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An update on Real Estate Merry Christmas
Money Matters kicks off January 2019 on January 5, 2016 NOON PST on KVMR FM and Moneymanagementradio.com.
Marc's notes:
Wondering what is up with real estate lately? Keep reading!
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From the ashes of the real estate blow up in 2008/09, looking around today one could hardly imagine how devastating the crisis was. Having prompted the governments of the world to bailout not only the housing sector but literally the entire worlds banking system, they used trillions of dollars in giveaways, guarantees and a plethora of programs to stabilize financial markets. It’s no surprise the real estate market took off like a skinned cat after such monetary injections.
Fast forward to today and few are of the opinion there remains any reason to be concerned about the health of the housing sector.
Digging deeper into the current economic environment however and possibly supported by a variety of recent statistics, some are arguing that erring on the side of caution may be warranted when it comes to continuing to give the all clear on this market.
Interest rates have been near zero since the crisis. This means what housing recovery we have seen has its roots buried in historic low borrowing costs. Since rates cannot remain at zero forever and indeed the Federal Reserve has said as much in their meeting minutes, when rates do start their inevitable rise, fewer people will be able to qualify for home loans.
On the flip side, out from the Federal Housing Finance Agency (FHFA) the year-on-year single family house price index went up an eye-popping 5.8 percent in July. Compare that to a 5.6 percent increase in June. The National Association of Realtors added to the concern when it released its figures showing pending home sales declined in August. That’s the third time in four months and the lowest level since January of this year. Adding even more fuel to the controversy, the Census Bureau reported sales of new homes fell 7.6 percent in August.
With slowing home sales in the face of persistent rising home prices and with interest rates possibly set to rise, is the historic real estate market recovery coming to an end? The canary in the coal mine will likely be when home prices start to stall out, much like they did at the beginning of the housing blowup before investors realized what was happening.
Should home prices begin to fall or even just flatten out, that might be a sign buying demand is finally drying up. That might spell big trouble for a market that has been red hot since the end of the crisis. It’s been a good run for the real estate investor and the industries that feed off of it but like all good things, it is likely to come to an end at some point.
Astute investors would be wise to keep their ears glued to the proverbial tracks and watch for indications this train may be coming to the end of its run or at the minimum, slowing considerably.
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Wishing you all a very Merry Christmas and Happy New Year!
