What is Really Happening in Real Estate?

I posted links to several several real estate related news stories this morning here. Individually they each make a valid point about the current real estate market.

• Lack of new construction leading to stagnation
• Maricopa County homes sell at 20% below asking price
• Existing home sales are at the highest level since 2009
• 37% of Phoenix homeowners are still underwater

But taken all together they create a confusing and even scary picture of the market. Other stories today (that I didn't link to) show home prices rising as well as interest rates. Some experts tell us that we have arrived at the "New Normal" (I don't even know what that really means) while some say that we are "on the road to recovery" and all is well while still others warn of "the impending second crash."

If the nationally known economists can't agree on what the future brings, I'm not even going to try to predict. I will offer some advise, however, that will serve you well no matter who is right:

• YOUR HOME IS NOT AN INVESTMENT. 
• If you have a home you like, are comfortable in and can afford the mortgage, GREAT! Don't worry about if you owe more than you could sell the home for. If you don't intend to sell anyway it doesn't really matter - just enjoy your home. If you stay in your home making the mortgage payments long enough it will eventually catch up.
• If you are looking to purchase a home; purchase on the basis of what you can comfortably afford, your lifestyle, the location you want or nay other criteria that be important to you (schools, nearness to employment, views, whatever) your home is no more an investment than your car or your television.
• REAL ESTATE IS STILL A GREAT INVESTMENT
• The unique financing and favorable tax treatment of real estate still make it one of the best investments available
• Investment decisions must be made on realistic cash flow expectations. Positive cash flow on a property allows you to pay all the operating expenses and debt service and still have money left at the end of the year. (with the tax advantages of real estate some of all of this may even be tax free money)
• Keep appreciation out of your investment decision. If we continue to have appreciation and your investment property is worth substantially more when you sell than when you buy, that is a great BONUS, but that is the big unknown. Now don't get me wrong, I want you to make money on appreciation - I just don't want you to base your investment strategy on appreciation. Make sound investment decisions based on conservative cash flow estimates and you still have a good solid investment even if appreciation does not occur.

Keeping these two principals in mind, you will be fine whichever of the popularly predicted outcomes for our economy come to fruition.