On a recent vacation to Maui we drove past this road sign located south of Makena. The sign places the driver on notice to expect the unexpected. After all, unless the driver has physic ability there is no way to know if a car is coming up the hill in the opposite direction on the one lane road because as the sign says the hill is blind.
I could not help but make an analogy with regard to the present economic recovery and how it relates to real estate. In many ways forecasting the future real estate market is a blind one lane hill.
The real estate markets in the South Sound appear to be in the early stages of recovery. After a round of deflating values in 2009 housing prices appear to have stabilized this summer. Now the pundits and media talking heads are predicting more trouble in the form of slower sales activity and further erosion of home values. Why? Primarily because homes sales on a national level dropped in July and because the rate of unemployment remains high by historical standards.
Going forward I see two metrics that could significantly affect the market. If interest rates were to significantly increase the market would be affected as fewer buyers would qualify for mortgages and secondly higher unemployment would impact economic stability as it did in the early 1970’s and 1980 recessions.
The reality is that interest rates remain at historical lows. With interest rates in the low to mid 4% range purchasers can buy a home in Mason County valued up to $190,000 with a monthly payment equal to rent for an equivalent home. Interest rates are at bargain basement levels. Secondly, home values have dropped making buying a home even more affordable than ever before.
The amazing thing is nothing has really happened in the real estate market over the past 90 days to change it one way or the other. The forces that spurred the present day early stage recovery – great long term interest rates and lower home prices, remain unchanged. How newspaper columnist, economists and bloggers can predict the market is beyond my comprehension. Their predictions of market demise during the late months of summer could become a self fulfilling prophecy - but I think great prices and super low interest rates will win the day.
There is no clear vision of the future real estate market in this case as there is a blind one lane hill ahead with the economy. The past has taught us that when most others are selling and the mood is negative – it is the very best time to buy.
As Winston Churchill said “It is always wise to look ahead, but difficult to look further than you can see”.
