Thursday, April 23, 2009

Investing Sentiment In Real Estate Is Changing Rapidly

I got a call the other night from a fellow investor friend of mine. He was calling from a very crowded Real Estate auction in the Tempe, AZ area. He seemed a bit frustrated as he relayed what was happening at the auction. According to him, just about every property he had an interest in was selling for 25% or more than the auction list price. As a result, he was basically shut out of the bidding and by the end of the night, he had left the auction with nothing. I've also had multiple conversations with Realtor friends who work in California and Arizona. In those conversations, it was clear to me that things were beginning to change in a price appreciation kind of way. Multiple offers on properties are making a come-back, and the days of making a low-ball offer are beginning to wane.

It appears to me, that the signs of changing sentiment are just about everywhere you look. People are slowly but surely coming off the side-lines with the belief that the market has reached a bottom. This is a crucial part of any plateau and future appreciation cycle. When fear in real estate investing begins to go away due to changing psychology in the potential profit expectation, you can believe with certainty there will be a resulting effect that reduces the available inventory of homes as investors and soon to be homeowners start making purchases in mass.

Low interest rates are still available and will definitely help contribute to reducing inventory, but I do think their days are numbered. I still believe, as I mentioned in an earlier blog , that mortgage interest rates have the potential of reaching 18% as they did in October of 1981. I also believe this probable rise in rates may hasten the next appreciation cycle as home buyers scramble to buy before the rates reach double digits. We are already seeing credit card companies engage in the practice of raising rates, so I don't think my prediction of 18% mortgage rates is too far off the track. Time will tell, but I think all of the fore mentioned points in this blog show the tide is beginning to turn and that's a good thing for home values.