to stay on top of these fast moving trends. People will demand chargers, touch screens, wifi, twitter displays built into the fridge, remote management capabilities, etc. and real estate will be that platform for cutting edge tech. Since large stainless appliances don’t impress your friends anymore, you’ll now have an intelligent home to impress.

Thanks for reading, feel free to leave a comment.

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