Friday, October 1, 2010

Where Real Estate Is Headed… Your Survey Results Part I

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

For several weeks, I asked you to offer your thoughts on where the residential real estate market is headed. With primary homes being the greatest asset many people own, I thought it would be a good topic here as well as in my Street$marts newsletter. As I think I mentioned, my wife and I sold our house in August. She had been wanting more space and I have been concerned about another significant leg down in real estate. So although our reasons were about as far apart as possible, we both agreed to sell. By doing that, according to our real estate super agent, Judy Cooper, we also would have maximum flexibility when it came time to buy and be viewed very positively by sellers as we wouldn’t have a house that needed to sell first.

When my wife first mentioned the idea of selling, like I unfortunately do with almost everything in life, I created a financial model that compares properties on an apples to apples basis using several different metrics and formulas so we could rationally and unemotionally determine what our house should sell for along with how much to pay another house. Over the past two years, this has prevented us from leaping into what ended up being some very overpriced properties.

As an aside, when we were first house looking in 2000 and 2001, my wife had a habit of loudly telling me in front of the seller’s agent “I want it. I want it. I want it. Let’s pay asking price!” Little did she realize so early in our marriage that her husband (me) wasn’t known for parting with a buck so easily! But after all this time, as she just emailed me a new listing with the word “perfect” in it, she now knows that unless the house is able to be bought within the parameters of the model I created, it’s unlikely to happen. And before you open an email to tell me, yes I know, I am a pain in the rear end when it comes to money! My wife deserves an award for putting up with me!!

Getting back to the topic, I found it interesting that unlike the survey I did regarding what our government’s top priority should be along with where you sit politically, the real estate results were almost the same from blog readers as they were for my Street$marts newsletter readers. Here are the results:

Over the next year real estate prices will:

Rise 32%
Fall 68%

Over the next 5 years real estate prices will:

Rise 64%
Fall 36%

Over the next 10 years real estate prices will:

Rise 82%
Fall 18%

Over the next 20 years real estate prices will:

Rise 90%
Fall 10%

Generally speaking, as you would expect, the longer the time horizon, the more favorable you view an investment in real estate. I am a bit surprised that only 32% believe that home prices will advance in the next year. I imagined that number would have been closer to 50%. The five year number of 64% makes sense and 10 years from now, the vast, vast majority of you believe things will be back to “normal” and real estate will rise.

If I had to guess, I would think that the real estate bears 10 and 20 years out are folks with a semi-permanent bearish stance, just like what I will guess on the stock side. I am not saying you are right or wrong, just that I think that’s somewhat as expected.

The group with a positive long-term opinion must have used the past 30 years of real estate pricing as a guide. We’ve seen several busts during that time, but prices always seemed to have come back over a period of years. Coincidentally, the last 30 years have seen the greatest bull market in bonds (read: lower interest rates) in history. With the conventional 30 year fixed rate mortgage at or near all time lows around 4.50%, you have to ask yourself what the likelihood is of continuing this bond bull market for another 10 or 20 years.

I am going to end this piece here and pick up again next Friday with some analysis and charts, so please be sure and check back next week!

I would be interested to learn your feelings about stock prices, so if you have a chance, please CLICK HERE and take a 30 second survey for a future contribution.

If you watched CNBC’s exclusive interview with well respected hedge fund manager David Tepper last week or read or heard his comments repeated that the only path for stock prices is UP, I offered a very different tune in a CNBC interview on September 27.

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

No comments:

Post a Comment