Housing market
When it comes to these blogs, I love speaking on topics that both keep readers informed on the current economy of the country along with giving them data that they can apply to their lives. Our topic today will be focused on the housing market and different factors that tie into it and explain the fluctuations that we have been experiencing.
First off, I want to talk about a real estate bubble so that you can somewhat understand why there’s been an uproar in the market. A real estate bubble is a temporary state of high prices usually because of high demand and low supply. This concept of supply is and demand serves as the foundation for markets and real estate is no different. This so-called bubble bursts when prices drop which can lead to a housing crisis which scares economists. Due to the fact that real estate takes some time to build, meeting the demand of the economy can take months if not years. This demand is usually fueled by population growth or a high immigration rate which the United States is vulnerable too.
Understanding interest rates is integral when inspecting the real estate market because people must borrow money in order to buy these houses. In simple terms, the interest rate is the amount a borrower is charged for the privilege of being loaned money. The United States Fed sets the interest rate which banks use to determine the APR, annual percentage rate, that they will offer to their borrowers. Central banks tend to increase the interest rate when inflation is high because higher interest rates increase the cost of debt, which discourages.
Another strong influence on the real estate market is the demographic makeup of its buyers. At about 78 million, millennials make up 40% of the home buying market. In prior years, this generation has been known to rent but a sudden change in the market has led them to buy these homes in order to establish their wealth. Despite the student loans, millennials and soon Gen Z are eager to be home owners which has created a strong demand in the market. Millennials are also the most likely to refinance their homes with a rate of 32% which is shocking when comparing it to the 9% for baby boomers. It seems that millennials take advantage of opportunities in real estate and are less risk averse than their older counterparts. This has benefitted them as they are the majority homeowners in the US and represent the backbone of the demand in the economy.
Now that we’ve seen what our current economy looks like, let’s reevaluate the 2008 housing crisis so that we can see where we went wrong. The 2207-2008 housing crisis gradually developed as home prices started falling in late 2006. This pandemonium began with cheap credit and lax lending standards that created a housing bubble. When the bubble burst, the banks were holding trillions of dollars of worthless investments in mortgages. Because the interest rates fluctuated from 2004-2008, buyers could not keep up and ended up defaulting on their loans and started to accumulate debt. This recession created a domino effect and obs were its first target. The unemployment rate rose to 6.9% in the fourth quarter of 2008 which affected the labor market for years to come. Countless acts of legislation were passed in order to better regulate financial activities and bail out important industries such as the labor market.
Another trend in the housing market that caught my attention was that house prices in the East versus the West are complete opposites. Some of the most expensive real estate markets in the country such as Los Angeles, San Diego, and the Bay area have seen a dramatic decline in the last few months while key cities in the East such as Chicago and Atlanta are enjoying home price gains. The regional pattern is not clear but economists have used data to predict what the underlying causes could be. Two factors are at work here, first off Eastern cities tend to have older housing stock which means more opportunity to expand housing through renovation of these homes. Western cities lack this and as a result tend to see booms when demand is strong but a sharp price decline when that demand decreases. The federal government also owns a good chunk of land in the west which determines how much cities can expand outward. Falling home prices can also be attributed to the pandemic which promoted the remote work trend. This can be assumed when looking at cities that have a huge presence in the tech industry such as Seattle, San Francisco, and Austin. Going back to my previous point that spoke on millennials acting as key drivers in homeownership, this can also be connected to the concept of remote work. Since Covid, employees in certain sectors have been able to work from home for a few days out of the week if not everyday. This is one of the primary factors in why millennials started buying more homes after the pandemic. I personally know individuals who live in places hundreds of miles away from their work office.
As our economy continues to change, individuals must be up to date on new trends and discoveries so that they can plan accordingly. The 2020 pandemic was a wake up call for many and we must be prepared for any change in the market, especially when it comes to real estate. Simply subscribing to a newsletter can give you all the information you need to keep your financial well-being intact.
Hey Michael, thanks for the informative topic! I think the housing market is something to look into and I believe the increase in work from home attributed to the rise in housing prices in the East. Dr. Kane shared a post on twitter that discussed this topic specifically about the increase in home prices in college towns. I also want to add about the cool features in real estate like matterport technology, you should check it out!
Hey Michael! I’ve found your blog post to be very interesting. I recently took REAL 4000 here at UGA, so I understood mostly everything in this post. I do agree with the fact that subscribing to a newsletter will help you keep up to date with the house market because that is something I also do.
Hey Michael, I’m glad you made this post. I’ve thought a lot about getting into real estate when I graduate, so it was great to read your post to learn more about it. That is interesting that millennials are getting more into buying homes instead of renting these days. Also, I had no idea how many homes differentiated from each other in the East and West. It seems like the West is a lot more volatile while purchasing a home in the East is more reliable.
