Many times, it seems like there are more questions than answers about todays real estate market. Real estate is difficult to analyze due to its local nature, with submarkets and niche-markets to take into account. At the same time, its a mistake to ignore the effects of regional and national market forces on what happens in our own backyard.

Why is the market slow?

The short answer is frenzied buying and building based on speculation resulted in an oversupply. But the good news is that both local and global economic conditions seem favorable for a market recovery. In Brian Blackstones and Greg Ips July 7 Wall Street Journal analysis, the authors conclude that the job markets June performance, along with signs of vigor in the manufacturing sector and a buoyant stock market, suggest the U.S. economy is moving into the third and fourth quarters with a considerable head of steam.

Even better, Blackstone and Ip point out that the economy is chugging along with inflationary pressure, enjoying what they dubbed a Goldilocks moment not too hot, not too cold. Inflation appears to be in check, with the Consumer Price Index (CPI) stabilized at approximately 2.5% and with a decrease in the core inflation rate (CPI minus food and energy). Thus, the influential Federal Reserve Rate remains stabilized, further building consumer confidence.

Consumer confidence is one of the biggest factors in the rise or fall of the real estate market. According to Lawrence Yun, the National Association of Realtors (NAR) Senior Economist, As consumer confidence improves, home sales will rise.

Moving to micro-economic factors our areas activity its interesting to track a resoundingly negative effect of what was very positive real estate sales activity. Within the last 12 months, a South Walton beachfront home sold for $9 million cash, well into the market correction. The news of the sale elated sellers and Realtors alike gleefully used this sale as a comparable for their listings, reasoning my property is worth at least as much on a square-footage basis. The result was a misguided sense of pricing with sellers not adjusting prices to the actual market.

The corollary of this price-focused fallacy is on the buyers side. Just as the $9 million sale set an unrealistic expectation for sellers, distress or otherwise low-price sales have set an unrealistic expectation for buyers. One or two of the outlying sales do not constitute the market.

In both up and down markets, we typically have these outliers. However, their effects are exacerbated when people are particularly sensitive to small market changes. We tracked this same market phenomenon in the heyday of the amateur day-trader, who focused on often infinitesimal daily market blips. As Warren Buffett commented at the 1997 Berkshire Hathaway annual meeting, If youre an investor, youre looking at what the asset is going to do. If youre a speculator, youre commonly focusing on what the price of the object is going to do. Long term trends are important, and history shows it is almost impossible to perfectly time any market.

So whats the best course for someone invested in or simply interested in area real estate?

Due diligence is essential to ensure that the real estate you purchase is not only a good value but a quality property. Here on the Emerald Coast, we are unique in that we have a resort market where many properties are characterized as second homes. This market sector continues to show an upward trend. NARs research highlights this trend in their May 2007 online article, Vacation Home Sales Sets Record in 2006, even though the real estate slowdown impacted the purchase of second homes as well, continued low interest rates and a relatively high inventory of properties on the market inspired a significant percentage of home buyers to purchase vacation homes.

Resort real estate is an investment in monetary terms. But in recent years, its value as an investment in buyers families has often been overlooked. A vacation home is a place to spend time together and create memories. Five years ago, the typical answer to What will you use this home for? was as a second or vacation home for my family, and also as an investment. During the recent frenzied period, the response changed to an investment we will use on occasion.

The April, 2007 NAR survey of second-home buyers revealed that a clear majority 79% -- planned to use their new home as a family retreat or for vacations. Still, more than one-third of respondents purchased a vacation home to diversify investments. Some 28% planned to use their vacation home as a primary residence sometime in the future. A quarter of buyers said they bought their second home for tax benefits; 22% for use by a family member, friend or relative; 21% because they had extra money to spend; and 18% to rent to others. We are beginning to see the return of the end user who is investing in resort real estate for the enjoyment of their family, with a realistic long-term vision of the assets potential appreciation.

There is nothing wrong with purchasing a property that you and your family will enjoy, even if you did not purchase for a rock bottom, seller-bleeding price. If you are willing to pay for a home that is exactly what you and your family want and will enjoy for the next 10 years or more, it will be worth it. Real estate is, after all, a long-term asset.