The “Perfect Storm” for Real Estate Profits!

by Bob Zachmeier

Eight years ago the real estate market came crashing down, with home values falling by more than 50% in some areas.  As we enter the fifth year of the real estate recovery, home prices continue to sustainably appreciate, interest rates remain near record lows and supply and demand are at, or near, balance in most market sectors.  But problems still exist.

Banks are turning away one out of three buyers who apply for a mortgage, 15% of Arizona home owners with mortgages are still upside down and unable to sell, a shortage of low price properties has fix and flip investors sidelined, and 6,000 Baby Boomers turning 65 every day are unable to retire because the stock market is over-valued and banks are paying less than $20 per month for each $100,000 investment.

The Great Recession created many challenges but are these really problems or opportunities?  Are we in the eye of the “perfect storm” for real estate investing?  Will real estate investors years from now refer to the next few years as “the good old days” when you could pick up dozens of houses like sea shells on the beach with little or no money down?  The last time the housing market was hit this hard was eighty years ago during the Great Depression.  None of us will live another eighty years to see the next one, so it’s crucial to take advantage of the opportunities the presently surround us.

Everyone thought that interest rates would skyrocket when Janet Yellen halted the $80B monthly infusion from the Federal Reserve that kept the market afloat by creating false demand for mortgage-backed securities.   But just as the Fed money slowed to a stop, Vladimir Putin invaded the Ukraine and the European Union imposed economic sanctions on Russia, their largest trading partner.  Since the Europeans can’t trade with Russia, their  money was diverted to the US and their money flowed straight into the same securities that the Federal Reserve stopped buying. If you’ve gotten a mortgage over the past 18 months, you can thank Vladimir Putin for your low rate!

In this world economy, change is the only constant, and it is being driven faster and faster by new ideas and technologies. Uber has severely impacted the taxi industry just as AirBNB turned the hotel industry on its head.  These start up companies used technology and common sense to change multi-billion dollar industries in a few short years.  Real estate is ripe for change because there is a better and less-expensive way to buy and sell homes without people.  If you haven’t modified your real estate investment model in the past year or two, it’s time for an overhaul.