The Dynamics of Change

Posted by Greg Smith on Monday, December 8th, 2008 at 5:34pm.

The 2008 real estate market can most aptly be characterized as one of dynamic change. The future will be noticeably different than the past. In the past, home owners relied on real estate to build net worth over time through appreciation. In the future, real estate will be viewed as a means for creating equity through debt reduction i.e. paying off the mortgage(s). Double digit annual increases in home values won't be a part of the economic equation for a number of years (if ever again).

     Once the housing market digs itself out of this bank foreclosure/short sale scenario it currently wallows in, real estate buyers will still take a cautious look at what they are purchasing. The days of multiple offers, driven by lower mortgage interest rates, will be few and far between. Price, location and condition will continue to be strong considerations for buyers. Value will be the major component of the “new” housing market.

     People's behavior patterns change once they are faced with a sense of scarcity. A few years ago when Colorado experienced a drought, people learned to live with watering their lawns less. They became more conservative. As gas prices escalated earlier this year, people began to drive less. Despite the lower gas prices today, people still drive less.

     The same mental concept will exist in the mind of future home buyers. They will take a serious look at where they are now and ask themselves if they need a larger home, newer home, etc. Reducing personal debt will be a major focus of the economy over the next few years as people wrestle with the uncertainty of the job market and their depleted retirement accounts.

     But, even in the darkest times there is light. There is opportunity. It simply takes an open mind and the willingness to explore. Here are some thoughts.

·       In today's real estate market, cash is king. Don't have to sell your home to buy a home? You are in a strong negotiating position. Contracts conditional on the buyer needing to sell their home to buy your home are of little value in most situations. Unless you own a tepee in the far reaches of an almost inaccessible mountain valley and the only possible buyer you will ever get needs to sell their igloo in Alaska before they can buy your tepee. Then you “might” want to consider a conditional contract.

·       The rental market in the Boulder Valley was strong this past summer and fall. Why? Because there was a plethora of people who couldn't qualify to buy a home, but could afford the payments for a rental. So? Look at real estate from an investment perspective. Remember, build wealth through debt reduction.

·       Real estate markets ebb and flow. It's the nature of the beast.  If home values were always increasing, it's a no brainer - Buy! Buy! Buy! If real estate markets were always down, we'd all be tenants. That's assuming there were actual landlords.

·       This too shall pass. Time changes all things. It's just a matter of time before the good days will be the good days again. They will be different, though. If history teaches us one thing, it's how to avoid the mistakes of the past. Today, the government is our perceived savior. Funding billions of dollars into an economy that needs to right itself. How long that will take is anyone's guess, but there will inevitably be change.

Greg Smith

Leave a Comment