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Real Estate Bubble: Fact or Fiction?
The real estate market buzz across the country these days revolves around the anticipated and much feared "bubble". The implication is that once burst, prices will spiral downward taking with them the major assets of those foolish enough to buy at a time when disaster looms large. It could happen. However, it would take a major cataclysm in the underlying financial underpinnings of the global economy. Granted, any significant blow to world confidence in the fundamentals of the U.S. economy could easily check the flow of overseas investment into the long-term securities markets. The result would likely be a sudden spike in mortgage interest rates. This most likely would spell the end of the present bull market in real estate. The profits of doom, meanwhile predict just such a meltdown, citing the trade deficit, the national debt and the debt future generations will owe to Entitlement, to name a few. This too could happen. No one knows for sure. We are in uncharted economic waters, where past experience or interpolations from other countries' issues do not necessarily apply. (see Greenspan's Conundrum: http://www.mises.org/story/1859) But what if it happens? In the worst case scenario, assets such as real estate would be the last resource to vanish-not the first--largely because of widespread laws to prevent foreclosure except in extreme cases. Most likely, we would simply have reached another top in the normal real estate cycle, not unlike any of the 21 cycles that have occurred since 1978. Busts do not usually follow booms. In only 17% of the cycles noted above did a real estate downturn follow on the heals of a boom-and these typically in areas that had experience significant distresses to the local economy. (see FDIC http://www.fdic.gov/bank/analytical/fyi/2005/050205fyi.html) Safe Prediction: In the years since I was first licensed as a Realtor® I have experienced all 21 of the full cycles noted above. When I was a new license I too anticipated "The Big One" where the bottom would drop out of the market permanently. Now I know that view is mere paranoia. People are not going to forego living in houses; real property will always have solid value, and the pendulum swings both ways. "Lies, Damn Lies, and Statistics", as Mark Twain said. Nowhere is this more evident than the real estate market. Statistics that are used to show loss of value mostly show reductions in the number of sales. Let me explain: while the mean average or the medium sales price of all home sold in a given period fairly accurately represent rises in home prices in an seller's market they do not, paradoxically, reflect the apparent drop in prices experienced in buyers market. The unassailable law of Supply and Demand states that as prices rise fewer and fewer people can afford to buy. This creates a market glut. When a glut occurs sellers must contend with greater competition from other sellers. Those that lower their price sell. Those that do not or cannot must stay. (This has yet to happen. see David Lereah of National Association of Realtors: http://www.realtor.org/Research.nsf/Pages/housingoverview?OpenDocument) The result on market statistics, however, is that the dollar amount of those homes that do sell by lowering their price effect a statistical drop in the apparent overall market prices. The news that prices appear to be falling further exasperates the situation as buyers feel the need to protect themselves from the perceived downward trend by only investing in properties that are seen as solid bargains. Again, only those that choose to sell or must sell make up the ever downwards statistical spiral. What is not figured in the averages are the majority of homes that do not sell because their owners are not desperate enough to take what they can get. Their value remains intact. What falls is not value but volume. Especially in today's market where 100% or greater loans are common, few homeowners will choose to bring money to the closing to table to make up the shortfall between what they owe and what they can sell for at that point in the cycle-in essence paying someone to take their home. And though this scenario may cause hardship, it also has the effect of limiting the number of homes on the market, which acts as a downward buffer to the bottom actually falling out, though statistics may even indicate a continued downward trend. If it doesn't stop raining it will be the first time. I tell my buyers to only buy if they feel confident that they can remain in the home at least seven years to ride out (in comfort) the coming down cycle. If, during this time, they are forced to sell (usually because of an employment or domestic issue) they could get hurt. I tell my sellers not to try to predict the exact market top and to watch the rate of foreign investment for signs of weakness that may signal a lack of confidence in the U.S. economy and the rise in home mortgage interest rates that will likely turn the market. No one knows when and if this will occur. But the market will eventually turn. At least it always has. What to do now: Those that buy wisely, and who can choose the point in the natural cycle to sell, are far more likely to make money than in most other forms of investment. All this while enjoying the fruits of homeownership. In addition, they will benefit from major tax advantages and the eventual equity value of their home, which will not always rise astronomically but will always rise in the long run. Dennis Maier
