Over the last few weeks I’ve been reading some recently published books on real estate. Two of the most interesting are Cash In on the Economic Real Estate Crash by David Decker and George Scheldon and Why the Real Estate Boom will not Bust by David Lereah, chief economist of the National Association of Realtors. The two books agree that we are in the middle of a downturn in the real estate market. No kidding. They also say that a correction in prices is not necessarily a bad thing given the crazy appreciation over the past few years. They also agree that things will get better, eventually.
The books also agree on the six indicators to examine to estimate when the market will pick up. They are low interest rates, positive net migration, low employment, low inflation, low inventory of houses for sale, and rising sales. I have consistently looked at three of these for Jefferson County.
First, interest rates. As we all know by now, interest rates are still historically low and they are unlikely to increase significantly anytime soon. Second, inventory. This is a measure of how many houses are on the market at any one time. This has been historically high, but it is now coming down. Indeed, January 2007 saw the sixth straight month when inventory fell (Figure 1). Third, the number of homes that have sold continues to be low. However, January 2007, while tepid when compared to the preceding few years, was not low in historical terms (Figure 2).
How about the other three indicators? First, inflation is historically low and seems under control. The Federal Reserve seems committed to keeping inflation low. This is unlikely to change any time soon. Second, net migration to the area remains positive. Indeed, over the past five years, Jefferson County has seen a steady increase in its population (Figure 3). Though increase in gasoline prices put a dent in those willing to commute from Jefferson County to the Beltway, projections show that population increase will accelerate over the next few years.
Perhaps most importantly, employment remains strong. The Bureau of Labor Statistics shows that Jefferson County has low and stable unemployment rates (Figure 3). Employment in the region has remained constant over the past few years. Though some manufacturing and farming sectors are seeing losses, these seem to be more than compensated by the increase in service sector employment opportunities.
What this suggests is a stable and strong local real estate market in the medium and long term. When will we get to this blessed and rosy medium term? With the Spring market upon us, I would say sooner rather than later.