If we could see into the future, it would certainly be easier to make those
life-changing decisions that keep us up at night. Where is the housing market headed? Should I advise clients to buy now, or would it be better to wait a couple of years, in case the bubble bursts? While no one has all of the answers, there are predictors we can use to make an informed decision.

The current real estate expansion began when mortgage interest rates fell
into the single digits, making housing much more affordable. While this
certainly has contributed to home sales, there are additional causes we
can isolate. Dr. David Lereah is a best-selling author and the Chief Economist
for the National Association of REALTORS(r) (NAR). In a recent interview,
Dr. Lereah revealed, "The biggest factor that affects real estate today,
and has made it immune to some cyclical changes in the economy, has been
demographics." Here's why:

* The "Baby Boom" Generation - This generation is the largest so far,
and their impact has been felt across the nation. Now that Baby Boomers
have reached their peak earning years, they are purchasing larger primary
residences as well as vacation homes and investment properties. The
statistics for 2004 reflect this trend, with 36% of all home sales going
toward second homes.

* Immigration - There has been a large influx of immigrants over the
past three decades. According to Lereah, it typically takes at least a
generation for immigrants to become fully active in the home buying
market.

* Children of Baby Boomers - This generation, the second largest ever,
is now in their twenties and looking to purchase their first homes.

* Retirees - While the demand for housing is expanding, the supply is
decreasing. With advancements in medicine and treatments of diseases,
retirees are living longer. This means that they are occupying their homes
for more years, which decreases the supply of homes available for
purchase.

So if the current market can be explained primarily by the factors we just
discussed, how do we know whether it will continue to thrive? Dr. Lereah> says, "We are in the Golden Age of Real Estate." Even if the economy
should slow and interest rates increase slightly in the coming years, the demand
for houses is still strong. The biggest impact that such a change would
have is to decrease the rate of price appreciation. The media likes to refer to
the real estate boom in terms of bubbles and balloons. In keeping with
that analogy, Lereah indicates that local markets may react to higher interest
rates by letting some air out of the balloon. The double digit price
appreciation we've experienced may decrease over the next year or two to a
more typical 4-6% range. This is still a higher rate of return than found
in the stock market, all things considered.

So the next time a client asks you whether it's still a good time to
invest in real estate, you can reassure them that it is.

Please contact me if you would like to receive a copy of my Gift of
Knowledge Interview with NAR Economist, David Lereah!