Buy Real Estate Now

Real estate, like other markets, is a cyclical market. It follows a regular pattern of being overbought, and oversold. It generally responds with a certain amount of lag, unlike transportation companies whose indices usually precede the patterns of the Dow (because companies that cut orders, usually stop having them shipped before they report their sales are down) - Real Estate usually lags the market because the banks box transactions and only start loosening the box in which they will execute funded transactions after they see a healthy market.

In Commercial real estate, there is still a huge gap between what the banks will fund and what people will actually sell for - mainly because there are a lot of loanholders who are upside down on their loans right now, and until the bank owns it (through foreclosure), they won't sell. In my little town I'm vaguely aware of a 4 billion dollar hedge fund waiting to snarf up these properties when capitulation occurs. Bank owned properties are an excellent buy because the banks have all been pushed into a cash flow position and they will liquidate below market value to maintain cashflow.

To a far lesser extent, retail credit is pressed somewhere in between these two markets. Retail credit is a volatile market that can be seen to be well contained inside bank lending policy but hedged enough by the players to be a largely erratic indicator. Like commercial real estate, which at the moment is gapped pretty widely - the retail credit and consumer credit space is seeing a large discrepancy between what the banks and inter-banks will fund and what the customer demands. This applies mostly to the six figure world. The hedge that operate on the accounts that control the 5 figure numbers are almost always so tightly integrated to consumer pattern volatility that they've already rebounded by the time the higher end accounts start to lag or gap.

With the LIBR shutdown, the market for funding new transactions cut off drastically and forced a major shockwave through new funded construction. Hardest hit from the market crash, were the construction companies. Their access to new capital was almost completely cut off. Now, about a year later - the real estate markets are just starting to show the effects in inventories.

Real estate, esp. residential real estate - is a market which is constrained by population increase to be stable. There are always going to be more people in the world, but there is never going to be more land. When the builders stop building, it eventually affects inventories.

The first to move in on these trends are usually well organized hedge funds or the type of investor that can catch a wave before it occurs. There is also a good deal of inside information in this market, the connected players tend to catch the cycle at the right moment. Home values have (with a few exceptions, most notably my own home, in fact) been hit so hard (mine simply dropped its appreciation rate to about 1%, but other markets have seen values plummet 30% or more) - that now is the time to buy.

This is an illusion that modern markets can create. There will be no JP Morgan walking the floor of the NYSE , issuing daring buy orders and singlehandedly rescuing the market. Instead, there will be a capitulation amongst noteholders and bank officials in advance of a large wave of foreclosure in the Commercial real estate space that could either clip the foreclosure wave before it occurs (with funded deals being met partway) or precede an actual foreclosure wave in the largest transaction of commercial real estate the market has ever known. The insider information game is automated. And so, the markets move synthetically upward despite the fact that the other shoe is dropping. They trade in advance of that shoe drop.

This is why 80 percent of the people who play the market , lose their money.

And then. There are others. The worst thing that could happen for a prospective buyer in the real estate space is for the seller to realize the distress point is passed. They will immediately hike the price, just as retail prices have been edged up in the past month - on the news of an economic turnaround. (I call this the 'walmart sanction' - they grace prices up on the items you aren't normally monitoring - walmart really doesn't always have the lowest prices on everything, just some of the things that they can calculate you're actually looking to buy - specific prices on certain items have been edged far upward).

And Gas will once again launch on a holy tear, eventually ending up at 5.00 a gallon. But this time we have actual leadership in Washington, so taking that out of the picture - you're seeing a market bottom form for residential real estate in advance of the commercial transaction. I would position this somewhere in the middle of october, when the home sales figures over the summer get reported out. This puts about a two month window on a prospective buy.

Go buy a home.