I get a lot of feedback on my Facebook business page from readers distressed about this “crazy new real estate market”, worried that prices are just too high these days, […]
I get a lot of feedback on my Facebook business page from readers distressed about this “crazy new real estate market”, worried that prices are just too high these days, citing a lack of affordable housing. It’s almost as if they’re pining for the old days, you know, those years where the market was down and you could pick up a home for less than the seller paid for it? Those were certainly not the ‘good old days’.
As I respond to each comment, I realize how important it is that I do what I can clarify where we are in the current market cycle. Real estate is a very relatable field, unlike the stock market, because we may not know the difference between a bond and a small cap, but we do know our way around a house. Interest in real estate is perpetual, and for those who might be considering buying or selling a property, understanding the big picture is critical. Critical! So here’s where the market stands.
Most people I speak with think this tremendous sellers’ market and super tight inventory is something new. It’s not. Many believe it will to come to a head and suddenly erupt overnight. Not so. I understand that those who sold (or had to sell) before the market turned and those who’ve been priced out of it feel frustrated, maybe angry, and who could blame them? Most of the negative comments seem to come from lack of knowledge. So here’s the truth:
We are SEVEN YEARS PAST THE BOTTOM of our last real estate cycle. Just because newspapers are suddenly aware of the real estate market, writing screeching articles about the tight market in order to sell ad space don’t be fooled into thinking this is something new. It is a logical response of a market that oversold overselling we saw between 2006 and 2008, dropping 25 percent during that period. It’s doing exactly what real estate market cycles do, go up and go down over long periods of time. But remember, over the past 40 years residential real estate appreciation has averaged about 6 percent per year and there is no reason to think that it is going to change over the next 40 years.
We tend to think of market cycles in short terms, spiking and crashing over narrow periods of time and generally messing everything up. Looking at our last market cycle shows clearly this is not how it works. Real estate cycles tend to move in much broader periods. Our last market upturn lasted seventeen years, from 1990 – 2007. Predicting short-term market movements can be very difficult, recognizing the broader cycle of market movement is more accurate. It’s why we study real estate market cycle history.
Let’s talk about where we are in today’s cycle. The past seven years have been a sellers’ market with plummeting inventory, rising prices, nervous buyers often involved in multiple offers, and happy sellers getting the price they want, often times over asking.
Right now I have a potential buyer who’s very nervous. He tries to stay informed, reads news articles, watches TV reports and concludes the market is teetering on the brink of a crash and is therefore afraid to buy. (This sentiment shows up on my Facebook Business page thread as well.) The sad part is, he’s been thinking this for years! He wants to buy because his rent is skyrocketing, up 10 percent this year alone, but he’s confusing the short-term media screeds about this tremendous market with the long-term patterns of market cycles, thinking that the minute he buys a home the market is going to crash. Waiting in fear has cost him precious equity.
No one can predict the real estate market with 100 percent accuracy. I can’t tell you where the Dow Jones will finish on Monday. I can’t tell you if the Rockies will win their fifth game of the season. I can’t tell you what the weather will be on April 6 or even tomorrow but I can say with confidence that real estate tends to move over predictable long-term trends, and this market cycle has a long way to go.
Tracy Shaffer is a Realtor with Your Castle Real Estate, speciallizing in residential properties in the Denver Metro area, particularly the Park Hill neighborhood. Find me at TracysDenverHomes