Real Estate Tsunami

This is one of the most famous works of art in the world, and it hangs in my office, behind my desk.  (Well, a print of it does!)  This wood block painting is by Hokusai as part of his famous “36 Views of Mt. Fuji” painted over 180 years ago in Japan.  This is the great wave off of Kanagawa.  (I lived in Kanagawa for a short time as a missionary for the LDS Church.  It is a beautiful part of a beautiful country!  My heart goes out to my good friends in Japan as they deal with disasters at this time.  If any country can recover, it is Japan!)  ガンバレ日本！

So, what does this have to do with Real Estate, and why is this on my blog at Washburn Real Estate? The tsunami in Japan has left a strong country fighting to recover.  I want to be extremely sensitive to the devastation happening in Japan at this time, and I do not want to make light of a serious situation.  That being said, I know that Japan prides itself on “kaizen,” or “continuous improvement.”  Kaizen is a term that says there is always room for improvement as well as continuous self inspection.  I know that even as I type, the Japanese are looking for way to improve and to prepare for the next tsunami.  Likewise, what better time than now to look at the huge wave and crash that is our real estate tsunami?

Every day when I come to my office, this painting greets me.  I was shocked the other day when I was analyzing real estate data to find this painting replicated in our real estate market.  Flip our market report around, and you have the Great Wave.

Everybody asks, “How is the market doing?” As my friend Rob Rahter (Keller Williams in Orlando, Florida) noted, the answer to this is:  ”Why do you ask?”  The market is a great market right now, if you are trying to buy.  It is a very tough market if you are trying to sell, especially if you bought or refinanced a few years ago during the boom.

Here is a graph of how real estate is actually performing in northern Utah right now.  This is MLS statistics, and it goes back to 1996 — approximately when our MLS started keeping stats.

Salt Lake, Utah, and Davis Counties in Northern Utah. Home Sales 1996 to current.

Notice the remarkable likeness to “The Great Wave.”  The problem with the graph, though, is that it is still incomplete.  What do you think the answer to the market is?  Has the market stabilized?  I don’t think so.  Are home prices going to be going up any time soon?  I don’t think so.  Then again, how much further could they go down?

If you look at just the averages, while the average home at the peak in 2007 was around $245,000, the current average price is around $196,000.  What does that mean?  The average homeowner has lost about $49,000 in paper equity.  And for many, that’s real equity.

You don’t have to be a statistician to see the trend.  It’s not a good one!  And the scary part is we don’t know exactly when this wave will bottom out, and what will happen then.  According to an article I read recently (sorry, no reference), 23% of homeowners are underwater in the US today,  That’s right.  Count down 4 houses on your street, and chances are, one of those are under water.  That is if you are typical.  If you happen to live in Nevada or Arizona, nearly 50% are underwater.

That’s a great wave.  But the optimistic side is this.  It will come up.  And there are great opportunities to buy right now.  Many houses on the market are selling now for far less than you could ever possibly build them for!

Surf’s up!  If you know what you are doing!  There are always opprotunities.