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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: July Economist Snapshot: What Will the Big Beautiful Bill Mean for Commercial Real Estate and Housing? Urban Land Magazine CoStar CEO blasts Zillow as Homes.com faces scrutiny Real Estate News by RealEstateNews.com Eric Adams Is Raking It in From Big Real Estate New York Magazine Real Estate Transactions, July 14 edition Hopkinton Independent Homes at these Vermont lakes boast some of the most coveted real estate: Survey results Burlington Free Press Real Estate Tokenization: Recent Developments in New Jersey and Dubai Pillsbury Winthrop Shaw Pittman Real estate transfers: 7/16 Toledo Blade Real Estate Transfers ~ June 25, 2025 The Bedford Citizen Leveraging AI in Real Estate | Florida Realtors Antitrust case against NAR, top brokerages dismissed Real Estate News by RealEstateNews.com ‘Taken advantage of’: Real estate agent ripped off friends, church, and federal government WSOC TV REACH Middle East Opens Applications for its Inaugural 2025 Real Estate Tech Accelerator National Association of REALTORS® ERA Real Estate firms merge in Atlanta HousingWire ‘Taken advantage of’: Real estate agent ripped off friends, church, and federal government WSOC TV Trump turns up heat on Fed chair over possible ‘fraud’ Real Estate News by RealEstateNews.com Rechat’s ‘super app’ finds a new brokerage partner Real Estate News by RealEstateNews.com White Oak Real Estate Capital Provides $46.2M Senior Secured Loan for The Village at Tuxedo Reserve citybiz News | This real estate scion is betting on a rebound for San Francisco’s struggling downtown CoStar Mortgage Rates Today: The States Offering Lowest Rates – July 16, 2025 Norada Real Estate Investments Top residential real estate sales for June 30-July 4 in Sarasota, Siesta Key, Palmer Ranch, Osprey, Nokomis Your Observer LACERS allocates $85 million to real estate Pensions & Investments Grand Cayman Real Estate: Luxury Market Remains Robust Caribbean Journal Real Estate Transactions The Jones County News Colliers Named Exclusive Leasing Agent for Westborough Executive Park Boston Real Estate Times Adams raises $1.5 million since primary, fueled by real estate donors Crain's New York Business Proterra Investment Partners Announces Formal Launch of Net Lease Real Estate Strategy - PR Newswire Real estate fraud prevention firm CertifID raises $47.5m FinTech Global Drake Real Estate Partners closes largest fund yet after pivoting to institutions Private Equity Real Estate | PERE Foreign buyers sank $56B into US homes over the last year — with 1 state accounting for nearly a quarter of their purchases New York Post REAL ESTATE: Navigating Pagosa’s Luxury Home Market Pagosa Daily Post Development Services Offers Online Early Assistance for Commercial Real Estate Projects Prince William County Government (.gov) 125 Laurel Valley Drive, Sag Harbor James Lane Post Business Journal hires Mark Dovich as commercial real estate reporter - South Florida Business Journal The Business Journals Proterra Expands Into Net Lease Real Estate: Former VEREIT CEO Leads New Defensive Investment Strategy Stock Titan Finland Officially Bans Real Estate Transactions for Russian and Belarusian Nationals UNITED24 Media Bitcoin Is Draining The Value Out Of Real Estate Bitcoin Magazine NCC IQ Announces This Year's "ReShaped: AI x Real Estate," a Virtual Summit Showcasing Next-Generation AI Trends in Real Estate, Featuring 40+ Expert Speakers and 18 Keynote and Panel Sessions 24-7 Press Release Newswire Tampa Real Estate Lawyer Flowers Joins Squire Patton Boggs Bloomberg Law News Florida Real Estate Market Holds Steady In June NewsRadio WFLA XRP News Today: Ripple Partners with Dubai Land Department to Tokenize Real Estate on XRP Ledger AInvest ​Ohio State Teachers lifts real estate allocation to 10% IPE Real Assets June saw active real estate market Greensburg Daily News 112 acres in Brentwood: Largest estate in decades goes on L.A. market for $70 million Los Angeles Times 15 Under 50: Real estate agent Danielle Sponaugle enjoys helping clients find affordable housing dnronline.com ArentFox Schiff Brings Back New York Real Estate Partner Austin Bloomberg Law News Pittsburgh housing market defies national slowdown Pittsburgh Post-Gazette The Daily Dirt: Transit is real estate’s best friend The Real Deal Parallel and Kayne Anderson Real Estate Announces 23-Story Student Housing Development 250 Church Avenue for Texas A&M University Global Student Living Andrew Bloom celebrates 30 years at the helm of Arizona’s luxury real estate scene Arizona Digital Free Press Free Flow Locks In $1.8M Yearly Income Stream Through Strategic NJ Property Investment Deal Stock Titan Levi Meyer Meets with Alfredo Pujol Discussing Miami’s Real Estate Market - Miami's Community News Levi Meyer Meets with Alfredo Pujol Discussing Miami’s Real Estate Market Miami's Community News Real Estate Firm Uncovers High-Grade Growth Potential Across 28 States streetwisereports.com Top residential real estate sales for June 30-July 4 in Longboat, Lido, St. Armands, Bird Key Your Observer RRHA CEO addressed real estate development committee Richmond Times-Dispatch |
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