From California to New York City and Southwest Florida to Seattle, there’s a question that’s been popping up more frequently. You can find this question being asked in the financial news as well as in the real estate community. It’s even being asked on popular sites like Reddit!
And with many areas enjoying strong increases in property values, it’s only natural for people to wonder about real estate markets. This is also true of the country’s financial health as well. Of course, as a seasoned investor, this topic is one I follow very closely. So, today, we’re going to dive into understanding this complex question in a simple way.
Leveraging, Debt, and Risk
Because this topic is on the minds of a number of people, you can find very smart people talking about it in depth. And recently, the 2018 Realtors Legislative Meetings and Trade Expo had a panel on just this question. One of the key points they hit on was the degree of over-leveraging that had taken place in previous downturns versus now. The conclusion? We have yet to see the type of risk-taking and over-extension of debt that we’ve seen in previous bubbles.
Inventory, Inventory, Inventory
Another critical part of the conversation revolves around inventory levels. You may have heard how many regions are experiencing a lack of inventory. At its heart, this means that an increase in inventory will help alleviate upward pressures on pricing. So, we’re paying close attention to the inventory numbers for several major metro areas, including our own here in Southwest Florida.
Construction Jobs as an Indicator
And speaking of expanding inventory, new construction is one of the aspects we look at for this area of the market. With that in mind, you can imagine how the number of construction jobs and factors around them are important. It was noted at the expo mentioned above that with the pop of the previous real estate bubble, construction companies let many people go.
Now, as the market is showing healthy signs, the new construction industry is working hard to train talent, essentially playing “catch-up.” As this sector of the industry continues to mature that talent, we should see more new construction coming online to ease demand and curb rising prices.
Peering into the Future
While there’s a great deal of interconnectivity between markets, the fact is that every metro has a cycle all of its own. This is why we look at key regions and markets, as well as the overall economic activity to determine what makes the most sense for our clients. Considering what we’ve gone over above, it’s likely we are not in a bubble currently. As new construction meets inventory demands, prices should naturally relax in a healthy, normal way, mitigating fears of a bubble.
But as an investor, I love to hear from others. What are you seeing currently in your market? Please share in the comments!
Terry Records
Broker/Owner
Records Results Real Estate
Residential Sales and Property Management Service
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