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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: Jeff Bezos' secret $190M Seattle real estate empire revealed Business Insider I'm a Real Estate Investor: Don't Pay Off Student Loan Debt — Buy Properties Instead Yahoo Finance Real Estate Transfers ~ through Nov. 23 The Bedford Citizen NJ real estate: $20M Alpine mansion for sale. See listing NorthJersey.com Francisco Real Estate: Why Homeowners are Selling at a Loss The San Francisco Standard Dodge County real estate transfers Fremont Tribune Eastern U.P. real estate remains stable despite shifting national trends Sault Ste. Marie Evening News Real estate transfers: Dec. 8, 2023 RiverheadLOCAL RNR Real Estate Briefs – Texas & more Realty News Report Real Estate Transfers: August 1 - 15, 2023 The Owensboro Times Real estate: Foreign LLC buys Pizza Hut property in Perry Township Massillon Independent Real Estate Sales Include Wealth Management Center Complex, Ranch For Vets Jamestown Post Journal How a Kitchen Refresh Can Help Close a Real Estate Deal How a team approach brings sales, success Behind The Hedges McColly Real Estate Holiday Celebration 2023 | LaPorteCounty.Life LaPorteCounty Life Massachusetts real estate transactions for Hampden, Hampshire and Franklin counties Dec. 10, 2023 edition MassLive.com Real Estate Transactions for Dec. 9-10 | News, Sports, Jobs Nashua Telegraph XPO buys Yellow's Real Estate For $870 Million The Real Deal Routt County real estate sales surpass $13.4M from Dec. 1-7 Steamboat Pilot & Today OT Real Estate Spotlight of the Week: 4404 Fairbairn Court The Owensboro Times I'm a Real Estate Investor: Don't Pay Off Student Loan Debt -- Buy Properties Instead GOBankingRates Chad Tredway Rejoins JP Morgan Asset Management as Head of Real Estate Americas | Chief Investment Officer Chief Investment Officer PTK spotlight: 50 commercial real estate projects to know in 2024 Arizona Big Media November 2023's Median Price of Wake County Real Estate decreased by $19500 to $433000 Wake County Government (.gov) Real Estate Roundup, Retail Theft Arrests The Eastsider LA Jef Conn: From Lubbock commercial real estate to Texas Chairman of the Board Texas REALTORS KLBK | KAMC | EverythingLubbock.com Charlottesville real estate investor Phaedrus Acgtblu dead in apparent homicide - The Daily Progress Real Estate Transfer Dec. 9, 2023 | Records | messenger-inquirer.com messenger-inquirer Bezos Leaving Behind A Massive Seattle Real Estate Portfolio As He And Lauren Sanchez Plan Move Miami Yahoo Finance A Strong 2024 Market? Get a Real Estate Coach Now | Florida Realtors The Pickleball Courts Outside Our Townhouse Are TOO LOUD! The New York Times Greenwich Real Estate Inventory to Hit Zero in March 2024 Greenwich Sentinel Bay Area real estate: Where rent or mortgages hurt residents most San Francisco Chronicle Coral Springs Real Estate Market Defies Economic Predictions • Coral Springs Talk Coral Springs Talk Real Estate Property Transfers in Franklin for November 13, 2023 Williamson Source Real estate news: DoubleTree near South Coast Plaza, JWA getting a $12 million makeover - OCRegister Chad Tredway Rejoins J.P. Morgan as Head of Real Estate Americas, J.P. Morgan Asset Management PR Newswire What's a Real-Estate Fund Worth? Depends on Who's Doing the Math The Wall Street Journal Pacaso, The Real Estate Marketplace, Releases Report That Identifies Fast-Growing Luxury Second Home Markets Crowdfund Insider Could Bitcoin Cause Real Estate Prices to Collapse? DataDrivenInvestor New townhomes planned in Cane Bay near Charleston | Real Estate The Post and Courier Viral New Berlin jungle home back on market after sale fell through: Open House - Milwaukee Business Journal The Business Journals Is Jeff Bezos shopping for real estate in Palm Beach? The New York Post thinks he is Palm Beach Daily News REAL ESTATE | VIDEO | Charming and inviting 2-story home in West Bend, WI | By Wendy Wendorf, Homestead Realty washingtoncountyinsider.com Valley real estate community steps up to support Operation Santa Claus ABC15 Arizona in Phoenix Wheeler Development exec balances careers in real estate, folk music - Crain's Grand Rapids Business Wheeler Development exec balances careers in real estate, folk music Crain's Grand Rapids Business San Francisco's Russian Hill Mansion Sells for Half Its Asking Price Amid Real Estate Shift Hoodline Canadian Apartment Properties Real Estate Investment Trust Un stock rises Friday, outperforms market MarketWatch REAL ESTATE BRIEFS: DEC. 9 Las Vegas Review-Journal New Castle News | Newspaper Ads | Classifieds | Real Estate for Sale | BERKSHIRE HATHAWAY Home Services The ... New Castle News Ares Banks $3.3 Billion to Buy Real-Estate Fund Assets - WSJ The Wall Street Journal Apply for the Longtime Owner Occupants Program (LOOP) | Services Philadelphia Water Department Opinion | Real-Estate Collusion Is Finally Coming to an End The Wall Street Journal New York City Law Against Body-Size Discrimination: What the Residential Real Estate Industry Needs to Know Jackson Lewis What Accreditation Shift Could Mean for Real Estate Investors Kiplinger's Personal Finance Jeff Bezos's Homes: Inside His More Than $500 Million Property Portfolio Architectural Digest 20 Young Leaders Transforming the Real-Estate Industry in 2023 Business Insider Are Virtual Tours Still Worth It in Real Estate? Evidence from 75000 Home Sales Harvard Business School Working Knowledge 'If The Government Was Completely Out Of The Housing Market, Prices Would Be Lower' Peter Schiff Says That Real ... Yahoo Finance 9 Best Places to Retire in Mexico, According to Real Estate Experts Travel + Leisure Man arrested on suspicion of crashing into parade-goers worked as local real estate agent The Bakersfield Californian |
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