Expect Prices to Rise, An Absolute Indicator
Warren Buffet has stated that it’s very difficult to invest at the bottom of the market, because you don’t know what the bottom is until it passes. His strategy has always been to invest when data indicates a market is “at or near the bottom” and is likely to go up.
The great news for real estate investors and buyers is that a historical trend analysis of real estate prices indicates that we are in a period of minimal risk and maximum return. Take a look at the illustration below and consider the following:
- Depending on the area of the country, real estate appreciation has historically run about 4-6% per year.
- During the boom years of 2005-2007, prices jumped dramatically as is indicated by Point A. Without any justification for 20%+ appreciation, (such as a major corporation moving to an area), Point A was an extremely risky time to invest in real estate.
- Because of massive inventory supplies and foreclosures, prices have significantly overcorrected, and we are now well below what could be considered “average appreciation”. This is indicated by where we are now at Point B, and is also consistent with Warren Buffet’s investment strategy of buying close to the bottom.
- It’s hard to determine just how quickly prices will recover and get back to “normal” at Point C. But, it is very possible that this recovery could happen quickly, especially given the quick recovery of the stock market.
Prices recovering quickly is not as important as the fact that we are significantly at lower prices now (compared to what would be considered normal). This “Window of Opportunity” for buyers may be limited. Even if the market does drop slightly lower, the risk is already so small and the opportunity is so great to buy exactly the right home at almost exactly the right price. It makes no sense to risk losing both price and selection because of that ugly four letter word, “G-R-E-E-D”!