How to Predict Real Estate Prices

Real Estate prices are very predictable and I sold my house in California twice at the peaks of 1989 and 2007. By following foreclosures in your area you can tell by the law of “Supply and Demand” whether prices are rising (no foreclosures so demand > supply), prices are falling (foreclosures are increasing so Supply > demand) or prices are stable (foreclosures are diminishing and supply = demand).

Steps

  1. The California Real Estate Cycle is eight years up followed by eight years depressed. California Real Estate went up for 8 years from 1982 to 1990, was depressed for 8 years from 1990 to 1998 and went up for 8 years from 1998 to 2006. Add 8 years and 2014 will be a time cycle low for California Real Estate.
  2. For the first time since the Great Depression, the US cycle and the California cycle are the same so 2014 will be some form of time cycle low.
    • In the last time cycle low in California during 1997 Bank of America and Washington mutual sold off the last few thousand foreclosures for $1,000 down (like a fire sale) and this is likely to happen again 2014-2015. This will make getting into Real Estate easy if you are willing to buy a home that is small or beat up or on a noisy street but not necessarily in a bad area.
  3. The Government Causes Major Housing Bubbles every 40 years by lowering rates and causing “cheap money” that leads to a housing collapse in the fourth decade. This happened in the 1890′s, 1930′s, 1970′s and 2010′s. During the fourth decade, the Real Estate depression should last 2 extra years so Real Estate will be depressed up to 2016 (2006 + 8 + 2 = 2016). 2016 on Real Estate will soar in price.
  4. Similar to the 10-11 year depression caused by a major housing bubble, the future advance is proportional in time so 2016 to 2027 Real Estate will have a massive jump in price.
  5. 10 million people lost their jobs from 2006 to 2011 causing over 3 million bank owned foreclosures in 2010 and another million foreclosusres are expected in 2011. These foreclousers will take up to 2016 to sell off so Real Estate prices will remain depressed as these homes are put on the market and sold off.
    • http://articles.sfgate.com/2011-01-13/news/27028607_1_rick-sharga-foreclosure-filing-last-year-realtytrac
  6. The movement for Real Estate prices follows the simple law of supply and demand. When there are NO Bank owned foreclosures, demand is greater than supply and prices must rise (1998-2006). When Foreclosures rise in number, supply is greater than demand and prices must fall (2007-2011). When Foreclosures are no longer rising, banks sell the foreclousers off so supply equals demand and prices remain pretty stable (2012-2015). After foreclosures are sold off in 2016, prices will rise again.
  7. In the 1970′s the US government was printing and spending 20 million US dollars per day and when foreclosures were sold off in 1976, prices rose 30% per year for 5 years (quadrupled in price nationwide from 1976 to 1980) to catch backup up with inflation (when the banks loan all the cash, it causes cheap money and another up-leg in home prices).
  8. In the 2010′s the US government is printing 4.1 billion US dollars per day and spending it on stimulus. This will cause another massive jump in Real Estate prices nationwide 2016 to 2020 and a smaller rise from 2020 to 2027.
  9. If the Government is printing and releasing 4.1 billion dollars per day, why are we not experiencing inflation? The contraction in jobs and Real Estate is holding inflation under control. Banks are not loaning money on falling Real Estate and people that lost their jobs are not spending. We learned from the 1970′s that the sale of foreclosures holds down inflation but once they are sold off, the Banks will ease up on the requirements and loan again. This release of money causes “Cheap” money to be released into the economy and prices should rise sharply after 2015.

Tips

  • Around 2014 the last of the foreclosures that are on noisy streets, beat up or small will be sold off by the banks for only $1,000 dollars down by the banks to get rid of them. This always happens at the time cycle low.
    1. Some of these properties are in good areas.
  • The Federal Housing Administration has a 3.5% down loan program. If you buy a $200,000 home the down payment will only be $7,000.
  • Ask the seller to pay for the closing costs, this really lowers the money necessary to get into the property. The is OK with Federal Loans and it is OK with Regular Bank loans.
  • Read the book, “How I turned $1000 into three million” by William Nickerson.
  • Properties with cosmetic repairs will jump in value when they are fixed or replaced. Cosmetic repairs are old light fixtures, leaking faucets, broken windows, old carpets, peeling paint.
  • Properties with overgrown trees, shrubs and grass will look a lot better if cut back so look for the overgrown property. If the exterior paint is peeling, the entire property will look great if you prime and paint it. You must use exterior primer and exterior paint on the outside or it will peel within a year.
  • Another very cheap way to spruce up a property is to add some plants and flowers.

 

 Warnings

  • Don’t buy properties that are 100% vacant because the City likes to cite owners for repairs. They will take your gas and electric meters to force you to do repairs and this makes the repairs take longer and more costly.
  • Small units like Bachelors/Studio/Single apartments tend to have a lot of vacancies. This is more severe in a recession when people lose jobs and double-up by moving back in with family or friends.
  • Large units tend to have high utility costs and high maintenance costs. Try and buy a property where the tenants pay for Gas and Electricity.
  • Properties with flat roofs and multiple stories have more water problems so just buy single story properties. Properties on hills or with basements tend to have foundation problems from dirt running off or a drain pipe leaking into the basement so just avoid them.
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This entry was posted on Wednesday, October 12th, 2011 at 6:56 pm and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.