My New Blog

Any investment consideration, whether it be real estate, gold or fine art, follows a predictable cycle with nine stages, similar to the stages of death and dying.  People who are motivated and qualified to buy will be able to look at this market cycle and understand why now is definitely the best time to invest in real estate.  It is all a matter of "balance."

The beginning cycle is optimism, the period in which many people are excited about buying a home.  When the market is strong, people's purchases quickly increase in value, which leads to euphoria, which can lead to rash decision making.  From euphoria starts a downward cycle.  As prices start to fall, buyers go into denial, thinking they will just hold on to their home for awhile so it won't be a challenge.  After denial comes fear, as prices continue to fall, followed by panic, despondency, and then depression.  But after depression comes hope and then optimism (back to stage one).

The point of maximum risk for any investment is during the euphoria stage, where we were from 2000 to 2006 and where most people bought.  The point of maximum opportunity is at the lowest point, between despondency and depression.  That is exactly where we are in the real estate market today. 

Historically, homes have appreciated at a rate of about 5% per year.  In the six years between 2000 and 2006, however, appreciation was 89%, or nearly 15% per year on average.  Today's correction is a move back to stability and is much needed for affordable homes.  The national average sales price of a home is 2 and 1/2 times the average household income.  Again, through the boom years that ratio was distorted at almost 4 times the average income, thereby making housing unaffordable for more and more families or retirees.

As we get back to a "normal" market and more stabiity, home values will once again appreciate 4.5% annually on average.  That is a great return on any investment.  The amount of cash buyers put into their home determines their return on equity, but appreciation values remain constant.  Real estate is not just a good investment; it is a great investment if bought in the right stage of the cycle - which is now!