How Long Will the Real Estate Boom Last?
Filed under: Real Estate Investing, Real Estate Market
The answer to the question of how long the real estate boom will last depends on what you mean by “boom.” If you are asking whether real estate prices will rise steadily over the next ten to fifteen years, I would tell you, without hesitation, that this is most likely true. However, if you want to know how long house prices will jump frantically, as they are doing now, I would have to say that no one knows.
When the boom ends, a soft landing is generally expected. This means that there will be no widespread drop in house prices, but a gradual leveling off of buying activity and a return to steady growth. There is media talk of a real estate bubble that could burst like the high tech bubble burst on the stock market some years ago. I strongly disagree. Like many other real estate professionals with years of experience, I don’t believe that a real estate bubble exists. A bubble requires a sudden upsurge in prices unrelated to value. House prices have been surging in value for ten years, and prices are very closely related to value, as evidenced by their different levels.
Understanding how the real estate market got to where it is today answers a lot of questions about its future. Fifteen years ago
there was no real estate market as we know it today. People back then became homeowners and held onto those homes until some circumstance in their lives dictated that they sell it. There were, of course, the Donald Trumps of the day who bought and sold mega properties. However, then, as now, they belonged to a different world than the rest of us. It simply never occurred to the vast majority of people back then to regard their homes as a way of leverage into other financial opportunities.
The first stirrings in the real estate boom consisted of a drop in interest rates for mortgage loans in the early 1990’s. In 1990, the
thirty-year mortgage interest rate was 10.13 percent. In 1993, it was 7.33 percent. Once people took action by refinancing their mortgages for lower rates, they found that they had broken out of their long sleep and were ready to do more.
Agents, mortgage lending companies and other real estate professionals, responded by streamlining their procedures. Applying for
a loan, getting approval and paying closing costs, had been complicated and time-consuming up to this point. The stages became simplified, computerized and less costly. What had once taken weeks could now be accomplished in hours, sometimes even in minutes.
In the mid 1990s, internet listings became widespread. The effects of this explosive spread of information are impossible to calculate. Now the marketplace has become nationwide and people can view properties from the comfort of their own homes twentyfour hours a day, seven days a week. Those who feel intimidated or pressured by agents can do self-guided tours. Internet listings reveal what is available, where it is located and at what prices.
There are some things a marketplace needs to develop, transparency and fairness being foremost among them. When a market
gives people what they want at competitive prices, they flock there. To me, that is the underlying reason for the real estate market’s success: satisfied participants. That is why I have little time for theories or comparisons. As long as the real estate market treats people honestly, large numbers will come to deal, regardless of ups and downs.
