Real Estate Prices Headed Down? Think Again.

I sent an email out today. Here is a valuable excerpt:

We continue to see a steady drumbeat of bad news on the national level. Historically the price volatility that the East and West Coast markets are seeing is not unusual. What is unusual is the speed in which these markets are adjusting to reality.

The Utah Real Estate market does not behave like these markets for several reasons:

1. Demographically the SLC area represents America from the 1950's. Large child producing families are less mobile.

2. Persistent in-migration and slow out-migration creates demand for housing even in a recessionary environment.

3. Geographic constraints place definite restrictions on supply. Water is only available for residential development and use in limited areas of Utah. Namely the Wasatch Front. More people will continue to be squeezed between the lake and the mountains. Eagle Mountain is the only community that I can think of that defies this trend.

So does this mean that our market is some how immune to downturns? No it does not. But what it means is that we have price stability that other places that we hear about on a daily basis do not. I have attached a chart I created based on OFHEO data showing what $1 of Real Estate has done in Utah since 1986. If you bought your home in 1986, email me and tell me if this chart is wrong. I suspect it is pretty close to accurate.

The interesting thing to notice is that very seldom does the market actually decline in value. There were small periods from '87-'90 and '00-01 that were down but they were never very deep declines. Maybe 5% at most but really being flat until the next boom.

We are entering another one of these flat periods where values are steady. If you bought your home in the last 12 months plan on being there for another 3 to 4 years before you have enough equity to move to your next home. For those who have been in their homes over 2 years, you have plenty of opportunity to sell your home and transition to your next property.

Look forward to very slow increases in prices over the next few years. Its during this period that buying real estate will be the most rewarding.