The real estate market is changing again. Of course it’s never static. Even when it was in free fall, it was moving, just in the wrong direction. After what has been an unprecedented run since the first of the year in which prices have risen 15-25%, the market is perhaps giving just a little bit back. Kind of like the forest reclaiming a fallen tree, that just sort of disappears amongst the leaves and branches of the forest floor. It is said, that water always finds its equilibrium. That is, that you can fill a glass with water, tilt the glass and the water will right itself to level. And so it is with home values.
We saw the crash following the collapse of Lehman and the financial markets, bust through value floor we thought was long ago set. Establishing new lows as they like to say on Wall Street. The pendulum swung; it swung wildly and it swung too far. So when home values began their inevitable recovery, that recovery came on with a vengeance and that’s why we saw such dramatic price corrections this year to the upside. Whether aided by a flood of hedge fund and investor cash, scooping up distressed properties for pennies on the dollar or because interest rates were being kept down to historic lows through Federal Reserve manipulation or because people just got tired of waiting to move, the market found a balancing point this past spring and summer. But like the falling tree, those valuation changes have been absorbed and there is a new accepted, “floor in the forest.” That is, until the next tree falls; the next fire rages through or the next torrential rain causes mud slides and changes things all over again.
The real estate market is constantly in motion, much like nature. It is for this reason that guys like me watch the numbers so closely, to better educate our sellers and buyers. Here’s what the numbers say: Inventory is declining again and the market is slowing, not at all unusual for this time of year. Not unusual that is, if you can remember back to what was the usual and normal seasonal behavior for the market? A wily veteran in my office told me last week that we’ve been so abnormal for so many years, we’ve forgotten what normal is; that a natural slowing traditionally occurs in the fall. Buyers looking to buy before school starts, have. The holidays are not that far off and many sellers are looking towards selling but not until next spring. I just got a call yesterday from someone wanting to talk values and marketing strategies for that very thing: selling in the spring.
We are also seeing a rise in cancellations; longer marketing times and a general seller nervousness. Is this because the pendulum of the correction is preparing to swing back? Remember I said it swung too far to the downside and that is why we rose so quickly. And if you picture a pendulum, it does what? It swings one way and then back the other and then back again, until like water, it finds its place of balance. So is that what’s happening? To some extent I would say yes, probably. But don’t forget what the wily vet said, “We’ve forgotten what normal is.” So is this normal?
I’m going to go out on a limb here (and if you follow my blog you know I tend to live out there on the limb…) and say no, this is not normal. In June we had rates jump more than a percent essentially overnight; that is not normal. Our nation is rolling out the largest entitlement program since Medicare; that is not normal. I have a friend who is an independent insurance broker. He hasn’t written new business for 3 months because he spends all his time explaining the Affordable Health Care Act to very angry and confused business owners and HR people. His Anthem rep says his sales numbers are down two thirds. That is not normal. And we have an environment in Washington that is at best entirely dysfunctional and at worst a mad house being run by the inmates. Our nation’s confidence is not normal. I recently told a friend who was bemoaning any negotiation with Iran, that the greatest terrorist threat to our country is not Iran; it’s not Al-Qaeda, rather it’s the Income Gap. The New York Times reported last month that the top 1% of income earners captured more than half the income growth since the end of the recession and they had previously reported in 2011, that corporations received 88% of the profits. Now you don’t have to be Einstein to figure that if the wealth of the nation is being disproportionately distributed to the haves and not the have-nots, we have a serious problem. Some might say it’s 30 years in the making so, “Tim, that is normal.” I however would argue that although incomes of middle class workers have in fact been shrinking for 30 years, the advent of technology, accompanied by the elimination by technology of quality jobs plus the failure of corporate America and our politicians to recognize and address this changing landscape, means times are not normal. At best we are on an undulating carnival floor, just trying to maintain our balance, and at worst on one of those elevator-dropping thrill rides like they have at California Adventure at Disneyland.
So what has all this soapbox bantering have to do with real estate? Simple: our entire economy, and most acutely real estate, is based on a level of trust and faith and confidence, that things will be OK; that the government will be open tomorrow; that there will be law and order and that making life decisions like buying or selling a home can be made with trust and a reasonable expectation of what will happen next. Given what is going on in Washington, is it any wonder the real estate market is slowing down? Is it any wonder that important decisions like buying a home or a car or hiring a new employee, are being set aside for the moment? Is it any wonder that our enemies abroad are licking their chops, hopeful that we fall on our faces? Confidence has everything to do with our way of life; it as everything to do with real estate and it has everything to do with our future, and right now, our confidence is not normal.