There is tons of speculation about the current real estate market being in a bubble. There is a new article everyday it seems on the supposed bubble. Here is my take, for what it is worth. Before I get started, I will preface by saying this is a very difficult market to be a realtor. I am not a cheerleader for higher prices. I personally would love to see a slowdown, a return to a normal market. Even a crash would make my job easier. I am having a very hard time finding homes for buyers. Buyers need choices and there just aren't many out there. A lot of sellers would need to buy something new, but because there are not enough choices they are staying put and not selling. Therefore, listings are hard to come by.
I see the current conditions remaining the same for at least another 18 to 24 months minimum. Unless something really bad happens to trigger mass selling. Did you know we could double the number of active listings we have today and still be in a seller’s market?
There are almost no foreclosures in the pipeline right now and that is a slow process in Florida and many other states. If we were to see a huge influx of foreclosures starting today, they wouldn't make it to the market for at least a year. Many of them could take much longer. There will be many more than there were in the last two years, but they will be easily absorbed into the market.
If I were to compare our current market cycle with what happened in the last downturn, I would say we are about where we were in 2004. There was massive speculator activity then. People were flipping contracts on pre-construction condos. Tons of apartments were being converted to condos. House flippers were going nuts. Massive speculation is the true sign of a bubble. Frankly, we are seeing far less of that kind of speculation going on right now.
Back then easy credit was fueling the market. Mortgage originators were pushing variable payment loans where borrows could choose to pay only minimum amounts that actually caused them to increase their mortgage balances rather than lower them. Interest only loans were also a big thing and so were zero down payment loans. Many new homeowners found themselves underwater on their loan within months of closing. Many simply could not afford to sell because they didn't have the equity to pay realty fees and other closing costs.
Today it is cheap credit that is fueling the market. Lending standards have improved, and homeowners have record amounts of equity in their homes today. Just about everyone that has owned a home more than 6 months could sell it today and at least break even.
There is considerable amount of building and redevelopment going on locally in South Florida. Most of it is in the upper end of the market. We are running out of land, and I think we can count on a housing shortage indefinitely unless everybody changes their mind and starts moving out.
Usually, the cure for high prices is high prices. Meaning a correction is in order at some point. The last market top was in the 3rd quarter of 2006 almost exactly 15 years ago. It wasn't obvious we had topped out until nearly a year later because the real estate market moves so slowly. Prices didn't instantly crash either. It took another 3 years to find the bottom. Just like no one know when we were at the top, few knew when we bottomed out.
For the record I think the top is still 18 to 24 months away at least. And I wouldn't count on a huge crash like we saw in the last cycle. It could be more like what we saw in the early 90s, just a small pullback. There is a very good chance I am wrong though and I hope I am. Market timers are rarely right. Very few people sold at the right time and or bought at the right time. Most that did, were just plain lucky. Remember this, real estate is a long-term investment. The longer you own it the better off you will be regardless of when in the cycle you acted. If you want to wait for the next bottom, I hope you are happy where you are now, the next one could be many years away.
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