Real Estate Bubble?

Real Estate Bubble Theorists No More Than Squealers
by M. Anthony Carr

Have you ever squirted a little kid in the back with a stream of cold water on a hot summer day? I’ve seen this throughout our neighborhood and it’s actually sadistically humorous to watch the little tykes squeal and run away from their parental tormentors.

Those who keep whining about the coming “burst” of the “real estate bubble” remind of these squealers. Sometimes I feel like the lone voice of reason crying out in the wilderness.

The real estate bubble naysayers whine about the “bubble” as if the whole national real estate market were nothing more than another over-inflated stock exchange — like the New York Stock Exchange and Nasdaq. Folks — it’s not. Real estate, like politics, is local and I wish those real estate journalists scaring the buyers with quotes from their stock market experts would just stop what they’re doing and consider some real facts.

Fact: The top hot real estate markets in the U.S.A. are also the top hot job markets.

Fact: Houses are where the jobs go at night.

Fact: Without enough houses in a hot job market, your housing inventory will escalate in price.

Fact: There are “pockets” of over inflated real estate

Fact: Unlike the stock market — you have to live somewhere. Whether renting or buying, there is an automatic necessity for the ownership of real estate — either by a homeowner or an investor.
There is no built-in necessity for owning stocks, thus all comparisons between the two products is moot.

In the midst of the hot markets across the country (where the squealing is the loudest and most piercing) citizens of those jurisdictions must look to the local economy to determine their risks.

In the Washington, D.C. area, the Northern Virginia Association of Realtors looks at those numbers every single year at its annual Economic Summit held at George Mason University. Unfortunately, most of the press gives it passing coverage — I think especially this year, because the economists did not fall in line with “the sky is falling” mantra heard by critics of a strong housing market.

The summit was reported on in the trade association’s latest monthly publication, The Update. “In a nutshell, you couldn’t be in a better market,” according to Dr. Stephen Fuller, Director for the Center for Regional Analysis and School of Public Policy at George Mason University. “If you’re worried about some bubble, or slow down, or something that’s evil, just put yourself in any other market,” he said. “They envy us.”

To put it bluntly folks, we’re going to have a housing problem in the future — but it’s not the bursting kind. It’s the “How can I make $60,000 a year and have to live out of the trunk of my car” kind. You see, in the Washington, D.C. area and other hot job market areas, the reason housing is climbing in value is simply because there’s not enough of it.

Dr. Fuller reports the regions surrounding Washington, D.C. have done a fantastic job of drawing jobs to the area — 287,000 in the last five years. However, they have done a sorry job in providing houses for all these people. This year, there’s a deficit in housing in this region of 463,300 units. That means that while people can take jobs here, they won’t be able to live nearby to work them. They’ll have to commute in a couple of hours.

The numbers don’t get any better, Fuller says. By 2030, there will be a shortfall of housing units in the Washington, D.C. area of 716,000 units.

Okay, bubble squealers — where’s the bubble?

The vocabulary being used by journalists is leftover from when the stock market inexplicably rose in value when there was no reason but hype driving the market. Companies were raising lots of venture capital and creating products that they couldn’t sell, meaning they ate through the borrowed funds and finally burst.

In hot real estate markets, there’s no hype. There are real jobs being created by real companies, creating real products and selling them to real consumers. Real money is being made and these real companies need real employees to make it happen — local governments should wake up and realize that we need real houses to put them into as well. If you want to quell the fear — build more houses.

Now — would all the squealers please stop? You’re giving me a headache.

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Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple

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Seattle Real Estate

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One comment

  1. Seth

    When people say “Crash”, I think they mean that the market will go down. Not that all the sudden your house will be worth nothing. What you say is true; jobs create money which gets spent on housing. However, when the cost of housing out paces job growth a correction is mandatory. When the median income can’t afford even close to the median home price then prices have escalated beyond what the market can sustain over the long run. When first time buyers are priced out of the market, eventually the market must come down.

    Over inflation in the market can happen due to lots of reasons and speculation is certainly one of them. When you see housed being bought be investors instead of first time buyers you can expect the market to go up. That will only happen in the short term, you just need to look at any historical trends to see that. Housing historically, dating back 300 years in Europe, has appreciated about .5% above inflation. It has escalated well beyond that for a few years so, what we will see now is the market will increase below inflation for a few years until all is right in the word again. Your right in that is probably not the correct definition of a “Crash” but it is reason to hold off buying for the time being.

    You do state that all markets are local and of course that is true. Though all local markets will still adhere to basic economic principals and it will be unwise to ignore that.

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