The Deflationary Crisis And Its Affect On The Housing Market

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Earlier today on the Fort Lauderdale Real Estate Blog, I posted a story about deflation and its potential impact on the Fort Lauderdale real estate market. After getting a ton of emails I decided to publish this information on a national forum to get the opinion of agents and consumers nationwide.

Mad Money’s Jim Cramer of The Street.com is saying that the Federal Reserve is ignoring the current U.S. deflationary crisis and is trying to “reinvent” the economy by actually destroying it.

Those are some pretty strong words but then again, Cramer has not been one to be shy about stating his opinions.

“If the government used home prices in the CPI reading, you’d see the biggest deflation since the ’30s”

Cramer predicts another 10% to 15% decline nationwide, and 40% to 50% peak to trough declines in bubble markets. He calls the Fed “reckless” and actually goes further and says that the Fed is a “radical right wing” organization.

What does this mean for those in the real estate business and for those in the market for a new home.

Well, that depends upon who you talk to. Real estate agents who primarily “list” homes and do little else are in for a tough time in the near future if Cramer’s predictions hold true. Accordingly so will the seller clientele of these so called “listing agents”.

If prices continue to trend downward as Cramer and other economists feel is likely, it will become increasing hard for listers to actually sell homes. If the market continues to decline as Cramer says and it drops an additional 20% or more, you are going to find sellers wiped out and in order for them to sell they may have to bring large sums of cash to the closing table.

Not a position I would like to be in if I was a seller or an agent representing a seller. The last place you want to be is continually chasing the market down by lowering prices time and time again. I call it “seller’s blood”.

On the other hand, if you are a buyer looking for the proverbial “good deal”, I would make sure I hooked up with a really aggressive buyer’s agent who can smell “seller’s blood” and can read all of the data about a market and close in for the kill shot!

This kind of data is devastating to a seller. Unrealistic real estate agents like to call this media doom and gloom and hang their heads on a real tired mantra that all real estate is local. Meanwhile the real world knows otherwise.

• Fact, before you buy IN ANY MARKET, check the days on market of any listing you are interested in.
• Fact, before you buy IN ANY MARKET, check the absorption rate of the current market that you are interested in.
• Fact, do a comprehensive regression analysis on the impact of declining prices in the market that you are interested in.
• Fact, check the ratio of foreclosures / distressed sales to conventional sales in the market that you are interested in.

You go in armed with this kind of data when looking to make an offer on a home anywhere in the country and you can be reasonably sure of making the best deal that you can. yes, there are certain markets where deflation and downward pressures have not affected the sales prices of homes.

Let me know when you find that market. We’d all love to know where it is!

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