The Future is Bright… Eventually (2of2)

POSITIVE: With much delay I finally delve into the positive side of real estate in the months and years to come (for context you may want to read the previous post).

Though there is still some significant level of uncertainty as to the state of market recovery, and the speed at which recovery will take place there is room for optimism, especially for those in the DC Metro area. First, though, lets define recovery. In my view, recovery will mean a return to a market based on a solid economic foundation, which presents itself with solid growth structures that are based upon the real economy of supply and demand… REAL demand.

My first positive sounds pretty negative. In order to get to that solid foundation I believe we had to lose every bit of real estate value we have lost so far, and potentially more. Those values were falsely inflated by false senses of demand and speculation of future demand, and as mentioned in my last post I still have concerns that government initiatives are falsely supporting the market, which is actually delaying recovery based upon the previous definition. In essence it is the battle of band-aid philosophies; ie, is it better to just rip it off quickly and deal with all the pain at once, or pull it off ever so slowly, thus minimizing the pain but feeling pain for a longer period of time. Personally, I adhere to the rip it off philosophy, that way all the cards are shown and we can get to work rather than guess at what’s coming next. All that said, there is reason to believe that we have, in fact, hit bottom. 2010 will be full of ups and downs, but that will just be us bouncing around along the bottom for a bit.

The second positive is the most important one; population growth and an aging generation. As I understand it the flow of new faces into the United States has slowed a bit during these times. Jobs are more scarce thus making the sense of opportunity a bit less. However, the flow is still steady, and will increase again as the economic climate here improves. Population growth is a huge positive for real estate values because it adds to the demand side. It is not low interest rates, government incentives, or anything else, just REAL demand from people who are looking to put a roof over their heads. For the DC area the population projections due to job growth are profound, which adds additional fuel to the fire. We are seeing this trend already with many major corporations moving their US headquarters to places like Fairfax County, companies like Volkswagen/Audi, Hilton, Rolls Royce, etc…

The rest of this positive is in the aging population, and no I’m not talking about retirees, I’m talking about the Y generation, those being called by some the “echo-boom”. My understanding is that this population segment is nearly twice the size of the Baby Boomer generation. Essentially the baby boom generation was “fruitful and multiplied”. Call them Gen Y, Millennial’s, Generation Next, whatever you choose. The point is, there are a lot of them, and they are in, or coming into home buying age. The current market, and the reduction in home building that has resulted, has created what will become in the next 6-18 months a housing shortage. Again, it is a simple reality of demand. Besides now perhaps being the best time for years to come to buy builder stock, it is a fantastic time to be buying real estate. As renters, one would not want to sit on the fence more than another year or two. As investors, pick up as much property as you comfortably can now.

Some say that real estate is more affordable now than it has been in 30 years. That is great, but more important is the fact that it could be 30 years before real estate is this affordable again.

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