The Real Estate Market Is Not Bottomed Out

Dated: July 26 2022

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Real estate is a booming business. The industry is worth over $10 trillion globally, and its continued success shows no sign of slowing anytime soon. And yet, there’s this prevailing sense that the market has hit bottom, and we’ll see little or no growth from here on out. This sentiment stems from the Great Recession — many real estate markets across the country suffered as a result of subprime lending, which led to a massive spike in foreclosure rates in 2007 and 2008. That was followed by a prolonged period where housing starts remained below historical averages. As a result, many analysts have concluded that we have hit “peak housing” — permanent market saturation and little or no growth moving forward. But that doesn’t mean the future for real estate is dim. Let’s take a closer look at why analysts believe we may have hit peak housing…


The Recession Is Behind Us

Real estate has always been cyclical. Even in the best markets, values tend to rise and fall over time — even without subprime lending and the housing bubble. However, the Great Recession brought the issue of cyclicality to the forefront of the industry. Investors became extremely risk averse, and they pulled out of the industry in droves. That meant fewer buyers, which led to developers being short on capital as they struggled to complete their current projects. That, in turn, caused construction to slow down — and pushed values down. In some markets, it sent home prices below what they had been for decades. But the industry has cycled out of the recession. New development has picked up again, and investors have regained confidence. That has led to a steady increase in home prices, and in construction — which has led many analysts to conclude that the industry has hit “peak housing.”


Real Estate Markets Are Matured

Real estate markets are seasonal, and they follow long-term cycles — just like the economy as a whole. Real estate booms are followed by busts — that’s just part of the cycle. And it’s easy to see how one might conclude that the industry has matured. After all, if cycles are predictable, then it’s easy to conclude that the industry has hit a peak. And yet, cycles are predictable — not inevitable. We don’t need to sit back and conclude that the market has hit its peak — we can take action to influence the market. And that’s exactly what real estate investors are doing. They are actively seeking out new markets that are still in the midst of their cycles. They’re finding new ways to boost the value of their current investments. And they’re creating entirely new investment opportunities. That’s not something an industry at its peak would do.

Mortgage Lending Requirements Are Strict

Home buyers have long been required to meet certain borrowing standards. After all, real estate lending should be regulated to prevent another subprime fiasco. But those lending standards have gotten increasingly strict — and that has slowed down the home-buying process considerably. Real estate agents report that it has become harder than ever to get buyers approved for a mortgage — especially first-time homebuyers. And some analysts have warned that the overly stringent lending standards could cause another housing crash. Of course, there are reasons why lending standards have gotten stricter. First, the government implemented new regulations in an effort to prevent another subprime lending disaster. But second, there is also legitimate concern about risk in the real estate industry.

Millennials Don’t Want To Buy Homes

There are two schools of thought about why millennials don’t want to buy homes. First, there is the theory that millennials simply don’t want to buy homes. Second, there is the theory that millennials are renting because they can’t afford to buy. There is some evidence to support both theories. Millennials have delayed life milestones that often lead to homeownership. They’re getting married later in life. They’re having children later in life. And millennials are overwhelmingly carrying a greater amount of student debt than any previous generation. That all equates to less income — which makes it harder to save up for a down payment. All of that is to say that there is nothing inherent in millennials that prevents them from buying homes. They’re just facing more obstacles than previous generations did.

Conclusion

Real estate is a booming industry, and it shows no sign of slowing down. Home prices have been rising for years, and construction has been steadily increasing — which suggests that values will continue to rise. Indeed, there are some analysts who believe that we are on the verge of a new real estate boom — and that home values will continue to rise as a result. That doesn’t mean that there aren’t challenges. The industry is facing some unique obstacles right now, and some analysts have predicted a new housing crash. However, it’s important to remember that real estate has been through these kinds of boom and bust cycles before — and each time, it has recovered.

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Nick Hailey

Nick is the Founder and CEO of Black Castle Properties. He is also a Licensed Real Estate Broker with over 9 years of experience and an extensive background in sales. He understands the complexities o....

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