What’s Next For The Single Family Real Estate Market & Is Now A Good Time To Invest?

    In our last article, The Power Of The Buy & Hold Model: A Team Of 5 All Stars we showed the historical trend of the single family housing values as measured by the Case Shiller Index.

    The data shows that homes have had a very healthy increase in prices since the 2012 timeframe. But the question on the minds of all investors and potential new homeowners is: what’s next?

    According to a article written October 14th, 2019 there is reason to believe that home values will continue to rise and potentially even soar in the near term.  

    The Biggest Housing Boom In History Has Just Begun

    Here is a summary of points from the article:

    • The most important driver of home prices is supply and demand. And right now, there is a chronic undersupply of homes in America.”
    • Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet since 2009, just 900,000 homes have been built per year. In fact, fewer homes were built in the past decade than in any decade since the ‘50s!
    • Millennials are the biggest generation in US history.   On average, folks buy their first home at age 33. And the median age of Millennials is 34 right now.

    Below are some additional articles that point to continued price appreciation. article from November 25th, 2019: Redfin’s 2020 Housing Market Predictions: More buyers + fewer homes = more bidding wars

    Summary point:

    • We expect about one in four offers to face bidding wars in 2020 compared to only one in 10 in 2019. This increase in competition will push year-over-year price growth up to 6% in the first half of the year, considerably stronger than the 2% growth seen in the first half of 2019. Supply and demand will become more balanced later in the year as more listings of new and existing homes hit the market, allowing price growth to moderate to 3%. article from December 5th

    Core Logic Expects Home Prices To Do This In The Next 12 Months

    Summary point:

    • CoreLogic expects home prices to increase 5.4% from October 2019 to October 2020.

    When reading articles on the housing market, it is important to look at the data behind the headlines and always ask the question, “compared to what”?

    This December 4th CCN article ,The US Housing Bubble Could Burst In 2020, is a good example.  For investors and others looking to purchase a home the title is certainly eye catching. It also makes a bold assumption, that is, that we have a housing bubble right now.  What defines a bubble?   

    Summary points:

    • predicts that the price growth the housing market has enjoyed this year will fizzle out in 2020. Contrary to more bullish claims, the real estate listings website predicts a negligible increase of 0.8% in home prices next year.
    • As U.S. housing market inventories continue to remain tight and lead to higher prices, buyers are likely to pull out of the market. In such a scenario, sellers will be forced to lower prices, leading to lower prices despite inventory shortages. This will cause the U.S. housing market bubble to eventually burst, and such a moment could arrive next year as’s report tells us

    Does a .8% INCREASE in home prices constitute the “bursting of a bubble”? While a .8% increase is certainly a lot lower rate of growth compared to what we have experienced over the past decade, it is still on the opposite end of the spectrum from a decline and a great distance away from the 20-30%+ decline experienced from 2006-2012 which many would agree could be classified as a bursting bubble.

    In the 2nd point, the article asserts that prices will rise because of a lack of supply, but then decline because buyers will leave the market because there is no supply.  But if prices start to decline, won’t the buyers come back in and prop prices back up? Does this scenario constitute the “bursting of a bubble”?

    But Housing Doesn’t Exist In A Vacuum

    Understanding the fundamentals of the housing market in your target area is necessary to guide your investment decisions. But the reality is, the housing market is just one component of our overall global economy, the scope and complexity of which should not be underestimated.  For example, new home construction was a $610 Billion dollar industry in 2018. At 1st glance, that feels like a big number and it is, but $610 Billion represented only 3% of the United States’ Gross Domestic Product that year and the US is just 1 country among 195.

    Economic sectors and macro economic variables on a global scale are all interrelated.  The housing downturn in the latter half of the last decade was related to credit market challenges which were related to a stock market decline which were related to unemployment etc.. etc…

    Macro Economic Concerns – What If Other Parts Of The Economy Are In A Bubble?

    In this December 19th, 2019 Bloomberg Businessweek article A Funny Thing Happened On The Way To The Stock Market Record the author asserts:

    • Asset bubbles and the desperate search for profits amid negative rates aren’t laughing matters. Be afraid.

    According to this November 9th, 2019 MarketWatch article, The ‘mother of all bubbles’ could blow up the economy if profits don’t improve, warns Blackstone strategist. There are serious concerns about economic turmoil in the near term. 

    • Among the recent troubles he (Blackstone Chief Strategist Joseph Zidle) thinks are connected are repo market woes, negative-yielding debt, global trade conflicts and collapsing manufacturing. And every cycle ends with excess.

    Without getting too far into the weeds on all these economic factors, the point is that there is a possibility that a major economic disruption could occur in the near term.  History would suggest that it’s almost certain and it’s just a question of when.  

    Is Now A Good Time To Invest In Housing?:  Understanding The Risks & Your Own Risk Tolerance Is The Key

    So what does all this mean?  What’s next for the overall economy and what’s next for the housing market? Should we be investing?   While we aim to get definitive answers, the reality is, we don’t know. You will find people, including those that study this stuff all the time, at all different points on the spectrum on how things will play out in the near term. 

    Very few things in life worth having come without risks.  As discussed in our November 25th Article, The Power Of The Buy & Hold Model: A Team Of 5 All-Stars, I am firm believer in the Buy & Hold Strategy.  But it does not come without risks. Excessive vacancy and maintenance or a decline in the rental market can turn the theoretically winning model into a losing proposition.  Macroeconomic turmoil could trigger risks at any moment. 

    In our September 29th article, Choosing The Right Real Estate Investing Model For You, we established the importance of knowing your P.A.R.T.S where your “R” is your risk tolerance. Where are you currently on the risk tolerance spectrum?

    For some, your risk tolerance may dictate that you need to do 10 hours of research in order to understand the risks and feel comfortable making an investment decision, for others it may be 100 or still others 200 hours.  There is no right or wrong answer. In an environment where no one can be sure about what will happen in the market in the near term with any degree of certainty, deciding on whether to invest or not can be broken down to nothing more than a couple of personal choices.  The choice of how much information you need to feel comfortable acting and secondly the choice of how much effort you want to put in to acquire the information you need.

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