How Do We Know When We Have Reached Bottom in the Real Estate Market?

How do we know when we have reached bottom in the real estate market?

Recently I have been working with a first time home buyer who is a friend from church (in fact her father is my minister, talk about being under pressure to do a good job!). This is not my normal market niche and it was a real eye-opener to me to be showing predominately short sales and foreclosures in the outer Fairfax County market in the low $200,000 price range. What I have discovered astounded me; many of these properties are getting 6 contracts! That means there are 6 qualified buyers out there ready and willing to buy and are taking on the challenges of buying short sales and foreclosures.

To pass the time I spend on the road viewing properties, I listen to books on CD, and just heard Jim Rogers in Adventure Capitalist. This was written in 2003 and what amazes me is that he predicted most of the present economic situation. I believe we can all concur with Jim that markets move in a zig zag fashion, that is markets typically don’t move straight up and straight down, but rather move sideways for awhile and often peak and drop for short periods of time. In 2003 Jim, anticipated the real estate and consumption bubble (as did many others). I myself recognized the peak in the close-in Northern Virginia real estate market in August 2005 by recalling the tech boom and how the law of large numbers caused technology stocks to reach a point where the growth was not sustainable.

With hindsight we know that in fact the peak lasted until early 2006, but what we don’t know is when do we hit bottom? Well I think the reverse of recognizing peak markets is true for predicting when bottom will be. Jim Rogers’s states that bear markets naturally clean out the system and I believe that has occurred, that the worst of the mania has passed, that the bottom of the bubble has burst. Again, when there are 6 contracts on a foreclosed property in Fairfax County, Virginia prices have corrected to the point where the turn around has occurred or is eminent.