INVESTORS BEWARE - An introduction to market dynamics - 2nd Post

I had an interesting conversation with a very smart broker yesterday concerning market dynamics. He pointed out some things that will definitely have an effect on market conditions going forward. We know that markets, whether real estate or stock, run in cycles. 

In real estate, there are many things that can accelerate or decelerate those cycles. For example, how will the hurricanes affect your local market? Well first, consumable and labor costs may be affected. Some labor may leave the area to pursue more work and money in those affected areas. This could tighten the construction labor market in your area thus increasing demand for the remaining qualified labor. An increased demand for wood, drywall, paint, and other building materials will affect the costs of those materials. Depending on how high they rise will certainly affect the costs of building and repairs. That can change your calculations so keep an eye on those variable costs.

Those same natural disasters can make people reconsider where they live and cause movement to other less affected areas. In Georgia, we saw the number of inquiries by Florida retirees virtually double after previous natural disasters. Georgia, South Carolina, North Carolina and Tennessee may see an increase in people relocating to those areas over the next few months and years from the recent hurricanes in Florida. More demand for housing.

Now balance that with the fact that we still seem to be in the recovery stage of the real estate cycle. The expansion stage is on its way which is a precursor to hitting the top of the market. On top of that think about this. The many bankruptcies that occurred from 2007 to 2010 are now coming off of credit reports allowing many of those buyers and builders back into the market. Artificially low mortgage rates are also a factor to be considered. How long will they hold?

What do all of these varying factors mean for the current housing market? Well, if I really knew the answer I would be selling you a get rich quick book, sadly I am not. However, my goal is to get you to think about these things as you develop your strategy for your investment business. Whether you buy and flip, buy and hold, utilize leverage, or lend money you should carefully weigh the market dynamics into your plans. 

What is happening in your area? What are your thoughts?