December 4, 2015
TAKE-AWAYS FROM AN ARTICLE IN INMAN NEWS BY BERNICE ROSS:
IS A DOWNTURN LOOMING AHEAD FOR YOUR MARKET?
- Like all markets, the real estate market is cyclical. Price range, location, the economy and a host of other factors all come together to determine how good or bad your market will be. The question is, how can you predict what’s ahead for your market?
- The real estate market seems to run in 10-year cycles. The beginning of the last downturn began in 2006-2007. If the market repeats that pattern, the next downturn will start in 2016-2017.
- Historically, presidential election years are good for real estate. This particular election cycle has caught everyone by surprise.
- For example, the difference between a Donald Trump and Bernie Sanders presidency would have radically different implications for the real estate industry.
- Both candidates want to change how we are taxed. Trump says that he wants to protect the mortgage deduction and supports the repeal of Dodd-Frank. Hilary Clinton and Sanders would probably expand existing regulations and could eliminate or reduce the mortgage deduction.
- The number of months of inventory has consistently been an accurate harbinger of price changes and market shifts.
- If there are six or fewer months of inventory on the market, you are in a seller’s market with too little inventory and upward pressure on prices.
- If there are seven or eight months of inventory on the market, you are in a flat or transitional market with stable prices and good opportunities for both buyers and sellers.
- If there are nine or more months of inventory on the market, you are in a buyer’s market with downward pressure on prices.
- It’s also important to realize that you might have a seller’s market in some price ranges and a buyer’s market in others, especially if the market is in transition. In most areas, the luxury and move-up markets are the first to experience a slowdown.
- What makes tracking the inventory so powerful is that inventory changes precede actual price changes by approximately six months to 18 months. For example, the warning signs foreshadowing the last downturn were evident in 2005 and 2006, even though the market remained strong in most places through 2007.