One of the most common questions we get is “Do you think the housing market has hit bottom?” In other words, are home values likely to continue dropping or will they start to rise again soon?
Now, we can understand why people ask this question. It’s natural to wonder if your new house will grow in value sooner rather than later. This is especially important given that successful “equity sharing” depends on real estate continuing its long-term path of steady price growth.
While no one can predict the future, we do have a crystal clear answer to the question: It doesn’t really matter.
Yes, you read that right. It simply does not matter if the market has hit bottom or not.
Our logic is simple. We believe the old adage that “there is no such thing as a national real estate market”. Instead,
In other words, when you see headlines stating that the real estate market “dropped X% over the past year,” don’t be fooled. They are talking about the nation as a whole, not individual markets.
Perhaps more importantly, good deals exist in every real estate market. Even in the most dire markets – ones that have seen the biggest price drops – we see savvy buyers picking up undervalued properties. These properties, often a result of foreclosures, can be purchased well below their market price. They are poised for substantial price appreciation.
The key is to do your homework. Closely analyze the property before committing. Consider the individual property as well as the local and regional market. And, of course, always consult your financial adviser and attorney before entering into any property transaction, be it equity sharing or something else.
And don’t forget, equity sharing comes with a safety net. If the property does not appreciate as much as the partners hoped, then the partners simply extend their agreement until they reach their target appreciation goal. Such automatic extensions are easily built into the Equity Sharing Agreement, protecting everyone’s financial interest.
During property booms, it’s hard for people to imagine the good times ever coming to an end. But they always end. And during real estate downturns (like the current one), it’s hard to imagine the market ever booming again. But it always bounces back. This one will, too.
So put away the crystal ball. Stop watching the national trends. Instead, pick the area where you want to buy, then find its hidden gems. And always remember that you are buying an individual property, not an entire zip code. Great deals abound no matter what the national market is doing. With a little homework, you can find them, too!
Best regards,
The Home Equity Share Team
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