Monday, January 09, 2006

Statistical Analysis Eases Bubble Talk, Shows Rents Growing

There's been plenty of press lately on softening markets around the country and now there are more articles finding ink about how the real estate bubble isn't really a bubble, hasn't burst and is more likely just seeping out some air.
I've had a Google News Alert established for months now on "real estate bubble." It's amazing how many local newspapers keep reporting about the bubble – somewhere else. Not in Florida, Texas, North Carolina., etc., but somewhere else – those poor people.
Then today's search results brought in these headlines:
"Proof that the real estate bubble hasn't burst"
"A challenge to real estate bubble reports"
"The real-estate bubble media coverage bubble"
"Bye-bye bubble"
"Self-correction of real estate bubble"
In reading the articles they all seem to be saying, "Um … wait a minute, we may have overreacted to the bubble stories and now it's not a story."
Through deeper reading, you'll find industry watchers and insiders have come out with the big guns in the area of statistical analysis. Without statistics, business people don't move forward and these stats have been showing that in many places across the country, there are some very strong markets taking a breather, but by no means has any bubble popped.
The National Association of Realtors is even predicting a record year for 2006. Now, you might say, "Well, of course they're saying that to quell the fears that people's home values are in jeopardy." Maybe yes, maybe no. The problem for all the bubble prognosticators, however, is that markets across the country are still strong. Rarely do you find a market absolutely diving and people heading for the hills. The "softening" is more like a return to a normal market, not a bursting of a market.
In light of the fact that the Washington, D.C. region has the strongest economy and job growth in the country, I was surprised at the latest breather in the market. However, in looking over our own real estate stats, I've discovered that investors should be raising rents right now if they want to take advantage of a run on the rentals the last four months.
Investors inside any hot market need to look over the stats just as much as those who are selling. They must keep up with the real estate values so they know when to sell and move money to other investments. And they especially need to watch average rents as they don't want to get left behind in the growth of their monthly cashflow.
What's happening here is probably doing the same in other markets where sales are either headed downward or taking a breather -- rental inventory is being eaten up, rents are on the rise and days on the market have been slashed. At least for the last few months, it's turning in favor of the landlords.
According to the rental stats from the region's MLS, Metropolitan Regional Information Systems, Inc., in the District of Columbia, the average days on the market for rentals has dropped below three weeks. The average days on market last year at this time was more than 10 weeks. In addition, the average unit rented last month is bringing in $840 more annual income than the average unit rented a year before. Wealth-building is on the march.
In neighboring jurisdictions around D.C., the same is happening -- Montgomery County, Md., days on market dropped less than half to 30 days. Fairfax County, Virginia's days on market has dropped to just 23 from 59 in a November to November comparison from this year to last. Meanwhile, the average unit annual income is up by more than $1,000 compared to a year ago in Fairfax. Montgomery County investors are bringing in nearly $100 more per month last month than they were able to fetch a year before -- that's $1,200 per year increase in revenue.
I've always been a 'buy 'em and hold 'em" kind of investor. And other investors who have done the same are now smiling. The wise wealth building goes something like this -- buy low, hold and rent out (for years), sell and roll money to a larger property. This is what we refer to in the business as a commonsense approach to building wealth. Yes, those investors who purchased when there wasn't a frenzy are now smiling -- all the way to the bank.

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