If there is any one question I receive from my clients on an on going basis it is "Which Way Is The Market Going?"
Well here is my crystal ball view: Birth Rates and Spending Patterns
Before we look at where the market is going let's look at how it got to where it is. The answer is demographics and very low interest rates and liberal financing methods. The latter causes are demographic as well, as interest rates are low due to the rising productivity of the aging baby boom. The baby boom generation (From 1946 to 1964) is the largest in history, and it created a boom in commercial real estate in the 1970s as they entered the workforce. Then they created the next boom in multifamily housing and retail as they got married and had children, which then saw declines despite a booming economy and falling interest rates after 1985 when the boomers moved into the next stage. Then they created a boom in starter homes into the late 1980s that turned to bust with the recession of the early 1990s and the S&L crisis. But then trade-up homes started to boom, and that trend accelerated with speculation in housing, vacation homes and condos as investment flows created the next bubble after the stock market boom failed in 2000.
By late 2003 to 2005, the baby boom generation had peaked in its trade-up home buying spree. But speculation kept those markets going and naturally followed even more into the growing vacation home markets. More baby boomers considered "why not buy a vacation home or two given that real estate is the best area now for appreciation?" But that too came to a end.
We did not have the "Bubble Bust" in housing prices as many predicted we would. We just simply flatten out on sales and some areas have seen a decline in prices as well. Especially the higher-end areas in states like the Northeast, California and Florida. Will there be a decline or another growth spurt?
2008 to early 2010 will see a come back of real estate market as pent-up demand for housing grows. But as that demand levels off about early 2010-2011 and the slowing baby boom spending brought on by a retiring generation, this will finally precipitate a broad decline in real estate in nearly all sectors, especially the high-end. This occurred in the 1930s in the U.S. and in the 1990s in Japan.
But buyers and investors should realize that due to the consumer life cycle in real estate, there will always be sectors booming. In the next several years retail spaces and apartment rentals will make a comeback from the rising echo boom generation. Commercial and industrial should fare well due to the boom ahead and mildly rising employment. After the broader crash from around 2011 to 2014, vacation and retirement homes will make a strong comeback as will starter homes for the echo boom. These will be the best areas to own after 2014.
So "Which Way Is The Market Going?" This is my crystal ball view based on my 29 years selling real estate and that of Harry Dent a well-known author and the developer of The Dent Method, a forecasting approach based on changes in demographic trends. I hope that this is helpful to all who read it.
Sherman Smith
Sherman Smith & Associates
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