What Causes A Perfect Storm?
Well that’s the million dollar question, isn’t it?
What I deem a perfect storm is a set of circumstances that occur once, maybe twice in a lifetime that offers unparalleled opportunity to purchase undervalued real estate at unnaturally depressed prices. There was one similar opportunity in the late 1980s, early 1990s when the RTC (Resolution Trust Corporation – a government-run entity used to liquidate primarily foreclosed commercial assets) had one of the biggest fire-sales of commercial real estate history. This was a time that fortunes were made in the acquisition of overly distressed real estate assets. At that time, the market collapse was caused by 3 main factors (1) change in US tax laws affecting real estate agencia de bienes raices cdmx investors, (2) Overbuilding, (3) The Savings & Loan banking scandal and fraudulent activity of mortgage lenders and appraisers.
So what’s causing the Perfect Storm Today?
(1) Massive residential property speculation in 2003-2006
(2) Too much credit available to purchase and finance real estate which was overused by lenders and uncreditworthy borrowers
(3) The current overall US market decline/recession that is spreading into a global crisis
(4) Current lack of funds for qualified borrowers
(5) Current oversupply of properties for sale
As you can see, there are 2 stages that follow one after another that lead to the creation of a Perfect Storm and opportunity to purchase real estate at incredible values – The Housing Speculation or Run-Up phase and the Market Collapse. We will examine each of these phases so you are more informed on what has led us to this perfect point in time to invest in real estate.
But first, we need to examine the most important issue a real estate investor must evaluate when choosing where and when to purchase a real estate investment – LOCATION.
Underlying Market Strength
I’m sure you’ve heard the age-old adage, “location, location, location”. I have a different spin on this saying. Mine goes more like, “location, timing, cash-flow”. Nevertheless, location is still number one on the list. If the underlying market is not strong with potential for rental and value increases in the future, then what’s the point of investing in the first place?
First, let’s look at Metropolitan Phoenix as a whole for location. Why the heck would you want to buy property in the middle of the desert?
Even though our market is severely depressed right now, Phoenix has shown remarkable resiliency and long term value appreciation for a number of reasons:
(1) Climate – People want to live here because of the warm, sunny weather. It is why snow-birds come in flocks for the winter and to retire. We all know that the baby boomers are reaching retirement age.
(2) Affordability – Phoenix is one of the most affordable places to live in the US. While this statistic took a temporary hit during the last boom, we have fallen back down to being extremely attractive to business based on real estate values, labor pool and overall cost of living. This will continue to attract business, labor and retirees to the area for the long term.
(3) Standard of Living – very high. Ease of commuting, and a fresh young, vibrant city leads people to want to live here.
These factors have led to the remarkable positive population growth Metro Phoenix has experience for the past 50 years. Even during times of economic hardship, people still continue to move here at a remarkable pace. This puts pressure on the housing market and inevitably leads to appreciation.