The Real Estate Deal

Here's the long and short of real estate for 2007 -- with more opportunities than you might suspect.
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Look at a bar chart of home sales or year-to-year price changes.

Like buildings in lower Manhattan, the bars rise gradually, peak at the edge, and then drop straight into the Hudson. Recently, there's been big drops in existing and new-home sales.

The frothy double-digit price environment you enjoyed (or dreaded, if you were a left-out buyer) has gone the way of silent movies.

On the surface, it's not a very stable or encouraging environment to buy residential real estate. Or is it?

Actually, I believe things have bottomed for the most part. What happened last year looks like a natural correction, a response to overheated buying and speculation made worse by a modest interest rate rise.

This year, I expect, as do most economists, steady interest rates. Just as important, new-home construction has slowed markedly.

That's encouraging, as the lack of new supply helps the market for what already exists. Unlike previous downturns, builders were able to turn off the spigot pretty fast. That's a good thing.

Clearly, though, some markets are faring better than others.

In fact, the latest forecasts offered by Moody's Economy.com call for improving prices in some two-thirds of the 100 largest real estate markets. These markets are mainly in the Midwest and South.

As you might expect, prices there behaved themselves during the boom, driven less by speculation and "irrational exuberance," so there's room there to move forward.

Click here for the video version of this story from Jennifer Openshaw.

Most of all, it makes sense to take advantage of the buyer's market. The supply and demand math is simple -- you'll find good deals and will have plenty of time to decide.

I suggest the following if you're a buyer:

  • All markets have good deals.Even if you're in one of the more expensive coastal or big-city markets, there's always a good deal. Pockets of value -- neighborhoods that didn't go nuts with the rest -- can usually be found in all areas. And there's always someone needing to sell. If you work with local realtors and banks, you'll find out who they are.
  • If you can't find a deal, don't buy.Be patient and sit tight. There are plenty of choices. None move so fast you need to do something foolish. Renting for a while might even pay off. Remember, as with any investment, a conscious "no" decision can be a good decision.
  • Run the numbers.Get the facts and latest trends for your area. There are many ways; one I like is Housingtracker for up-to-date home price and inventory trends for major metro areas. It's like the value approach to stock investing -- look for fundamentals, growth and price.
  • Get your perks. In this kind of market, it's easy to find good deals. But don't stop there -- most sellers are prepared to add incentives to the pot. Take advantage, and if there's something you want, don't be afraid to ask.

And if you're an investor:

  • Look outside your area. Many markets in the Midwest and South are poised for price growth in the 4% to 7% range. Good homes in Houston, Dallas, Kansas City or Wichita can be found for $75 per square foot in areas of healthy employment. Again, Housingtracker can help pinpoint values, and you might hook up with a service specializing in out-of-state investments such as the NorthPoint Group.
  • Invest, don't speculate."Flipping" is a thing of the past. Single-digit annual returns require investing right and holding on. Get used to it. Leveraged through the mortgage, single-digit growth can bring double-digit returns, and if rents bring single-digit growth too, that's a plus. Again, be patient.
  • Be prepared to add value.The best long-term real estate returns happen when you add some value, anything from additional square footage to a whole new look. It's better still if you live in the home while remodeling. You'll get lower mortgage rates, and after two years, no capital gains taxes (up to $500,000 in gains for a married couple), and likely a stronger market.

So -- long and short -- I see plenty of opportunity in real estate in this year. And just like in the rest of real life, those who do the work will be rewarded.

Jennifer Openshaw, a passionate advocate for helping Americans improve their finances and build their personal fortunes, is CEO of

The Millionaire Zone and America Online's personal finance editor. In addition to appearing regularly on TV shows such as "Oprah" and "Good Morning America" and on CNN, Openshaw is host of ABC Radio's "Winning Advice" and serves as an adviser to some of America's top corporations. Her new book,

"The Millionaire Zone," will hit bookstores in April 2007.