What are the Fundamentals of Real Estate?

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Maybe I’ve been around the real estate industry for too long.Or maybe I’m just not bright enough to get the economics “du jour” – in any case, when I saw an Inman News article entitled “A new set of real estate fundamentals” I was annoyed.

When I look at the current market, I see the same fundamentals that were in place when I started to sell real estate in 1971 – to wit;

  • Housing is still a basic need.
  • Real Estate is not a liquid asset, and should be bought understanding that it is a long term investment
  • Everybody with a periodic housing expense is probably paying a mortgage for someone, and would usually benefit more if they pad one for themselves.
  • When you buy real estate that is affordable and fits your housing needs, over the long term, you will create additional financial stability for yourself and your family.

These to me are fundamentals – and have been the bedrock of our industry, and it bothers me when people assume that there are “new fundamentals” – which are actually variations on these themes – some of which have short term validity, and many of which do not.

So I started reading the article with a chip on my shoulder – but after reading it through, I felt a lot better. The article actually was looking at the statements and assumptions made at a 2003 Inman conference on the “Housing Bubble” which generated some theories and suppositions about what was fueling that real estate market among which were growing Immigration, Unlimited Market Liquidity, and Consumer Confidence. In my opinion these are not fundamentals of the real estate market, but are moderating influences, as we have seen them play out.

Immigration for example was (and still is a powerful) force impacting demographics, but is impacted by both the economy here and abroad, as well as the political climate here and in other countries. As a result, this is not fundamental to real estate as a commodity, though it might positively or negatively impact demand in the market. The limits which we have seen placed on the “unlimited” liquidity of the mortgage market  also impacts the ability of consumers to act on their desire for housing, again acting as a moderating influence on the market (though certainly not fundamental to real estate) and finally, the lack of consumer confidence has been an important factor in limiting demand for real property as people find alternative investments, diminishing the “serendipitous” buyer, though the impact of those issues was important to that market, and changes in those sectors of the market are among the reasons for our current real estate market

My niece and nephew called today to talk about whether they should buy a house i- they moved to California form the East Coast, and the price of housing , even in today’s market is pretty high.  There is a house on the street where they live that has just come on the market. They like the street and the neighbors, its close to libraries, playgrounds, schools, and highways.  And they plan to be in the area for the next several years. So based upon their needs and wants, and their desire to build some financial stability for their family through their monthly housing expense, they are going to make an offer to purchase. The offer will be aggressively low (so they feel protected if the market continues to go down rather than up) but since they have good credit, a substantial down payment, and good employment, the terms of the offer are pretty good. Since the seller has a need to sell the property (and since she has lived in it for many years and has no debt) hopefully they will be able to reach an agreement. But whether they reach an agreement or not, at least both parties are motivated by what are truly the fundamentals of real estate and as a result will hopefully make decisions that benefit them –

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