Each week throughout these tough economic times, home buyers and sellers are presented with both good and bad news, often making it difficult to know when to buy, sell or hold. That’s why it is important to consider multiple strategies when making these important decisions:
• Avoid relying only on real estate news.
The real estate market does not operate in a bubble, in some insulated world where supply and demand are the sole determining factors of its health. Real estate and the overall economy are joined at the hip and when one is out of step, so is the other.
We need look no further than the primary cause of the recession, which was questionable mortgage funding practices. The damage was not confined to real estate — the entire nation and many parts of the world were hurt as a result.
• Put together your own economic health puzzle. Each bit of real estate and economic news should be treated as the piece to a puzzle. By itself, the piece of news has no value except as it relates to the overall construction of a larger picture. Some real estate analysts look at jobs reports and commodities prices. Others may look at retail sales and factory orders. But each one has a formula that pulls data from different economic sources to determine the long-term health of the real estate market. Sometimes, your sources can be extremely subtle.
The case in point here is my annual parking lot index, which I have used for years to accurately predict the outcome of Christmas retail sales. Several times during the season, I check the volume of cars in the parking lots at South Coast Plaza. The checks use different days and times to help determine whether retailers will be smiling or frowning. Early last December, I predicted health, based on the volume of cars during those days and times.
Final results showed the best retail sales increase in three years, and that does not include online purchases. Does this affect the real estate market? Absolutely, because consumer confidence is an important factor for anyone buying or selling real estate.
• Watch the people with money.
There is a reason why people with money often have the ability to make even more. They are not lucky, they’re smart. Right now, the people with money are buying up homes in record numbers.
According to San Diego-based DataQuick Information Systems 2010, sales for California homes valued at more than $1 million rose 21% from the previous year. In Newport Beach, Corona del Mar and Laguna Beach, sales of these homes increased 43%, 17% and 24%, respectively. Couple this with the news I reported two weeks ago — that in January 2011, cash sales of Orange County homes were the highest in 24 years — and we can draw the conclusion that the smart money is again investing in real estate. So, if you have the resources, perhaps you should, too.
By the way, those cash sales are largely based on the tight credit policies that remain in effect. (There is some irony here. The mortgage meltdown was caused in large part because banks broke a fundamental rule of finance by loaning money to people who could not afford to pay them back. Now, when the people who can afford to pay them back want to borrow, they are hamstrung by tight credit. Go figure.)
Those are the guidelines, which contain some good news. Then there is that bad news I mentioned earlier: DataQuick has just reported that the Orange County sales volume for last month was down 4.2% from February 2010.
Prices took a hit, too, with the February median price dropping 1.7% from February 2010.
Turbulent times in real estate may torment individual buyers and sellers, but there is no doubt that there are many tremendous investment opportunities right now for those with the courage to take advantage of them.
STEVE SMITH is a Costa Mesa resident and a freelance writer. Send story ideas to smi161@aol.com.