MORE RESOURCES: How real estate commission changes could affect buyers and sellers The Washington Post Real estate experts share a message for home buyers as they predict rising home prices through 2025 Fox Business Judge Approves $418 Million Settlement That Will Change Real Estate Commissions - The New York Times The Folly of China's Real-Estate Boom Was Easy to See, but No One Wanted to Stop It The Wall Street Journal Agencies' headquarters in DC remained 'nearly empty' in 2023, real-estate board finds Federal News Network $5 billion real estate firm St. John Properties opens office in Plano The Dallas Morning News Top 23 real estate apps for agents in 2024 HousingWire The East End Real Estate Market Report: 1Q 2024 Corcoran Inhabit Just $5.4B in U.S. Office Real Estate Sales in Q1: Report Commercial Observer Blackstone's Beleaguered Real-Estate Fund Stems Exodus The Wall Street Journal Public records: Muskingum County, Ohio, real estate transfers Zanesville Times Recorder A Recent Settlement Could Change the Way Real Estate Agents Are Paid Milwaukee Magazine Inked: Recent LI real estate deals Long Island Business News Danielle Lombardo Appointed as Chair of Real Estate, Hospitality, and Leisure Division at WTW - Risk & Insurance Workers Comp Forum Collins: The changes in the real estate industry you need to know - San José Spotlight San José Spotlight Homes for Sale in Manhattan and Queens The New York Times New national real estate scholarship goes to local youth ECB Publishing The Top 3 Real Estate Stocks to Buy in April 2024 InvestorPlace real estate market and insurance Sacramento Appraisal Blog Reversing the Real-Estate Doom Loop Is Possible. Just Look at Detroit. The Wall Street Journal Real Estate Transactions: April 26, 2024 The Recorder Real Estate Roundup: 'The Cove' in Hume sells for nearly $19M and more Fauquier County transactions Fauquier Now Law Firm Real Estate Report Law360 9 Ways Rich Real Estate Owners Save Big on Estate Taxes Business Insider Real Estate Group Plans Anti-Transfer Tax Campaign Banker & Tradesman Home in Silver Hills North an oasis in Prattville | REAL ESTATE Montgomery Advertiser Yo La Tengo, Real Estate and more to perform at Woodsist Festival in Accord in September The Daily Freeman Real Estate Minute – 04-25-2024 KFDX - Texomashomepage.com @properties Christie's International Real Estate Taps Industry Leader to Expand in Fort Worth - CandysDirt.com CandysDirt.com New Mexico SIC commits $250m to real estate funds IPE Real Assets JWB Real Estate Companies Announced 2024 Home Giveaway FirstCoastNews.com WTLV-WJXX Top residential real estate sales for April 8-12 in Sarasota, Siesta Key, Palmer Ranch, Osprey, Nokomis Your Observer Anywhere Real Estate Inc. (HOUS) Reports Q1 2024 Financial Results Amidst Market Challenges Yahoo Finance Homes for Sale in New York and Connecticut The New York Times 200 Housing Markets Are Predicted for Price Decline: Zillow's Report Norada Real Estate Investments Business Brief: Local Agents Honored by Weichert Real Estate Affiliates, Inc. for outstanding performance The Commercial Dispatch Century 21 Four Seasons Realty expands commercial real estate services Bonner County Daily Bee Real Estate Development Firm Seeking Community Input For Honey Creek Road Property in Rockdale County News-Daily.com First-ever rural-focused Real Estate Development Boot Camp aimed at emerging housing developers Second Wave Michigan Rockford Shocks Nation: Now America's Hottest Housing Market Norada Real Estate Investments Real Estate Development Firm Seeking Community Input For Honey Creek Road Property in Rockdale County Rockdale Newton Citizen Prominent Properties Sotheby's International Chatham Borough and Chatham Township Real Estate Report TAPinto.net Top Transfers: 65,000 sq. ft. Dublin property sells for $7.85 million The Columbus Dispatch Milwaukee Tool's downtown office named Milwaukee Business Journal's Real Estate Awards Project of the Year ... Milwaukee Business Journal Rockford Is Now America's Top Housing Market After an Improbable Turnaround The Wall Street Journal Real estate transfers GoDanRiver.com Pro boxer Caleb Truax retiring to become Twin Cities real estate agent - Minneapolis / St. Paul Business Journal Minneapolis / St. Paul Business Journal Middlesex County Real Estate Market Shows Robust Growth Amid Favorable Economic Conditions TAPinto.net Nearly 30% of $32M project by N.C. A&T Real Estate Foundation, Cone Health already paid for through tax credits ... The Business Journals Manhattan Real Estate Update: "Embrace the Boredom" westsiderag.com As RREAF CEO Kip Sowden weighs future, son Graham waits his turn The Dallas Morning News Pending Home Sales Ascended 3.4% in March National Association of REALTORS® Seattle DJC.com local business news and data - Real Estate - Developer sought for 100-plus Bainbridge Island units Seattle Daily Journal of Commerce The Analyst Landscape: 5 Takes On Alexandria Real Estate - Alexandria Real Estate (NYSE:ARE) Benzinga Anywhere Real Estate Inc. 2024 Q1 - Results - Earnings Call Presentation (NYSE:HOUS) - Seeking Alpha The Highest Paid Execs in Real Estate Mike DelPrete |
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