If you want to hate on the housing market recovery, there are certainly plenty of items to dwell on.
Ads for house-flipping seminars have returned to AM radio and late-night cable TV in many markets — So-called “liar loans” or “Alt-A mortgages” that played a big role in the housing crash are increasing in popularity. And, of course, there are the fears that a low-interest-rate environment has already prompted everyone to refinance and has artificially created demand for housing thanks to cheap access to mortgages.
But while plenty of specialists are sounding the alarm bells, its said to be the panic over another housing crisis is a lot of nonsense.
Particularly if you’re an investor, there has never been a better time in history to get into real estate.
The scars from the Great Recession are real, and many can’t shake the fear and financial pain caused by the housing crisis. But regency bias also caused many small-time investors to dump stocks at the very bottom of the market, and caused many to miss out on the 200% gains in the recovery.
If you think we are in the middle of another housing bubble and that real-estate investing is only a sucker’s game, you may simply be letting the past influence your perceptions despite continued signs of strength.
And considering the investment potential — particularly in the rental market — you may want to take another look.
This is a healthy market, not a bubble
For starters, the real estate environment is generally quite good.
By any measure prices continue to rise. Median home prices shot past pre-recession levels to new all-time highs. National home prices were up 5.7% in June, according to CoreLogic — an even faster rate of appreciation than the 5.3% rate in May and the 5.4% rate in April. New home sales have powered to a seven-year high on strong demand.
Critics will warn that rising prices and rising demand can indicate a bubble the same way they did in 2005However, the housing market is much healthier than during the previous run-up. In fact, Realtor.com has created a “bubble index” to show how different conditions are from 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 like San Francisco, we aren’t seeing behavior that mirrors the frenzy of the mid-aughts. Therefore, if this was a bubble, we would see a supply glut instead of a lack of inventory actually acting as a headwind to sales.
Another important data point: Foreclosures are at the lowest level since at least 2000, so it’s not like people are burying themselves in big debts they can’t pay just to buy a home.
Lastly, consider how many markets like Las Vegas or major Florida metros like Miami, Tampa and Orlando have real estate values that still are below pre-crash levels despite the broad improvement nationwide. This proves that areas that were ground zero for ridiculous enthusiasm have not gone back to their old ways, but have in fact been right-sized and are staying there.
Whether it’s stricter lending standards, a shift in attitudes among borrowers or simply the nation getting wiser about the risks of real estate, we’re hardly seeing irresponsible buying in 2016. What we are seeing is a healthy housing market that continues to steadily and organically appreciate.
And given that so many traditional asset classes are facing headwinds, it’s worth taking a serious look at real estate both as a way to find new opportunities and to hedge your bets in a challenging mar
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