Thank you so much for providing valuable knowledge in your blog post this week. I think I need to take your advice and subscribe to a newsletter because I could do a better job keeping up with the market. I hope when I start looking for an apartment or home in my 20s that the market is more in favor of the buyer. I would love to know if there’s any emerging technology being used to help the housing market.
Hi Michael! This was such a helpful topic for the blog post. It was interesting to see all of the different factors that go into not only purchasing real estate, but also what has been going on in the market for many years now. I think maybe one of the reasons why housing prices are rising in the east coast and declining in the west coast could be because it might not be sustainable for people to be able to live in certain cities in the west coast long term. This seems like it might be the case with a lot of big cities, even New York City, because people may start their careers there for good opportunities, but then eventually they wouldn’t want to live there forever so it would be a difficult decision on whether or not they should buy a house there. I learned a lot through this post, great job!
I really enjoyed reading your post this week, Michael. Just like Alex, I have also thought about looking into real estate as an investment. I have tried my hand at real estate in other countries, more specifically in the Philippines. I definitely agree that the sentiment has changed among younger people and shifted to owning rather than renting in order to establish wealth. Personally, that was the main reason why I decided to divide my investments between the two countries I’ve called home. It is a bit difficult to wrap my head around two different systems of real estate, but I’m up for the challenge.
I am looking forward to watching the next 10 years of the housing market. I remember BJ speaking to us about this topic. He mentioned that we will not see the repercussions of covid on the real estate market for a few years and I am very curious to watch that play out as remote work continues to take hold.
Hi Michael, great post! I’m really glad that you chose this topic. I feel like personally, I don’t know much about the real estate market, so your blog post was very informative. I finally know what a real estate bubble is, haha!
To your point about people nowadays wanting to buy houses and not rent, my parents literally told me to do this to start generating wealth. A lot of my friends are also thinking about doing the same! With the current housing economy slowly looking like the 2008/2009 bubble, it’s going to be interesting to see what happens. Will history repeat itself?
As for the West vs. East housing trend, people need to stop moving to Atlanta. I know it’s growing like crazy, but we have too many people and too much traffic right now!
Hi Michael, this was a great topic choice for your blog! I really like how you provided some history of the housing market with an explanation of the 2008 housing crisis. While every housing situation is different, it is important for everyone to have an understanding of past events since many elements of housing crises are the same. I have definitely noticed that Atlanta has more people than it did 5-10 years ago, but I wasn’t aware of the East vs. West housing trend.
Also, I like how you mentioned that millennials are working from home more today than ever as a result of the pandemic. There are so many reasons as to why the housing market is the way it is today, and I will be interested in keeping up with how the current housing situation pans out. Overall, I really enjoyed reading your post and it was very informative!
Hi Michael, first I like how you broke down the different demographics. I was quite suprised to hear that Millennials make up 40% of the housing market. I also really liked how you brought many different aspects including remote work and the pandemic as well as market information to analyze the current landscape of real estate. With a lot of remote and hybrid work, I’ve heard murmurs of a similar bubble going on from the commercial side because of offices being empty and underutilized. I wonder if we see a shift happen in that market as well.
Hi Michael, great, niche focus. You’ve educated me which I appreciate because otherwise my younger brother would scoff at my lack of knowledge in the housing market. I did not know the detail about potential reconstructive land on the east coast and lack there of in the west. Additionally I was unaware of the federal government’s hold on land out west.
As Dietz says, “It is always a good time to invest in real estate, but at what price.” I thought the blog was great!
Hey Michael, I loved your blog this week. I always ask my dad what he remembers from the financial/housing crisis from 2007-2008 and just grabbing insight from him on that since I wasn’t old enough to actually remember what was going on with the situation. I think it’s really interesting to see the percentages of the largest group of home owners and that 66% of them are first home buyers. It puts into perspective how close I personally am to a milestone like that in the couple of years.
Hey Michael, your blog post is very informative! I feel like this is important information for a lot of us especially as we get older. Good job!
Hey Michael! I know I am a bit late but I did want to let you know that I found your blog posts very interesting as I am a Realtor at Berkshire Hathaway Home Services. It was very cool to see some of the insights that you brought about such as the 2007-2008 housing crisis. One of the big things I have been thinking about is how AI could help the market with sales and busy work because trust me there is an infinite amount of useless paper work that can easily be automated.
Hey Michael, great post! This was great and informative. I’ve always considered getting into real estate but it is kind of intimidating, especially in this market. I think it is a great way to create wealth or passive income, but you have to be very conscious of the timing and how you go about it.