Real Estate Trends    by Amy

History repeats itself. Nothing else can truly describe the rise and fall of

Real estate prices in last 25 years. It keeps going up and down cyclically,

giving an analyst a feeling of Déjà vu, depending on the major factors like

Employment opportunity

in market, supply of houses and

federal interest
rates

.

The factor of Employment is dependent on market recession which is a

situation where the jobs available in the market are less than the

population eligible for the job. The situation is worse when the existing

employees are given

pink slips

by their employers under the margin

pressures. Amongst the ones who get the pink slips could been employees who

have taken

mortgage loans

(not to include

Auto loans

,

personal loans

etc)

and have monthly EMI (Equated

monthly installments

) to pay off to their

lender bank. Subsequently, borrowers lose their capacity to pay back their

mortgage loans resulting in lending banks taking over borrower’s house and

trying to auction it off which results in overflow of such houses in

markets. As

employment opportunities

are low, there are hardly any buyers

and the vicious cycle continues until industry starts hiring and the economy

comes up again.

Another factor which is playing a major role in current downward trend of

real estate prices is the huge

supply & demand

gap. The point to ponder here

is why did this gap built up in the first place?  Contracted Builders and

individual home owners could never imagine the upcoming recession and more

than that the severity and speed with which it blew down everything. They

could never envisage that the prices will drop so quickly from such a high

growth rate. The oversupply which we see today is a result of all the

planned construction which was taken up before recessionary trend started.

The same dream-house which was expected to bring in several folds of premium

is today a burden which everyone wants to get rid of, as soon as possible

and at the rate (25% reduced from the peak rate) which is far less than

their expectation.

All is not lost, though! Analysis of last four recessions clearly highlights

the fact that the prices of new homes goes abysmally down for a period

during the tail end or beginning of recession (2 months in ’75 & ’82 and 1

year in 91) while prices skyrocket continuously for a while (4 years in ’91

recession, usually 5 years) as soon as economy is out of recession.  A

favorable mortgage interest rate combined with Government’s oft repeated

implementation of economic tools has potential to bring economy out of

recession, thereby bringing an upward trend in real estate prices.