I live in California, which means earthquakes- most of the time these are tiny adjustments that we don't feel, but every once in a while we get one that rocks the house a bit. Pressure builds up between the earth's plates, and has to be released; the more pressure, the bigger the quake. With every big quake there are aftershocks too... we're just now settling down after the big real estate quake hit and trying to figure out if the market is ready for rebuilding.

How do we know the aftershocks are abating? Wall Street (who is watching real estate like a hawk) has begun to respond positively to the stabilization of the market, consumer confidence is up about a point, and some of the major stocks like Burger King and Medtronic are posting increased profit margins. Builders like Toll Brothers have begun to show improvements, and investors are squeezing into all the nooks and crannies in the real estate market. It looks safe, but there are only two possibilities - it goes down or it goes up.

1. If it goes down - In most areas the value of a home is not going to go down that much, so if you invest now, the worst that would happen would be a year or two before you see the upward trend. Mortgage rates have just dropped a tiny bit, so you can probably do pretty well on financing too.
2. If it goes up - You will still have to wait a while to realize profit because it's tough to flip homes these days. If you're going to rent it out, you will be able to draw on all the folks who are moving from a home into a rental. You may even be able to rent out to the previous owner of the property you just purchased.

And then... Markets don't always just dive down and come straight back up. It's actually more realistic to see a bounce or a wave. The market goes up for a while, and then it re-corrects. In seismic terms, this is kind of like an aftershock- rarely as big as the initial quake, but it's definitely felt. What's pretty hard to predict is what this might look like for real estate - we're now working in a model that has been defined by new legislation, new banking and mortgage guidelines, and different 'stimulus' activity. This means we can no longer predict what will happen based on the past activity.

Legislation was introduced to slow the fall of the market so we never saw the true bottom of the market. Different loans will come due at different times, and people will be defaulting while banks are writing off losses. This is all going to continue during the fall as well and the rise of the market. It's going to happen on a state and regional level. Does a slow fall mean a slow rise? Not necessarily- standard market theory says that falls can be quick (crash) but that rises are traditionally slower. We've just slowed down a decent in real estate home prices and there are thousands of people poised to invest at the bottom. Confused? Well so is everyone: no one knows - it's uncharted territory. However - the earlier points still hold true, which means it's probably a pretty good time to invest.

Dan Perkins

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