I am hearing a lot of talk about a bubble these days. People come to me all the time wanting to know if prices are going up or down in the next year
Right now we are in a balancing act!!!
Why do I say that? Right now we are in a very unique market. There are two very strong and yet opposite forces at play in the real-estate market. What are they?
To start let talk about housing starts. Normal housing starts should be about 1.6 million homes per year. In 2007 the peak of the bubble we were up to 2.2 million per year. We were over building by 6oothousand homes per year. In 2009 after the bubble burst we dropped all the way down to 600 thousand starts per year. The home building industry stayed a that level for several years. The population did not stop growing we just under-built by about 1 million homes per year. Guess what happens when an industry goes from 2.2 million units to 600 thousand units per year? You got it much of the home building infrastructure got destroyed. Now we are in growth mode again and we have a sever housing shortage. Just when we need the home building industry to ramp it has been decimated. The housing industry just cannot ramp up to meet demand. The obvious conclusion is that prices should keep going up. We have a very seven housing shortage. I talked about the opposing forces.
So what is the force in the opposite direction? Its the affordability index. Many of the markets around the country are seeing the highest housing prices in history . Northern California is seeing the worst affordability it has ever seen. If this were normal times you would conclude we are headed for a correction, but remember we have a housing shortage.
Whats the conclusion? The answer is no one knows for sure. If anyone tells you then can predict where housing will go in the next 12 months run don’t walk . They do not know what they are saying. Given this level of uncertainty caution is the watch word. If you want to be safe focus on cash flow. If you buy properties with good positive cash flow you cannot go wrong.
Your comments are welcome.
