I have personal experience in the slump in the real estate market, as perhaps you have. I cannot afford to sell my house, and the mortgage holder is unwilling to renegotiate terms to now lower interest rates. As I've left the country and my employment is now less lucrative, I'm not a candidate for straight refinancing in these tighter loan times. Yet, despite this, what I read and hear from the analysts, the past history of real estate, and my own more limited experience lead me to believe that all will work out, and sooner rather than later. Of course, in our times "soon" means tomorrow. However, I don't believe the market will improve in the next months. In investment terms, though, long term is always more than a year. I do believe the market will improve within the year
Why? Well, for one, despite recent record-breaking drops in the value of my home of twenty percent or more, it remains worth more than I paid for it in 2001. Foreclosures and "fire" sales to escape high mortgage payments not withstanding, the crisis in home values remains more of a sharp decline than a total bust. Granted, people who bought more recently may now face short-term losses. And those who took loans on equity, as I did, also face difficult decisions and hard to make payments.
My own story is that I re-financed and took a second mortgage to finance projects on my house. The loan to value ratio was, at the time, eighty percent, considered healthy and by no means a "high risk" loan. However, the market drop means that I did not realize gains I might have on the home improvements, and my loan to value ratio now is much closer to one hundred percent. On top of that, I moved to another country for personal reasons.
Still, I have now managed to lease my house to cash-paying tenants. While I do this at a "loss," the loss really means a greatly reduced investment in the house. Rather than a mortgage, interest and tax monthly payment of over $1400, plus utility bills, I now will pay a little over $200 a month plus only the water bill for utilities, about another $50 per month average. And I can afford to wait out the market until the value once again grows on my house.
My personal outlook is that people will become more optimistic after the elections in November, no matter who wins. The hope of someone new in the White House, McCain or Obama, will improve consumer and investor views for the future. This will be enough to show improvements in all sectors, including real estate. Real estate should at least show signs of life and a plateau that could begin rising if the newly elected president and congress make the right early moves.
Long term improvements in the economy will require more than the elections, of course. Both McCain and Obama have plans for change, and change alone may be enough. However, major areas of government policy will need to be addressed, and from what I've read here, outside of the U.S., it seems that both candidates recognize this fact.
First, deficit spending has to stop. The war in Iraq drains U.S. resources, and this fact needs to be addressed. Bush has hid his head in the sand, continuing to argue for less income into the government while increasing spending, particularly with the war. Whether the policy decreases spending or increases income, or, more pragmatically, both, a policy that drives forcefully toward a balanced budget for the government will help resolve many of the problems with the economy. Again, while they may disagree as to the strategy, both candidates seem headed in this direction.
If the likely optimism after the elections is followed upon with responsible fiscal policy (yes, this probably means higher taxes in the short term) that balances the budget, then the real estate market should move from plateau to rising again. Although I own property and would benefit from a sharp rise, I'd prefer to see a gentle rise that sustains itself into the real long term-many years out. If that is the case, I might consider continuing to hold my property, rather than to sell it when I can once again afford to do so.
In the meantime, if I had the means, I would invest now, cautiously. If the market continues to fall, I would make small investments, but during any plateau I would increase those investments. Once the market started rising, I would hold at the increased amount, reassessing periodically. However, I haven't won any lotteries of late, and most of my investments remain in diversified mutual funds through retirement plans. Plus, of course, I have my house, which equals more than my current retirement plan funds. So, I really do hope that my optimism is well founded.