Over the last two years real estate prices have been collapsing at an incredible rate. As many struggle to maintain their credit ratings and work to climb out from underneath the high amounts of debt that they have accumulated as a result of taking second mortgages, home equity loans, sub prime mortgages as well other forms of debt. Now with mortgage rates at some of the lowest levels in history many are wondering if now is the time to go back into real estate. The real estate markets trade in one of four cycles which include: expansion, equilibrium, decline, and absorption. At present the markets are switching from a cycle of decline to one of absorption fueled in part by historically low mortgage rates, favorable FHA financing terms and many long term investors seeking great long term investment opportunities that have presented themselves.
As far as the residential real estate market is concerned, many of the once hot housing markets are down significantly from where prices were in 2006. For first time homebuyers, this along with favorable mortgage rates and refinancing is leading to absorption of some of the unsold homes at very favorable mortgage loan rates. Over the long term those who are purchasing in these markets will see significant price increases once the market conditions return to normal. Especially when you consider the fact that real estate prices have averaged to about 8.6% a year since the end of World War II. In the medium term the incentives from Washington which includes: an $8,000.00 credit for first time homebuyer and the efforts to remove those bad credit mortgages off the books of many of the financial institutions should lead to a stabilization in mortgage rates and an increase in the overall amount of lending that will be taking place by the various financial institutions. While this is encouraging there have been historical examples of when this massive type of action by the government action has lead to a bottoming in real estate prices some good examples of this include: 1933. During the very depths of the Great Depression real estate prices were falling at an even faster levels than they are today. With the passage of the New Deal legislation it created the first ever government agency to help people be able to avoid foreclosure and stay in their homes called the Federal Housing Administration (FHA). In just a few short years the FHA would be instrumental in bringing an end to the overall real estate and mortgage mess that country was in at the time.
In spite of what many are hearing, the real estate market is starting to show signs of absorbing the excess inventory that is out there. Some of this is being fueled by low mortgage interest rates, favorable investment conditions for speculators as well as first time home buyers and the ability to refinance at some of the best loan rates in many years. While these positives will play a role in helping turn the market conditions around the fact of the matter is that it will take time for the markets to finish absorbing the excess supply to create stable conditions once again. Those who have been aggressively buying during these challenging conditions that are willing to take a long term focus will be rewarded for their patience and foresight by taking advantage of the weakness in the current market conditions while others are fearful.