The economy is slowing, the stock market is dropping, layoffs are mounting.  Is the real estate market next?  If you are anticipating great deals and bargains within the real estate market, those bargains may prove to be now.  

With the recent slowdown in both the stock market and the overall economy, some would-be homebuyers have now shelved their dream of owning a home in hopes of buying on a downturn rather than risk buying at the peak.  After all, it only seems logical that the real estate market would follow the rest of the economy, right?  Maybe not.  

With all that’s been made about the recent bear market, you would think the performance of the stock market played a significant role in people’s decision to buy or sell a home.  However, according to the California Association of Realtors, the percentage of people who did base their decision to buy or sell a home on the performance of the stock market was around 6% for Southern California.  Not exactly an earth-shattering number.

Why does the real estate market continue to be immune to the softening economy?  Combine high demand with near-record tight supply and you get record setting home appreciation numbers, despite the fact that both the stock market and the rest of the economy are softening. That's what's been happening here and in most parts of the country.

In fact, contrary to what some people believe, the bear market may actually help the real estate market.  With the stock market well into negative territory for the year, real estate is becoming much more attractive to many individuals and investors.  When you consider the favorable tax treatment real estate provides including the possibility of avoiding capital gains tax entirely, many savvy investors are turning to the real estate market as a better alternative to the increasingly volatile stock market.  And with interest rates now below 7% for a 30-year conforming loan, the cost of borrowing money is relatively cheap, only adding to the high demand for housing.

Yes, the real estate market is slowing, especially in the high–end market, but understand that slowing does not mean depreciating.  Prices are still rising, although at a slower rate than they have been over the past few years.  

This slowdown may prove to be a good opportunity for potential homebuyers in the long run.  In a recent article published in The Los Angeles Times, a local economist predicted that median prices would increase 57% in Ventura County between now and 2005.  While some people shook off his prediction as nothing more than rosy optimism, consider this:  Even if his prediction is way off and the market only appreciates by half of his prediction, you may end up looking back in four years wishing you had bought a home at today’s “bargain” prices.   

Copyright Michael Rice