John Meussner wrote an excellent post addressing the question that seems to be on everyone’s mind – is the market shifting? There’s one thing that’s certain, real estate markets always change. That said, I am still a firm believer in investing in real estate. It’s a proven smart long-term investment, even with the market always changing.
Please be sure to comment on John's post.
The Real Estate Market SHIFT
Have you seen the market SHIFT? Can you feel the SHIFT? How are you handling the SHIFT? These are questions that have popped up frequently amongst the real estate community in the past few months. Realtors are wondering why homes, recently selling in 1-2 days, are now taking 2-4 weeks or longer to move. Why buyers, who not long ago were willing to bid to the moon and stars to get a home, are backing off of overpriced listings or buying altogether.
I'd argue that rather than a SHIFT, we're actually amidst normal market movement. The market is behaving as it should with all factors being considered. Let's look at the following facts before going any further:
- US wage growth in total has risen 3+ (but in most markets, sub-5)% over the past few years
- Real Estate appreciation has looked more like 6, 8, even 10+% in some markets
- Yield spreads are nearly inverted
- Unemployment is nearly non-existent
So what do these things have to do with a SHIFT? Well, at the most basis starting point, if homes are becoming 10% more expensive each year, and wages are only going up 3%, something's gotta give. At some point, with that trend continuing, no one would be able to buy a home. However, people need to sell homes for various reasons - relocation, growing families, aging, and other reasons force sales. With gross appreciation comes a shrinking buyer pool - that is, people who are willing, but more importantly, able, to buy. With employment rates at historic highs, markets about as good as they can get (we're near the tipping point toward recession based on several economic and data metrics), and outside forces limiting supply chain for new homes (permit issues, cost of land, lack of available credit), there's not much that could be done to sustain the market of the past 48 months- in short, people would need to make more money, or home prices would need to come down. If you haven't noticed, employers aren't quick to increase wages.
What about the last 2 bullet points? Historically, every time there's a yield curve inversion (that is, shorter term investments become less affordable than longer term investments - in mortgage speak, your rate on a 30 year fixed mortgage is better than a 5- or 7-year ARM), there's a recession. Every time unemployment rates hit a trough, there's a recession. Right now, we have both. This isn't the first time. It won't be the last. It's not a SHIFT. It's market movement.
What can you do to stop the 'SHIFT'? That's the easy part: nothing. But that's not bad news. In every recession, and in every market, there's opportunity. The next phase of the market will be no different. Especially for those who went through the last 'SHIFT' (the ride into, and phoenix-like rising from, the Great Recession). It's not about dealing with a change to the market place. It's about positioning yourself WITH the change in the marketplace.
Consumer education is more important today than it ever has been. Slowing depreciation, a potential recession, rising interest rates, and peak home vales are all things that can scare the hell out of prospective buyers - until you show them that buying real estate is one of THE BEST investments you can make, ever. Even when factoring in the great recession, historical data indicates a 5%+ gain on home equity year over year. Buying a home for the short term? Risky. Buying a home long term? One of the safest bets you can make. Buying right before home values crash? Not a big deal, as long as you hold the home until the market moves into it's next phase (the comfortable, steady growth we saw from 2012-2016). Buying real estate is a smart move. It's not an opinion, it's a fact backed by plenty of data.
As with most market turns, sellers enjoyed a short window of insanity among buyers. Listing agents reaped the rewards. Buyers agents hit wall after wall of frustration along with their clients. But now that is changing. Rates are still ridiculously low. Home values, even if they fall, will return to where they are and likely higher (note: the big rises are dips are nearly always in the coastal regions. Similar trends are seen in smaller markets, but to a much lesser level). But it's not a SHIFT, it's just the market doing what the market does - ebbs and flows. Crests and troughs. For those of us working in industries where trends can have a great influence on income and even the viability of our business, we're in a period that's a blessing and a curse. The curse for many is that it's getting harder. You've got to work to sell a home. You've got to work to find buyers. You've got to be an expert advisor, not just someone who passed a test to get a license. For those that already are, the blessing is that the competition pool is about to shrink. The wannabes, the fly-by-night "professionals", and those who act in good times like the part will never end? They'll all be gone soon. For those left standing, it won't be easy, but for them, it never is. It's always hard work, and it'll continue, but for those who have positioned themselves well, the SHIFT is going to bring about opportunity many in the industry have never before had.
The market is always in SHIFT. When times are good and easy, people don't want to talk about it. Their success is a result of their work, not the market. But when the going gets tough in the marketplace, a SHIFT is blamed. There is no shift. There's just the marketplace doing what the marketplace does - everchanging, and being ripe for opportunity for those who have the foresight to stay a step ahead.
Want to work with a lender that's ahead of the game, and capable of offering the best mortgage experience regardless of the market? Reach out today at 484.680.4852 or through our website.
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