State of the Real Estate Market

As we near the date of the President’s annual State of the Union address, I thought it would be fitting to address the state of the Real Estate Market.

Another bubble?

Home ownership is transformative and powerful. Owning a home year after year elevates a family’s wealth potential for years to come. So it should be no surprise that real estate is a hot topic and important to a great majority of Americans. If they don’t own a home, they want to own one. Therefore keeping an eye on the market and waiting for the right opportunity to make a move is key.

So it should be no surprise that lately, in the world of real estate, as a result of rising home prices, a question that everyone has been asking is – “are we on the verge of another bubble“?

My answer has been “not quite“, and I will enumerate reasons why below, as well as discuss signs to look out for.

Imagine all the People

More and more people dream of buying a home and they enter the market every day looking to buy. Lower interest rates in the wave after the great recession has allowed more people to become homeowners and this has created a home-rush. The home-rush has pushed home prices up and created bubble-like circumstances. But the big difference is that while there  are a lot of buyers entering the market they are not taking out multiple mortgages as in the years before the recession. So it may seem like the same mad rush as pre-2008, but it is not.  

Another aspect to consider, especially in South Florida, is the effect that the global economy has on our real estate market. With Latin America, especially big countries like Brazil, Argentina and Venezuela, suffering a devaluation of their currency we have seen capital flight to the safer and more stable United States real estate market. The resulting influx of cash buyers and foreign buyers taking out mortgage loans has played its part in rising home prices in South Florida as well.

However, as mortgage rates rise and the political situation in some South American countries stabilizes the impact will be felt in the housing market.

Lack of Speculation and Credit Financing

Speculation and credit financing are two aspects of a bubble that are missing from the current equation, according to Freddie Mac’s chief economist, Dr. Len Kiefer. Kiefer states that “…looking at total mortgage debt compared to equity, we’re not seeing that kind of speculation or problem” and “credit has not expanded in anything like we saw a decade ago”.

While this may be true, a change in both speculation and credit financing are key to look out for, as those may be signs of a bubble to come.

Signs that a Bubble Might be Coming

Speculation

A rise in speculation in the real estate market can be a sign that a bubble is coming. Watch out for trends of people re-financing and speculating on their equity. It will look and feel much like the real estate madness preceding 2008’s Great Recession.

Credit Financing

If credit expands and credit practices become lax or dubious (i.e. subprime lending) as they did in the years before the Great Recession then there is cause for concern.

Deregulation

There has been talk lately about eliminating the appraisal process for homes under $400K. This is concerning as it will deregulate a part of the mortgage process which is critical to making sure that investments being made in real estate are sound.

Watch out for changes in these three areas, as they could potentially shake the foundation of our newly recovered real estate market.

What to Expect in 2019 – Nationwide and in Florida

Homebuyer demand will continue. But with at least 2 expected interest rate hikes throughout the year, some buyers will be put off. The result of which will be, according to Kiefer, a stabilization of home prices. This stabilization will eventually entice some buyers back into the market despite the higher interest rates. But interest rates are not the biggest challenge faced by homebuyers.

According to Kiefer “…one of the biggest challenges for the overall economy is a lack of new housing supply”, a sentiment reiterated by Florida Realtors Chief Economist, Dr. Brad O’Connor.

While lack of housing supply is a challenge to be addressed nationwide in 2019, the outlook for Florida’s real estate market is a positive one. O’Connor notes that because Florida outpaces the nation in home sales and employment growth, Floridians should expect a 1% growth in home sales and a 3-4% price growth in 2019, while other markets around the nation remain flat.

Désirée is a licensed Florida Realtor and Real Estate Influencer committed to a high-level of professionalism and to helping others with their real estate endeavors through education. Désirée Ávila was an award winning teacher for 10 years and has a doctoral level education in Educational Technology.  Désirée is a lifetime local resident of South Florida and is fluent in Portuguese, Spanish, French and Italian.