The Free Market Prevails Again!

Over the last few months I have spoken to dozens of property managers as I re-enter the industry.  Luckily for property managers, the rental market is significantly better than it was a few years ago.  Vacancy rates are much lower, and rents have even gone up a little bit.  The biggest problem that I have heard is the affect that foreclosures are having on property managers portfolios.  From the dozen or so property managers that I have spoken to, the average loss to a portfolio is about 10%.  Fortunately, this is being offset by the increasing numbers of homeowners that cannot sell their properties and are seeking property managers to help them manage the property.  The comatose re-sale market has more than offset the 10% loss for most of the PM’s I have talked to.

It’s amazing how our free market has a way of balancing itself out, despite government intervention.  The US government passed all kinds of legislation in the late 90’s and the early part of this decade to encourage more people to own homes.  Naturally, this led to an enormous run-up in housing prices, and a painful burst of the “bubble.”   However, if you draw a straight line from 1970 to today, what you will see is that housing prices are pretty much exactly where they should be.

http://mysite.verizon.net/vzeqrguz/housingbubble/

Obviously, the government “intervention” did what it was intended to do, and stimulated the economy and fueled a huge, artificial run-up in prices.  This intervention also adversely affected the rental industry, driving vacancy up and rental prices down as renter’s fled to sub-prime loans and home ownership over renting.  It was sure a fun run-up for anyone that owned real estate, especially if you sold it before 2008, but the market does not like to be manipulated.  The real estate market has now overcome any meddling by the government and has landed exactly where it wants to be.

I used to hate to admit it when my dad is right, but I have finally learned to embrace the wisdom that can only come from experience.  He is a 40 year veteran of the banking and real estate industry, and he had been calling this collapse since 2002.  He didn’t have any other facts other than “It just doesn’t feel right.”  I told him he was missing out and that he needed to buy, buy buy!  Instead, he saved, saved, saved as he always does and now he is ready to pick up some real estate at 1998 prices.

Over the next few years I think we will see a very slow but steady improvement to the housing market, and a more robust rental market.