Real estate bubble babble is back
Experts speculate about the future of the real estate market.BY JOYCE NENNINGERQuestion: You had an interesting article about the real estate “bubble” in one of your last columns. What is the latest “bubble talk?”Answer: Real estate bubble talk is back in a big way. As I mentioned in the previous article, I feel that the Summit County market is primed for growth, given the fact that our market is still in recovery following the decline starting in 2001. The following information from Inman News presents a very interesting slant on the issue:As experts from the industry and academia present their latest forecasts for the U.S. housing market, consumers are left to decide who and what to believe about the future of real estate.
Federal Reserve Board chairman Alan Greenspan this month made reference to “signs of froth” in some local real estate markets, and an Anderson Forecast released this month by economists at the University of California, Los Angeles, states that a downturn in the housing market is inevitable. Even some real estate industry economists predict some short-term slowing in the housing market as mortgage interest rates are expected to rise, though the magnitude of this slow-down is a topic of considerable debate.The existence of housing bubbles is another debatable subject for economists and other real estate analysts, as is the fate of bubbles. Do they burst? Implode? Deflate? Stabilize? Experts have speculated a lot about this coming end, and whether it will signal impending economic doom or just a return to normalcy. These same experts also say that speculation can be dangerous – when it comes to real estate purchases.There are children approaching their teenage years who have not known a down housing market – the real estate boom has thrived for over a decade in many markets. Some adults, too, seem to have forgotten that the housing market is prone to cycles, say housing analysts. And the market continues to set new records. So how can anyone sort through all of this bubble babble and truly understand what is happening in the real estate market?Mark G. Dotzour, chief economist for the Real Estate Center at Texas A&M University, said that the housing market can function well if consumers heed some simple advice: “If you can find a nice home that you can afford to buy – go ahead.”Dotzour said he does have some serious concerns, though, about the overall state of the market. “In the last several months I have become aware of the amount of aggressive lending going on,” he said, such as no down payment, no-interest and negative amortization loans. “It just brings back horrible memories of the 1980s (housing downturn) again, and I think it’s definitely a concern.”
He added, “It’s a good thing for a person to buy a home that they can financially pay for,” as long as they can truly afford the home based on the terms of the loan.”I think it’s a very combustible market,” he said. “I’m not saying home prices won’t continue to appreciate in the next year. But the fire is burning very hot right now, and is being fueled by a lot of mortgage money – everybody wants to make mortgage loans now.”It’s easy to see how the housing market has performed so well, he said, especially in light of poor investment returns from other markets. “The ‘soup du jour’ right now is real estate. People are desperately searching for a place to put money and real estate in the slot machine that keeps paying off.” But there is over-investment in real estate, and that will eventually lead to a slowdown, he said.James Berman, president of JBGlobal, an investment advisory firm, said real estate price appreciation has far outpaced income growth, and this trend cannot continue indefinitely. He said that there is a fear factor in the continuing housing boom. “It’s what I’d call panicked buying – there is fear that people will be left behind if they don’t buy. People are buying without an eye toward fundamentals. When that happens peoples’ emotions really take control.”Interest rates are the key to the duration of the housing boom, he said. “I have no doubt there will be a reversal (in the real estate boom). It’s just a matter of when and how.”Stephen Thode, director of the Goodman Center for Real Estate Studies at Lehigh University in Pennsylvania, said there does appear to be anecdotal evidence of cooling in some markets, though housing is a very tangible investment compared to other forms of investment.
The danger in the housing market, he said, is a “wealth effect” in which people have a sense that they have built up tremendous equity because of escalating home prices. “They are not going to know exactly how much equity they have until the sale,” he said, and homeowners may have been lulled into a sense of security by the rapid increase in prices in recent years, which may not be sustainable.”September is going to be a crucial month,” for the housing market, he said, as housing sales tend to be the most robust in spring and summer.While opinions about the housing market can vary, there is probably more consensus than disagreement among real estate forecasters, said Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate.”We are envisioning that we’ll be coming in for a soft landing,” Conway said. And unless there is a huge jolt, such as substantial job losses, “we don’t see a very sharp drop in housing prices.” Even if there is a slight drop in home prices over the next several years, many homeowners could cope with that decrease because they have already realized substantial gains in value, she added.Call JOYCE NENNINGER at (970) 468-6800 or (800) 262-8442 for answers to your real estate questions. Or e-mail Joyce@ SummitRealEstate.com or you can visit her website at http://www.SummitRealEstate.com. She has lived in Summit County for more than 20 years. Joyce is the broker/owner of Summit Real Estate – The Nenninger Team at the Dillon Ridge Marketplace. She ranks in the top 4 percent of Realtors nationally.
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