There has been a lot of uncertainty in the market surrounding recent numbers announced in the media. It was announced last week that existing home sales plunged 27.2% and unsold inventory jumped to an 11-year high. While this has some people fearful of what is to come, we should really look to the root cause to see why it happened:
The government’s tax credit for new home buyers recently expired!
Why The Government’s Tax Credit Matters
To quote from Jim Cramer, summed it up best: “If you knew a store was having a sale that lasted almost two years, and it was announced in the media everyday, why would you go buy something the day after the sale was over?”
Americans are saving more, and spending less. As they get out from under the piles of debt they have accrued, they will start buying homes again. It might not be everywhere (i.e. Detroit), but sales will follow where employment begins to recover.
What is in Store for Real Estate
If you’re thinking about getting into real estate, look to areas where employment is rebounding. These areas include Texas, New York, California, and Washington State. Guess what, you probably need to move to a metropolitan area, since more rural areas won’t be recovering any time soon.
Housing prices follow wage growth and employment, which will be found in cities that still have good industries – technology, medicine, defense. Avoid large manufacturing areas, as these places will still struggle for years to come.
The Overall Economy?
The overall economy will most likely continue to improve. It doesn’t mean that it won’t be bumpy (in fact, it probably will be), but you can’t judge everything using a biased metric like housing sales after a major tax credit expires.
Keep that in mind when making your judgements.