Long Term vs Short Term trends - Posted by Frank Chin
Posted by Frank Chin on March 11, 2002 at 09:11:19:
Good analysis of CO. My wife and I dropped by Denver last year on the way to Estes Park, loved the area, and wondered about it, as we heard prices started to stall at the time.
I’m more fimiliar with the situation is my area, New York City. Prices have doubled or tripled since 1983 to 2001 when I started REI. It doubled from 1971 when I graduated college to 1983. It doubled (or tripled) from 1964 when my dad bought his property to 1971.
So property values went up 10 times in the last 35 or so years.
I beleive the LONG TERM trend is still up. I had debated this issue at dinner parties with friends that it simply cannot go up anymore because it has gone up so much already.
LONG TERM TRENDS
There are a number of factors causing prices to increase in certain areas.
1- Skilled labor and Jobs: Industries go to areas where there are skilled labor pools. Labor goes to areas where there are jobs. Successful industries with immense job creation causes an immense influx of population driving up RE values.
Witness the the tech boom and Silicon Valley RE values. Witness the Stock Market boom, and rising NYC RE prices.
2- Transportation Infrastructure. This means seaports, rivers, highways, airports. Labor and Industry favor areas that are within easy reach.
This is why 53% of the nation’s TOTAL population live in a COASTAL COUNTY. These area are the easiest to reach by sea since the beginning of time, or air, since this last century. Because of this, these areas saw the biggest influx of immigrants, driving up RE prices.
Development of inland areas, such as Denver is dependent on how easily people and goods can reach by waterway, or by air.
SHORT TERM TRENDS
In the short run, RE prices are affected by:
1- High prices and congestion in the areas favored by industries. Jobs and population migrates to surrounding cheaper areas.
Witness the migration of Siicon Valley jobs to neighboring areas. Witness the growth of Stamford CT as the alternate corporate headquarters to crowded NYC.
2- Recessions. Jobs dissappear, people stay put, and fewer people looking for housing.
3- New Road and Highways: Nearby areas now suddenly accessible finds a migration of people and jobs
4- Housing affordabilty. In the short run, housing prices may rise faster than income, cauisng many not able to qualify.
DECISION for the RE INVESTOR
The question then is, are you a long term investor or a short term one.
In the long run, meaning 20 year cycles, NYC and San Franciso will always enjoy excellent appreciation, and so will major inland cities such as Denver. If you’re a patient long term buy and hold investor, you can’t go wrong buying at any time in these areas.
In the short run, meaning 3 to 5 years, high prices, congestion, recessions will cause prices to fall. You can make money understanding these shorter cycles.
If your time horizon is even shorter, like 6 months, then go for the motivated seller, estates, divorces, job moves etc.