DO WE NEED TO START WORRYING AGAIN ABOUT THE FUTURE OF THE REAL ESTATE MARKET?

real-estate-market-update

I always said that If I could read the future I would not be selling real estate but I’d rather play the lottery on a weekly basis. So, when I keep hearing from multiple sources that a new real estate bubble is coming up I wonder where they are getting that info and how they developed the skill of being able to read the future. Last time I checked, I could not find any reliable source who was able to predict the mayhem of 2006-2011 before it actually happened. Up to 2006, real estate gurus were boasting “the sky is the limit!!” until one day the sky actually collapsed on us – and now I see some of the same people advocating exactly the opposite. Yes, some markets are way higher than they were before the recession and I frankly think that they are in need of a correction, but when it comes to Vegas where prices are still 30-35% off of where they were in 2005, what could ever happen here if other markets fail? If a new bubble will sink the California markets again, will the domino effect have a serious effect on the local economy and housing market? I really don’t know, but do we need to start worrying again? Really?

Joseph Stiglitz, an economy Nobel Prize winner has been saying for a while that after the election we could go through a new recession and experience again a sharp decline in the US real estate markets unless more social equality is reached. Possibly true.

Yesterday I was reading on the Italian news an article regarding the real estate market in the US and the possibility of a sharp decline after the general election of November 8th because of policies that could be implemented by either candidate. Again, possibly true.

Honestly, I was shocked to see that even across the ocean there were naysayers who were commenting on this issue. So I decided to look a little more in depth and did a little digging to see if there are any basis to forecast a new bubble. The home ownership in the US is currently at 62.9%, which is the lowest since 1965. Considering that interest rates are historically at their lowest which should bring record sales, I wondered why the rate of home ownership is currently so low. Different people could have different explanations on why, but I came to the conclusion that there could be multiple reasons to explain the low home ownership:

  • Many markets have not only recovered, but are selling at record prices, much higher than they were prior to the recession of 2006. Los Angeles, New York, Miami, San Francisco, Seattle, Chicago and many more markets are seeing an incredible rise in home values. Canada is way overvalued. This is becoming a major obstacle for many homeowners who are getting left out of the market. http://www.inman.com/2016/07/01/are-housing-bubbles-reinflating-in-3-major-cities/
  • For those who have learned a lesson in 2006, entering a market that continues to go up is not a smart move. Renting might be a temporary alternative to owning, and to some people a safer bet for the next few years.
  • The economy has somewhat recovered but there are still plenty of smaller markets which have not. Las Vegas would be a typical example of a local economy still struggling to regain the steam it had up to 2006. At the same time I wonder which of the two is more of a true market, the one of the past or the current one? Were we spoiled when we thought money could be easily made by simply buying properties and flip them 2-3 months later for a huge profit? I think so.
  • Along with a slow recovering economy, there has been very few increases in salaries across the country. In any case, home values have risen higher and faster than the increase in salaries. One thing coming out of this election that could dramatically change the rate of home ownership across the country is the proposal to increase the minimum wage to $15. Considering the current minimum wage in Nevada is $8.25 for those without employer medical coverage provided, a major shift could come from the minimum wage earners who would suddenly become able to afford home ownership. This would be a huge boost to a market like ours who has gone through a couple of years of stability. As Las Vegas is home to thousands of minimum wage earners, I don’t see major spending to increase if minimum wages are staying at the current level, therefore the local economy might have to wait longer to fully recover.
  • Growth – a necessary ingredient to not only sustain a market but also to see it flourish and maintain it strong. Locally, we have gone through some stagnant times when it comes to resale homes but new homebuilders are betting on a stronger market so their plans are to continue building for the near future.
  • Student loan debt is at an all-time high. For those who come out of college desperately in need of a good paying job to start repaying their huge student loans, home ownership might be a distant dream for many years to come.

All in all, no one, myself included, can predict the future. Needless to say, listen to everyone but stay away from anyone who tells you what’s to come. The method I use and suggest to selling and purchasing real estate is very simple:

  1. Based on the info you have at your disposal TODAY, is the purchase or sale you’re contemplating to do a good deal or not? If you think it is, then it doesn’t matter what was before and what might be coming. You can’t change the past and you can’t anticipate the future. You can only make a decision based on today’s facts.
  2. Make an informed decision: with the most powerful tool at our disposal since the beginning of time, use the internet to accurately research but stay away from those who “know it” all. If they really knew, they would be playing the lottery every week.

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