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Real Estate assessment – Nice spring break…can it last

Posted At : April 9, 2009 12:22 PM

The real estate market has had a nice blip up, especially in California. Unfortunately it’s only seasonal, as the housing crises will likely be around for a while longer and getting worse before it gets better. The obvious insight is the old demographic reality. Older people become net sellers and accelerate that trend from their early 70s and forward in age. The peak number of buyers for homes comes as we would expect between the ages of 30 and 34, due to starter home buying. Trade-up home buying at much higher prices drives up overall home purchases in dollars among those ages 35 to 39, despite declining numbers of buyers. Selling first bottoms in the 60 to 64 age range, and then accelerates from ages 70 to 74 and forward as people move into nursing homes or assisted living facilities and ultimately die. When you have an older generation that is as large or larger than the younger one, the net sales of older people cancel out or even exceed the new home purchases of the rising younger generation.

Hence, the paradox of home prices continuing to fall. People in the leading edge of the Baby Boom generation born from around 1937 forward are turning 72 in 2009, with massive numbers of net sellers coming for 24 years to follow. So, how will home prices recover substantially when there will likely be older sellers than buyers? We already have the real estate we need for decades to come except in areas with continued increases in migration—unless we see another surge in immigration, which isn’t likely at least for a decade. Hence, most areas are not likely to see home and commercial prices as high as they were in 2005-2007, even in the next boom period from the 2020s forward. Expect real estate will revert to being valued as a place to live or to do business rather than as an asset that appreciates substantially, and renting may make sense to more of the younger and older families. I would use this glimmer of hope to sell any real estate you don’t live in or love regardless of price.

Keith Springer Loans

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