Monday, January 16, 2006

How Cool is it the Market is Cooling?

So many people are asking me how the market is expected to do this coming year. Of course the answer depends on which part of the country (world) your asking that question from, but the general answer I am giving is the economy is returning to a "more normal" pace.....i.e., it has been on such a white hot pace the past five or six years, that the "cooling" which in many peoples minds is a NEGATIVE actually makes me more confident in the markets future.


Because the increase in investors in the national real estate market since the crash of '01/'02 has been well documented. People became frightened when the almight stock market was inflated like a bubble (hey wait that's a real estate term!) and people jumped on the bandwagon to make a quick buck.

Then (much to my dismay believe it or not) many jumped the stock market/mutual funds ship and rode out the last four years in the 'white hot' real estate market. However, whenever there is a massive jumping of ship and the market begins to feel the pressures applied to it internally from the armchair investors who "will buy something, sit on it a few months and flip it and make a killing" bubbles start to form in the perception of the 'invincible' armour of the real estate market (See Bubbles Hurt, Just Ask Japan from 12/25 blog).

So, I am very glad to see the "cooling" of the market and the heating up of the stock market (now over 11,000 from its low of 7,200 a few years back). I think it will help stabalize the real estate market across the nation to more realistic valuations and the panic bubbles which may still be out there are less likely to have an effect in the near future.

Of course, the new Fed chairman will have a huge effect on the real estate market and financial centers depending upon which course of action he takes the ship (i.e., will he continue the Greenspan rate increase or has inflation been put in check and will the short term rates take a breather from the steady rise we've seen...we will see)

Like all investments, I believe in a slow methodical and patient investment of money and the (almost) inevitable respectable rates of return which can be enjoyed in the real estate market (this of course is true in any market including the stock market).

While the headlines will be running "cool" on the real estate market, I believe the numbers will actually still show growth and the returns will be returning to more normal rates of growth which, to this conservative, methodical investor, is a good sign of the year to come.

Happy New Year.

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