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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: The Folly of China's Real-Estate Boom Was Easy to See, but No One Wanted to Stop It The Wall Street Journal Rockford Is Now America's Top Housing Market After an Improbable Turnaround The Wall Street Journal Judge Approves $418 Million Settlement That Will Change Real Estate Commissions - The New York Times reAlpha Tech Corp. Launches Claire, Real Estate's First AI-powered, Zero-Commission Smart Buyer's Agent Yahoo Finance 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 Agencies' headquarters in DC remained 'nearly empty' in 2023, real-estate board finds Federal News Network reAlpha Tech Corp. Launches Claire, Real Estate's First AI-powered, Zero-Commission Smart Buyer's Agent Business Wire Bill Vanderstraaten, Scott Rohrman to join North Texas Commercial Real Estate Hall of Fame The Dallas Morning News Blackstone's Beleaguered Real-Estate Fund Stems Exodus The Wall Street Journal Public records: Muskingum County, Ohio, real estate transfers Zanesville Times Recorder Home in Silver Hills North an oasis in Prattville | REAL ESTATE Montgomery Advertiser Homes for Sale in New York and Connecticut The New York Times Spokane-based Haven Real Estate Group acquired by Epique Realty Spokane Journal of Business Final Offer Launches in Canada Bringing Transparency to the Canadian Real Estate Market Yahoo Finance Reversing the Real-Estate Doom Loop Is Possible. Just Look at Detroit. The Wall Street Journal Real Estate Transfers: April 25, 2024 - Riverhead News Review Riverhead News Review Seattle DJC.com local business news and data - Real Estate - Developer sought for 100-plus Bainbridge Island units Seattle Daily Journal of Commerce Real Estate Property Transfers in Franklin for April 1, 2024 Williamson Source Philly's luxury penthouses; Linden Hill Estate in Gladwyne up for auction The Philadelphia Inquirer Pigford marks 50 years as licensed real estate agent Meridian Star Kevin Owens joins Scottsdale-based Lessen real estate company | Scottsdale Independent Daily Independent Better Homes and Gardens Real Estate Metro Brokers extends affiliation agreement for 10 years Atlanta Agent magazine The Highest Paid Execs in Real Estate Mike DelPrete Pro boxer Caleb Truax retiring to become Twin Cities real estate agent - Minneapolis / St. Paul Business Journal The Business Journals Quebec Real Estate Investor Luc Poirier Looks to South Shore Brossard for Future Growth CoStar Group Who's Who in Residential Real Estate 2024: Berkshire Hathaway agents - Pittsburgh Business Times The Business Journals CoStar Group acquires Matterport for digitalizing real estate GIM International Top Transfers: 65,000 sq. ft. Dublin property sells for $7.85 million The Columbus Dispatch Real estate transfers GoDanRiver.com Massachusetts housing crisis: Greater Boston Real Estate Board campaign slams transfer fees Boston Herald Recent commercial real estate transactions - 4/24/24 BizTimes Milwaukee Manhattan Real Estate Update: "Embrace the Boredom" westsiderag.com Baltimore City: See how much real estate prices increased the week of Dec. 11 - The Baltimore Banner Baltimore City: See how much real estate prices increased the week of Dec. 11 The Baltimore Banner Positive week for Mivne Real Estate (K.D) Ltd (TLV:MVNE) institutional investors who lost 6.9% over the past year Simply Wall St What changes to real estate industry commissions could mean for you | Dollars & Sense ABC10.com KXTV Invest DSM selects real estate firm to manage mixed-use building in Highland Park Local 5 - weareiowa.com Linden Hill Estate in Gladwyne going up for auction in May The Philadelphia Inquirer How restaurants can tailor real estate strategies to an uncertain market Restaurant Business Online Collierville shopping center sold to Atlanta-based real estate firm - Memphis Business Journal The Business Journals Big changes coming to commissions in July ABC10.com KXTV Choice Properties Real Estate Investment Trust Reports Results for the Three Months Ended March 31, 2024 Business Wire Group opposes Old Town Canvas apartment tower Crain's Chicago Business INITIA Real Estate Launches the INITIA Academy Yahoo Finance Fennemore renews Biltmore lease with smaller footprint amid firm's national expansion - Phoenix Business Journal The Business Journals Real Estate Sales Include Two Falconer Commercial Properties Jamestown Post Journal Banks Believe They Are Well-Prepared for Commercial Real Estate Fallout The Wall Street Journal Pod People on KWTX@4: Meet the podcast host of "Mosaic - The Stories of Real Estate." - 4.24.24 KWTX PEA Group buys ASTI Environmental Crain's Detroit Business Is The Housing Market Going To Crash? Bankrate.com Sponsor our real estate and development series Racine County Eye I'm A Real Estate Agent: Here's What Will Happen to the Housing Market If Rent Keeps Rising Yahoo Finance Woman shocked to learn her Hamptons home was fraudulently listed on Airbnb after call to wire $25K New York Post A 19th Century Real Estate Covenant has Shaped Brooklyn Heights and Incited Litigation Brooklyn Heights Blog Inside Bill Gates' real estate, from his Seattle to Florida houses Business Insider 'There's just not enough listings out there': A look at the Milwaukee-area's real estate market WUWM Real-estate agent's ritzy Hamptons home used in fake Airbnb scam Business Insider 5 Experts Dish on Philly's Real Estate Market Philadelphia Style | Modern Luxury |
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