Friday, August 25, 2006

Is This Really The End Of The Real Estate Boom?

Jim Cramer of “Mad Money” says the Boom is over and if you own investment real estate, get rid of it and invest in corn flakes. July was one of the worst months for real estate in a long time with the number of unsold homes climbing to a record high. Furthermore, sales of existing homes dropped to the lowest point in over three years, and that down trend caught most economic analysts off-guard. The supply of homes for sale rose to over a 6-month supply which is the highest it has been in the last 10 years. A Commerce Department study reported new home sales, accounting for 15% of the market, fell by 4.3% and is down 22% from the same time last year. The supply of new homes, meaning new construction, rose to the highest documented level since December of 1972. I wonder if they took into consideration the population boom since 1972? Also, price gains slowed since a 14% increase last September, but we know that and I don’t consider that to be unmanageable appreciation. My definition of a boom is when appreciation rates reach the 20% to 30% range. I still maintain that the Vineyard market is unique and somewhat recession proof. Granted, a lot of people are moving off the Island for various reasons including lack of ability to make a living here, but I believe more upper-middle class people and retirees will take their place converting properties into suitable vacation and income properties. Baby boomers (1946 to 1964) who are reaching retirement age will be divesting themselves of their oversized primary residences in favor of more modest accommodations. They will have the resources to afford a second home in a calmer surrounding or escape urban centers altogether in favor of no maintenance condos or low maintenance homes in recreational areas with golf, tennis and boating. They will have the money to do what they want and their movement will signal the beginning of the next real estate market upswing. Think about it, 27% of the population fits into this category and that adds up to 76 million “boomers” getting ready to retire. I’m very optimistic about the future of Martha’s Vineyard and its ability to adapt to the sociographic changes. I am also confident real estate will always be a good investment in the long run.


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