Real Estate Bounce - as predicted?

As is typical of Real Estate and Mortgage "types" in the Las Vegas market, over the last few years I have had many conversations with colleagues about How, When and Why the Real Estate market will recover. 

Last weekend I took a couple of days to go camp on the California coastline to do some bodyboarding with my two sons and a group of friends.  I sat offshore a bit and waited for the next "Set" to roll in, hoping to be in the right position to have a great ride.  At first it was a guess, but then I got the feel.  I could see a swell on the horizon and then I could feel the water receding to meet it. 

Most of my colleagues guessed that the "recovery" would be flat for years and then take decades to recover.  Many Investors and would be homeowners waited on the sidelines.  This present boom caught all of them off-guard.  I kept saying we would have more a bounce than slow growth, probably a 25%-35% bounce over a short period (like 24-30 months).  I was alone in that prognostication, but the recent boom could go either way.   We will know soon enough who was right. 

But, why did I say that we would bounce of the bottom so far?  Well, the first reason is that rents vs. mortgage payments are far out of equilibrium.  What I mean is that in a normal market, it costs about 10% to 20% more for mortgage payments (to own a home) rather than rent it.  At this point, mortgage payments are 25% less than rent payments on a comparable home.  Additionally, investors can easily earn 10% to 20% Return on Investment based on the current rents and property values.  That is much higher than a stable market which typically earns about 8%. 

With all of this said, I feel confident in my prediction of a large housing market value "bounce." But there are foreseeable risks.  First, mortgage rates are low and could rise, putting downward pressure on home prices.  Additionally, geo-political risks could negatively impact the market. Lastly, we could see a glut of homes onto the market should the law which slowed the foreclosure market be repealed in the next State Legislative session.

For help with Real Estate financing, email brentawood@hotmail.com.  702-629-9555.

Brent Wood