Home Prices Decline For First Time In 11 Years

I'm sure you've all read the articles that appeared on Monday that said, for the first time in 11 years, existing home prices fell. (If you didn't, you can read about it here and here.)

What struck me about these articles is the different views the so-called "experts" have. In the first article, we have this:

"This is the price correction we've been expecting," Lereah said. "With sales stabilizing, we should go back to positive price growth early next year."

In the second article, we have this:

At the end of August, there were so many unsold homes on the market that it would take seven and a half months to sell them all at the current sales pace. The association said that was the biggest backlog since April 1993.

What's even more confusing is that the two pieces of information come from basically the same source. David Lereah is the chief economist for the Realtors Association and the second quote comes from the Realtors Association itself. So if there is still seven and a half months of backlogged inventory, that means it will be at least mid-April before we're back to normal inventory levels. As any first year economics student can tell you, surplus inventory means less demand and less demand means lower prices. I think Lereah is being overly-optimitic.

And all this does not even begin to take into account the uptick of foreclosures and mortgage defaults that will be happening as variable rate mortgages start to adjust upwards, something we're already seeing the first signs of now.

I know one thing from experience: when people start prediciting a market has hit bottom, it hasn't.

So what does this mean for a real estate investor? As long as you know the basic rules of REI and stick to them, you should be ok. The most important one is that money is made when you buy a property, not when you sell. Don't buy something that is losing money and expect appreciation or tax savings to bail you out. Become more selective in your purchase criteria. It is becoming a buyer's market, so take advantage of that.