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Friday, June 10, 2016

The Road to Ruin?

Written by  Wayne Curtis

There have been several positive reports on the real estate market to hit the headlines in the last 30 days, showing marked improvement in price and inventory in the national statistics. One news item even calculated that in 2016 the U.S. will surpass the number of existing housing units sold in the previous record-holding year of 2006, before the financial crisis.

Whenever the news focuses on previous records being broken, there will always be a section of the analytical press that will then question whether or not a downturn is nigh. Because the housing crisis was so severe and long-lasting, this chorus of worriers has been especially loud lately.

This frightened mob has forgotten several very important things that ensure we are nowhere near the type of collapse that we all recently lived through. Since an entire generation of homebuyers also knows nothing more than the boom and bust cycle of the 21st century, it’s a good idea to remind everyone why we are not heading to catastrophe. At least not yet.

First: The numbers should be breaking records. The Millennials now coming into their peak “first home” years outnumbers the Baby Boom generation and will continue to have a just as revolutionary an effect on American society as their forebears as they mature, age, and retire. Many of them were scared away from the housing market by what recently took place, but they could not postpone home ownership forever. As the economy has recovered, regulation has put some sanity back into the lending markets and their lives have progressed, they have realized they could not afford to rent forever, especially at today’s rental rates. Record-breaking numbers are a good thing, because the demographics support it.

Second: The lending markets have – at least for home mortgages – returned to a regulated sanity, perhaps even parsimony! Lenders are tight-fisted, appraisers are terrified of too much equity inflation in home values. New guidelines and government oversight has everyone from the loan officer up to the bank president reacting cautiously to market conditions. Responsible restraint permeates the housing market right now, and that’s never going to recreate the pandemonium we experienced a decade ago.

Finally, third: Even buyers themselves have been much less willing to spend whatever it takes to get into their dream home. Yes, we’re routinely having multiple offers because of the tight inventory, but these price contests are usually competing in the hundreds of dollars, not the tens of thousands of dollars as they were in 2004 or 2005. Even though we will most likely continue in a strong seller’s market, nobody is looking for buyers to start loosening their purse strings, or for banks and appraisers to go along with big price jumps. Our gains will be significant, but modest.

And what about the election? It’s true that in a presidential election season excessive trumpery can make the markets jitter and quake; even some famous conservative businessmen have publicly acknowledged that fact. None of that will be good news for the housing market, because its recovery is still spotty and fragile. Public confidence in the future has to be strong for people to feel good about taking on a 30-year mortgage. So, stay tuned as you go to the beach this summer, or relax on the shores of the lake. The decision you make in November will have an enormous – even huuuuge –   impact on the future economy.

Wayne Curtis

Wayne Curtis

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Real Estate Today

Wayne Curtis has been a licensed real estate agent and Realtor® since 1998. He was named a Realtor Hero by the National Association of Realtors in 2012 for his work promoting homeownership in Baltimore. Visit his website CharmCityRealEstate.com for real estate insights and much more.

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