AFTER THE ‘CRASH’ : ASSESSING THE ECONOMY AND THE REAL ESTATE MARKET
After the ‘Crash’: Assessing the Economy and the Real Estate Market
By Carlo Barbieri
No one really wants to think deeply about the Recession of 2008. It’s like trying to recall the fun side of a hurricane or flood, or the joy you felt when one of your favorite politicians lost a critical election.
It’s been about eight years since the worst of the “Crash” of 2008 was felt, or roughly about a decade since the first signs of truly bad economic times began to trickle down from Wall Street and Washington.
For a long time, we lived with the day-to-day news about store and factory cutbacks and closings, about layoffs and job losses, and how they were either larger or smaller than the week before. We worried about the money in the bank – and whether the bank that was holding our money would be open the next morning when we climbed out of bed.
It was a sad time, a time when many of us didn’t know if we would get to our place of employment only to find we no longer had a job – or perhaps the establishment had gone out of business entirely.
Well, it took a long time, and we are trying very hard to pull free from the days when a constant dark cloud seemed to cast a shadow over our financial futures.
Boca Raton City Manager Leif Ahnell, speaking at a recent Chamber of Commerce breakfast, told how that city was forced to lay off about 200 employees over the course of several budget-cutting recession years. Only now, eight years later, has the city’s staff returned to the levels it was at in the years before 2008.
Ahnell said prognosticators figured it would take about 10 years for the city to come back – and they were right. It took years to recover, not simply from the loss of personnel, but from the cutbacks in programs and services. Luckily, Boca Raton survived and has prospered again while many cities are left with major economic holes that probably aren’t filled yet.
Like the overall economy, this terrible recession impacted the real estate market in general, and the housing condition in South Florida specifically. Many of us still live in fear of another recession bursting our American Dream of home ownership. We have seen prices nudge up over the past seven or eight years. Housing inventory goes up and falls according to changes in potential home buyers’ financial comfort level. We’ve watched mortgage percentages hover in the low numbers while radio announcers warn that the phenomenon will not last. We hope for better days, but never know for sure when and if a better day will come.
Yes, indeed, it is difficult to shake loose from the fears and financial pain we felt during the time of the so-called “housing crisis.” We saw a drop in the number of Americans who own homes, a figure that is still low. We hear each day about people who still cannot gather enough money for a down payment or a deposit. The rental market seems to be booming with people who cannot afford a home. We also hear about people who wring their hands and hope they can someday partake of the American dream.
Actually, for all our fears and trepidations, the real estate market is not as bad as we think it is. Generally, it’s quite good. By most measures, prices continue to rise, though in some areas, they are not yet back to pre-2008 levels.
Consider how many markets like Las Vegas or major Florida metros like Miami, Tampa and Orlando have real estate values that are still below pre-crash levels, despite a broad improvement nationwide. This proves that areas that were once hotbeds of irrational homeowner enthusiasm years ago have not gone back to their old, uncontrollable ways, but have in fact rediscovered a level playing field.
Naysayers may warn that rising prices and increases in housing demand can indicate a bubble the same way they did back around 2005. But if you examine the situation more closely, you’ll find that the housing market is much healthier than during the previous run-up to a recession.
In fact, Realtor.com has shown how different conditions are now when compared to 10 years ago, using metrics like the prevalence of house-flipping, price-to-income ratios and the share of buyers using mortgage financing. Even in high-growth markets, the frantic and frenzied behaviors seen in the years between 2005 and 2008 are not happening all over again. If we were still in that precarious housing bubble, we would see a supply glut instead of a lack of inventory, the situation that is currently affecting the real estate market.
An item on The Open House Website stated the following about the Miami real estate market in July 2016: “Only 218 homes sold, with 4,285 homes active by July 31. The majority of homes sold were condominiums, with 148 condos sold, 65 single-family homes and only five townhomes sold. Out of these sales, 173 buyers purchased under the asking price. Fifteen sales were above the asking price.”
Some might run scared at such figures, fearing another crash may be imminent. But with stability back in the marketplace, it is more likely just a blip on the ever-changing real estate market radar screen.
One other important point: Foreclosures are at the lowest level since at least the year 2000. So people are not going crazy over housing deals that are so incredibly out of whack, buyers run the risk of burying themselves in big debts just to own a home.
Some people will always see leverage as risky. What most of us are actually seeing right now is a healthy housing market that continues to steadily and organically appreciate.
Based on the analysis above, today’s Real Estate Market asks for caution. Several opportunities exist, but the expertise of a Real Estate Professional is a must.