Is there any Profit to be Made from the Recent Real Estate Slump

Those who would invest in the real estate market, either for home ownership or speculatively, would be well advised to keep their money in their pockets for the time being. There is more blood to be spilled before the carnage ends. The shakeout in the real estate industry has been going on for less than three quarters, but there is five or more years of abuse in the system, and one can expect the bad news to continue.

It is characteristic of the American mentality to look at the current situation and say “Ah Ha! An opportunity!” without looking at the history of past debacles. The early 1980’s saw a blood bath even greater than the one now in process, and it took three years to clean out the system (along with a goodly number of banks and S&L’s that failed to survive).

The current situation, from a basic economic standpoint, is numerically unfavorable. With the huge number of sub-prime mortgage failures, the market has eliminated at least a fourth or more of the possible buyers, thus deflating demand. Those who made up the middle percentage on the old model have now slipped down the totem pole and may find it hard to qualify for a mortgage for the parcel they desire, further deflating demand. There is a huge supply of real estate product overhanging the market, and some construction companies continue to build out, hoping to either salvage their investments, or to keep their corporate noses above water by providing some kind of cash flow to cover their construction financing.

It’s true that in some stable, diversified market areas demand remains steady, if not throbbing, but the domino effect has yet to be felt. There are financial giants out there that are reporting some really dreadful quarterly results…many with the word “billion(s)” when referring to losses. It takes a while for the dominoes to “shake out the shoeclerks” in those large organizations. Heads must roll before the bottom is reached. Only when you see quarterly earnings of those financial giants show flat, or breakeven, performance can you start nosing around for bargains. Until then, keep your money in your pocket.
Edited October 03, 2008: I told you so! The bailout has passed but not the kidney stones of this economy. Keep paying rent, there will be cheaper tents at the oasis. No banker has bailed off the ledge; no banker has been indicted; both are prerequisites to the sign of a bottom being reached. Anything else is false advertising by charlatans with product to sell and payments to make! The fat woman has not even cleared her throat, yet!