What we can learn from the stock market when buying real estate

28Apr08

Unless you have been living in a cave you have seen the volatility of the stock market and specifically commodities like oil and gold. Actually volatility may not be the right word, increase is more descriptive. Why is this happening? Because the paper dollar is sinking in value with no end in sight. Investors during this time look to put their money in areas that will hold value against the dollar.

Another area that has historically been a long term inflation hedge is real estate. Although we are experiencing excess inventory and lower prices when you look at what it is going to cost for replacement of these homes in the future (the cost of commodities like steel, wood, cement, etc) you will not be able to build that house for what you can pay for it today. The result is that in the long term you will make money on real estate.

Because we live in a global economy and must compete on a world market. For building materials we have to look to other countries expansion and contruction to see what the future holds. Countries such as China and India are adding millions of housing units and will continue to build as their economy grows. They push up the cost of supplies and in some cases cause shortages (we experienced this back in 06 with cement).

So if you are looking for a long term hedge against inflation and a way to build wealth for the future you should put your investment team together (realtor, lender accountant and property manager) and investigate real estate. We are likely not going to see prices under replacement costs in the future. The bargains are here but who knows for how long.

Vicki Brannock
Realtor, e-PRO, ABR
928.583.0762 (direct)
866.219.8252 (toll free fax)
vicki@Prescott-RE.com
www.Prescott-RE.com