I have the unique opportunity to talk about real estate around Amelia Island, Florida, and the current market each and every day with many different people. The question always comes up, just how long do I think this down market will last? It always amazes me to think that some of these folks who are asking the question actually think the market is going to completely rebound, come back as it was, and soon. I think nothing could be further from the truth.
I wrote a couple of articles about the real estate “bubble”. I told you that in all my years as a real estate professional I could not remember anyone talking about a bubble until around September or October of 2005. I continued on to say that I believe it was all politically driven, 2006 was an election year and there were those who wanted the power in congress to change. If you will remember back to the latter part of 2005 the economy was doing very well, everyone was working and the economy was booming on all levels. Businesses were doing very well and life was good. Then we were hit daily and weekly with news of the coming real estate bust, time after time we were told it was coming, well it finally arrived and in time to change a lot of power in congress. Well, if it worked for this election why not the 2008 election? Now you can form your own opinion on my thoughts but I base them simply on facts as I now look back.
Let’s get back to the question at hand though, how long will this down real estate market last? I think there was a bubble but it was created, built by the news media and those who invested and owned real estate brought it down, they are the ones who stuck pins in the bubble. The pin they stuck in the bubble was nothing more then “fear”. Those who would have been investing did not, out of fear. Those who were going to invest did not, out of fear. So where are we today and how long can we expect this to last. My answer is, a very long, long, long time yet. We are experiencing asset deflation in the sense that what was worth let’s say one hundred thousand is now only worth sixty thousand. The values of our assets are deflating. Now those who are in the market to buy would say this is a great position to be in, that’s true but we must remember that even though the value of assets are falling and sellers are loosing vast amounts of money on their investments, it is also causing the value of our own assets, that may not be on the market for sale, to deflate also. In essence we are all loosing, on a daily bases and most of us are not aware of it.
While the value of our assets are falling the price of doing business and the cost of goods are rising. The rise in the price of fuel alone has caused almost everything we purchase at the grocery store to increase. We are paying much more today for energy, utilities, gasoline, medical care, medical procedures, cigarettes and alcohol products. Now no one is arguing that the negative health affects of alcohol and nicotine are bad for us, but that should be a decision we should be allowed to make, not someone else or the government. I have always ask the question that if nicotine is so bad for us then why does the government continue to issue licenses to produce them? The answer is simple, taxes. The government receives an enormous amount of money from the sale of tobacco products. They will rant and rave very loud on capital hill, but at the end of the day they just add a little more tax and life continues to be good.
What does all this have to do with our real estate market? Simply put it is the basic foundation of our current economy. Our economy will not support a healthy real estate market due to higher taxes; rising unemployment caused by businesses closing down and cut backs creating underemployment. There is not a rural road or residential area in this country that you can’t find cars, trucks, boats and RV’s for sale, offered by their owners. In most cases the prices have fallen to points lower then what they owe, again another sign of asset deflation.
If we couple asset deflation and rising unemployment to a shut down of credit, to those who are still “credit worthy”, and with a enormous national debt that seems to continue to climb, due to the fact it is business as usual in Washington, you get a picture of an economy that is still falling. I am amazed at how we, that would be you and I, now own somewhere around seventy percent of a auto industry that is continuing to build cars that are being offered to a public that for the most part are not buying and for those who want to buy, most can’t get it financed. Will we, you and I, be in the “buy here pay here” business before long?
So how long will this down real estate market last? I think the answer to that question is to present another question. How long will our government have their hands in the private sector? Until the private sector is allowed to work through their own difficulties and stand on their own, I think we are in for more of the same. We must all remember though, as we continue down the same road today that we were on yesterday, we can expect nothing more of tomorrow, and our assets continue to deflate.