Factoring for Future Losses

Economists have been voicing their predictions for the real estate market.  In the midst of yesterday’s report of an 8% decline in home sales last month, Lawrence Yun believes prices will decline 1.5% this year and many economists said “the problems in housing could well last for another year.”  This is important because people will be buying and this gives us a good snapshot of the window of opportunity.  It is also extremely helpful in gauging offers and anticipating where your purchase point should be.

While the window sounds about right to me, I think the 1.5% prediction is extremely conservative.  Ironically, though, my sense is that this week’s wild fires will have a positive effect on the local economy and roll over into the real estate market as the re-building effort gets underway.  But the point remains the same, if you’re looking to buy in the next year you need to factor for future losses.  Some losses will be built-in by the seller so, again, I say this is a complicated market and you have to do your homework.  It’s all about finding the right price point so you will not sustain immediate depreciation and still leave a healthy margin for future appreciation.  The shorter the term you intend to hold a property, the more aggressive your approach will need to be.