It all feels just a little too familiar, doesn’t it? Houses appreciating at break-neck speeds, the buzz of real estate chatter between people of all industries… And my, have you seen the construction all over Nashville? The Tennessean counts 215 current construction projects (click here for their Crane Watch), many of them $50 million projects and more.
Is it 2006 all over again?
If you have been wondering about a real estate bubble, you’ll certainly know more in just a few minutes of reading. This article by the infamous Forbes magazine provided quite a bit of insight about the national real estate market. They performed a survey and 58% stated they believe a downturn in the market is inevitable in the next 2 years. The vast majority – 83% – believe now is a good time to sell real estate.
But are they correct? Well, we first must clarify that a bubble is much different than a downturn or correction. And if we look at the past historical cycles of real estate, major corrections happen every 17 – 18 years. Given that the last one was 9 years ago in 2008, we might surmise that we can sit back and relax.
BUT in many of those 18 year cycles, there was a mid cycle downtown. We are about due, aren’t we?
Of course, no one knows the future, but it is certainly within the realm of possibility that we will see a correction soon. But you can take some assurance in some of the data that shows we are not in a bubble. Many real estate transactions are paid for in cash or at least with large down payments, which means much less risk of foreclosure causing instability like in 2008!
Banks are still loaning somewhat conservatively, though they are progressing slightly towards more loose loans. Perhaps the best indicator is that the American public is talking about fear of a downtown. If everyone is talking about it, it certainly can’t sneak up on us!
On the same token, whenever real estate becomes the buzz word, it’s an indicator that things might be a little “too good” in real estate. Also cause for concern is the rate of appreciation out-pacing income growth in most metropolitan areas. You can see that if that trend were continue, it won’t be long before no one can afford their rent or mortgage payments.
We can also observe investors all over Nashville and Middle Tennessee buying properties on Speculation, that is, expecting increased profits based on the hope of future appreciation. If that doesn’t sound risky, imagine what happens to that investor when the market stops appreciating after he buys. He won’t make any money, or worse, he’ll lose money! His debts will quickly catch up to him.
Though Nashville’s market is now saturated with high-end rentals and decreasing rents, many are optimistic that Nashville’s “It” factor will continue to draw new residents and keep real estate high in value for at least another year or two.
First, as mentioned, no one knows the future. Every downtown or bubble we’ve had caught the vast majority of the public off guard. It will likely come like a “thief in the night”! Make sure to manage your risk! Keep your payments low (or properties free and clear), and always, always, have cash on hand for emergencies.
Oh, and of course, always stay educated! We here at Skyline will do our best to keep you informed. To have our latest content go straight to your inbox, drop your email in the form on the right —->
If you ever find yourself in a pinch or a change of season, we can promise a fair offer and a transparent process. Whether it be foreclosure, extensive repairs, difficult tenants, divorce, or perhaps any other reason, we can help. Don’t hesitate to give us a call or reach out to us online!