Putting real estate market in perspective

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Everybody likes to talk about real estate. It’s a popular topic of conversation at the office water cooler, at dinner parties and on the golf course with your buddies.

Of course, before the real estate market crashed in 2007-2008, most people were talking about how much their house had appreciated in value, or how they had “flipped” their condo in Florida and made a hundred thousand dollars. After the crash, people weren’t nearly as excited talking about how their home’s value had fallen by 50 percent and they now owed more on their mortgage than their home was worth.

For most people, real estate is a very emotional topic. It’s much more than bricks, mortar and dirt — it’s “the American Dream,” as we’ve been told countless times. Unfortunately, this dream turned into a nightmare for thousands of homeowners in the aftermath of the Great Recession.

We talked about this on our radio program a few weeks ago with Steve Beecham, the founder and president of Home Town Mortgage in Alpharetta.

Beecham said that according to Frank Blake, the CEO of The Home Depot, the real estate downturn we just suffered was actually worse than the real estate downturn that occurred during the Great Depression.

“This puts what the real estate market has been through over the past five years into a little better perspective,” Beecham said.

Beecham pointed out that when the housing market hit rock bottom, home values fell to what they were in 1999.

“This shows you how far the market fell and how far we have to go just to get back to pre-crash levels.”

But there is some good news. New home sales in the U.S. jumped by 16 percent in January over the previous month to their highest level since 2008.

“Economists tell us we need to build 700,000 homes each year to keep up with demand, and now we’re up to about 437,000,” Beecham said. “Before the crash, more than 1 million new homes were being built each year.”

But new home sales only tell part of the story.

Beecham says new homes only account for about 20 percent of all home sales — previously owned homes account for 80 percent. And the number of previously owned homes on the market is currently at a 13-year low.

“This means there are fewer homes on the market than have been in a long time,” said Beecham. “This is creating pent-up demand, which is showing up in appreciation. Home appreciation in Atlanta has gone up about 7 percent over the past year.”

So does this mean real estate is poised for a big rebound? The real estate market is too broad to make a blanket statement like this. Some markets — both nationwide and in and around Atlanta — are rebounding nicely, while others are still stuck in neutral. But it is becoming a seller’s market in some metro areas.

Keep in mind that the Oracle of Omaha, Warren Buffett, has made billions of dollars by taking a contrarian approach. Years from now, we might look back and see that such an approach led to tremendous opportunities for real estate investors in 2013.