It is in social media, the evening news and real estate oriented publications. It is speculation about a coming recession in the real estate market and how bad it could get. Can speculating about a recession cause a recession? Being convinced the markets are obviously going to crash, doesn’t it make sense to wait to buy real estate after prices plummet, and does that line of thinking contribute to a recession? Buy low, sell high. The problem with this viewpoint is that there is no promise of a recession just because people are talking about it, and even if you see it coming, when do you know the housing market has hit bottom?
Banks were foolish during the “Great Recession.” Thoroughly unsupportable loans were extended to thoroughly unqualified people. Demand for housing was high and houses could not be built fast enough. It was a boom right up to the moment that the bottom fell out. The toxic loans came home to roost. Home loan mortgagors were walking away from their debt and their houses. Overnight, lending guidelines changed and builders were left with houses with no buyers, competing with a flood of foreclosed homes…too many homes and not enough buyers.
So, is this déjà vu? Is it happening again? Maybe, but not for the same reasons. Lending guidelines are still strict, and if subprime lending is happening today, it is nothing like it was last time. According to new residential construction data from the US Census, new construction for single family homes has still not returned to it’s average pace after years of record low building…not enough homes for buyers, driving prices up. The issue this time around is affordability, aggravated by student loan debt, shrinking the pool of buyers, reducing demand, causing the housing markets to cool and price reductions. Timing the market is a challenge. That prices have been rising consistently for seven years should frighten buyers because the top is just as difficult to predict as the bottom.
Walt Smith, Broker
The Stallings & Smith Team
Coldwell Banker Midtown