The Next Great Real Estate Bubble…
By Chad Corbett on in Home Buyers, Home Sellers with No Comments
Anyone who has known me for long knows that I’m a numbers guy. When I decided to move to Roanoke, VA from Maui, HI I took a years worth of tax data and MLS data and boiled it all down to a simple table that told me exactly where the market was here. Just a month after moving here I was speaking as “the expert” at my Real Estate Investors group because of the fresh data in my head. I LOVE real estate and I believe it to be the safest investment of all if you know enough about it to stay in front of the trend. A VERY intelligent investor here in Roanoke, VA who has studied and made money in all asset classes put it best: “I plan to put all of my eggs in one basket and just protect the hell out of my basket.”. That basket is real estate and he is seizing the opportunity to fill it now while eggs are on sale. The real estate market is just like the stock market, the majority of the activity is the “dumb money” that is making decisions based on emotion and either buying or selling behind the small portion of educated investors and consumers who make decisions based on facts and logic.
Identifying Real Estate Market Cycles
So, if we can take the emotion out of it and see the real estate market the way we see the stock market shouldn’t we be able to identify patterns just as we do in the stock market? Sure we can. Homer Hoyt, a real estate economist in the 1930’s did and his findings have been updated and validated by Fred E. Foldvary, who (along with Ron Paul) predicted “The Depression of 2008″. Keep reading for now but click back here for Foldvary’s full 40 page brief. If you’ve got better things to do you can get the main points from this short editorial. These guys identify a very clear pattern that has continued to repeat roughly every 18 years. This is essentially a secular market cycle just like we see in the stock markets.
Just last week I had the fortunate opportunity to hear Ray Alcorn speak at the Real Estate Investors of Virginia meeting here in Roanoke where he revealed his outlook on the 2012/13 commercial real estate market. Ray is known for his Commercial Real Estate forecast and famous for being right most of the time. One thing Ray said has stuck with me – “All of these reports on how well the market is doing and how prices are increasing this month over the same month last year are just NOISE.” He hit the nail on the head. The 18 year trend that Hoyt identified is the Secular Market and this “big picture” market is made up of several smaller bull and bear markets and that is what most news is reported on. This month it’s a recovery, next month it’s blood in the streets. We have to look at the big picture to really see what the market is doing. Think of it as a bell curve like your 3rd grade teacher used to use on spelling tests. There is a basing Phase then Growth then a Top followed by a Decline. Ray does a much better job explaining it than I could ever do and supports his predictions with rock solid data. Click here to readRay’s 2012-13 Commercial Real Estate Forecast
So, that’s all great but can we just get to the next bubble already?
I believe we are in the basing phase following an obvious decline and we will remain here for a few more years until the supply of foreclosed homes clears the market and credit frees up. Sure sales volume is up now and if you only look at a 1 month snippet of data or listen to the news you’ll believe that the market has already recovered. We’re far from full recovery but I believe we’ve seen the bottom of the market and we’ll continue to see these little rallies like we’ve seen in early 2012 but the supply of foreclosed homes and the limited amount of equity in homes will keep the market flat for 5-7 more years before we start our upward journey toward our next bubble in 2026.
For real estate investors there has never been a more perfect market to take your position for the next Secular Bull Market. Both prices and interest rates are at historic lows and rents are at an all time high. What an exciting time to be starting an investing career!
Chad Corbett – President, REsolutions Real Estate Services