Last week I promised an article on the potential for a localized market bubble. Refer to last weeks article;
According to Wikipedia: A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets, typically following a land boom.
First, are we in a bubble now? I’ve heard lots of local Teton Valley talk about the current real estate situation (low Real Estate Supply, low vacancy, increasing rents, need for construction) which ironically coincides with last week’s market cycle prediction. Based on the above definition, and the predictions outlined in last week’s article, the answer is no, we are not in a bubble. We are simply either enjoying increased rents and markets due to market supply and availability, or on the brunt end of a market with limited inventory, thus faced with high market rents, or purchasing in a market with limited inventory. The bubble, (if following the prediction that the next Real Estate market recession will not occur until 2024), will come just before that time when supply far exceeds demand.
On a local level, we do generally follow National trends. We have been in some instances “immune” to certain market conditions, and have also found ourselves overexposed – meaning we create our own problems. I would refer to these “problems” as “mini-cycles”. These mini-cycles, assuming they do not spiral out of control, are simple reminders that we need to cool it, or we’ll wind up in 2008 while the rest of the Nation enjoys the fruits of a standard market cycle.
Example; I am currently aware of well over 50 acres of vacant land pending sale in the Victor area alone, all zoned for medium or high density. In addition, there are even more projects with similar density requirements slated for construction beginning 2017. Now, according to the market cycles outlined in last weeks article (refer above) this is normal, As long as it doesn’t get out of hand. There’s a potential for this to turn into a race to the finish line, in order to complete and liquidate projects before the next developer or investor. If that happens, not only will the last developer to complete their project end up with the short end of the stick, but so will we, here in our local Teton Valley Market. If it doesn’t get too out of hand, this will cause, in my opinion, a mini cycle, or intermediate bubble.
From a local government standpoint, I think it is possible. In my opinion, the city of Victor promotes growth more than it’s sister cities in Teton Valley, or the County itself. Victor needs to be very careful, and Victor’s investors the same with regards to the above concerns. Teton County also has a new wave of elected officials produced by this past election, likely more so pro-growth than the outgoing officials. This is fine, but we need to be careful.
For those of you that are concerned about the potential for a premature bubble or mini cycle, 2017 might be a good opportunity to liquidate while the market is relatively stable, and supply is low. Am I telling everyone to panic? No. I’m not panicking, and I’m likely not going to sell off my Real Estate assets in 2017. I am however going to closely monitor the situation, and not get ahead of myself. Like our grandparents before us and their conservative values as a result of living through the Great Depression, I too am sensitive to these types of things having recently witnessed the “Great Recession” in a Real Estate family.
I am going to do my best to tie this article to National trends, events that have an affect on Real Estate (such as elections), and the seemingly cyclical Real Estate pattern that applies in almost all cases, barring any outside catastrophe.
Hours after our recent election, it seemed as if the National election result(s) were catastrophic, though that subsided quickly, and the markets rallied. Yes, there are talks of rising interest rates which can also have an affect, but things seem to be settling back into place. In my opinion (as far as Real Estate goes) things settled right back in their respective place with regards to the Real Estate cycle, more on these economic cycles below.
The question is, will that last? Will the transition into the next President’s era once again upset the current cycle? I don’t think so. An a associate of mine sent an article from Harvard University (source below) that also seems to back that prediction.
The article talks about economic cycles with regards to Real Estate, and the phases of the cycles after recession. The cycle ultimately leads to another recession, due to oversupply (history shows us we never learn) Our last recession was 2008.
While reviewing the cyclical pattern ternds (the article refers to them as Market Cycle Quadrants) in the article, my small market mind’s gears were turning – “Where are WE now in the current cycle?” My answer was somewhere right above Long Term Occupancy average, during a period while vacancy is declining, and new construction is just now staring to occur. For those of you not referencing the article, The quadrants are broken into 4 phases of the cycle;
Phase I – Recovery
Phase II – Expansion
Phase III – Hypersupply
Phase IIII – Recession
I later discovered that the article also answers my question above, and we’re on the same page in terms of where we are in the current cycle, in the beginning stage of the expansion phase. All of that aside, I need to get back on track with regards to the election, how it may affect our market, and tie all of this together.
The great thing about this article is that it provides for a timeline, and even shows a nifty graph depicting these market cycles. It is actually quite remarkable. The findings go back to 1819 to gather data, and locate the peaks in Land Values, Construction, and Business. The average interval is approximately 18 years with one exception, WWII. The good news? I don’t see any clear pattern with regards to election cycles years, and these respective market swings.
For those of you refusing to open this fascinating article, and the contributors to the information in the article are correct, the next housing market recession will be in 2024.
Does that mean our local community is immune to a localized bubble filled with our own “hypersupply” will not affect us? Nope. Check out next week’s article.
As a preface to this article, I must say that I am a very straightforward real estate agent. If you are looking for someone to tell you that you can get a bargain on a piece of property that you likely cannot, I’m probably not your agent. I am also not going to tell someone they can obtain a certain price for their property in an effort to obtain a listing, or to appear optimistic. I provide values based on market statistics, and that’s usually the end of the story.
However, I will say that there are instances where real estate agents, including myself, will conform to the thought process of their customers. I’m not saying that real estate agents make special efforts to act differently in different scenarios like some of our politicians do, but in some regards, this is how people are. We try to relate to our customers to form a friendship, and gain trust.
When it comes to your attitude, or thought process when establishing a relationship with a real estate agent, it’s important to keep this in mind. For instance, if you are the type of person that uses brute sales tactic in order to make a clear indication that you only purchase bargain properties, and you make that clear to your agent right off the bat, your agent might bend his or her regular thought process or way of doing business in order to conform to your thought process and strategy. In markets where properties are selling quickly and prices are on the rise, it might be in your best interest to let your agent take the lead in terms of how to act in certain scenarios, especially if you’re looking at property you actually want to purchase, not just looking for the best bang for the buck or an investment property.
Recently I was working with a customer looking at luxury properties, which don’t seem to absorb into the marketplace nearly as quickly – as say a 3-bedroom 2-bathroom starter home. While viewing these properties, the quintessential salesman type listing agent we met at the property told us the home was receiving multiple showings per week, and they didn’t anticipate it would last very long. My customer kept saying over and over how much that particular agent reminded him of that typical sales person, and he “could see right through it”. Me, trying to establish a relationship, (and while trying be as transparent as possible), agreed with him. At the end of our day, I asked him to keep in mind what the agent said regardless of how we both felt about the situation. 2 months later, every property this particular person was looking at was later withdrawn from the market or sold, and it was my fault for not properly explaining how urgent the situation was. On a side note, it’s important to understand that waiting for the price to reduce doesn’t mean that is what is going to happen. People do remove properties from the market as situations change, which has the same affect. In some cases, some increase the price.
As always, this type of scenario can work both ways in different markets. If you are in a hurry to sell, remember that your listing agent has a fiduciary duty to keep that information confidential. If you don’t properly explain your situation to your listing agent, and tell that agent that you are a firm negotiator who only accepts top dollar, your agent is likely going to conform to what he or she thinks your needs are. If you tell your agent you will only look at homes with hardwood floors, guess what…
At the end of the day, transparency is best. The point of my article is to allow your relationship with your agent to grow naturally. Be yourself, and unless you are an expert in that local market, listen to what your agent has to say. If you don’t agree with your agent, or you don’t particularly like them based on the way they naturally introduce themselves to you, move on. There are plenty of fish in the sea – as they say.