How to identify a declining real estate market

While many U.S real estate markets are booming, stories mentioning certain ones being “on the bubble” are fairly common. This means that the market could decline, meaning both a decrease in sales and a decrease in sales prices – bad news for those looking to sell. Luckily, real estate markets don’t just decline overnight. Here are some early warning signs that could mean the bubble in your hot market is about to burst.

Rising interest rates

According to Forbes, rising interest rates are a key sign. Consider the high-interest rates the market experienced in 2007, just before the 2008 crash. Back then, rates spiked to 6.7%, which was right after land values peaked the year before. Thus, it’s a good idea to keep an eye on interest rates, which are currently at a four year high. Forbes notes interest rates have not gone above 5% since 2011.

Days on the market and inventory

A surefire way to know how hot a market is doing would be to observe the days homes for sale are lasting on the market. Also, keep an eye on the inventory. Low inventory means high sales prices and bidding wars. Ample inventory means lower prices and more days on the market. Mansion Global reveals that the first signs of a decline can often be seen in the condo market, particularly when new developments aren’t getting sold out, meaning the demand isn’t as high as it should be in a hot market.

Foreclosures

During the 2008 crash, the news was full of stories about homeowners being forced to default on their mortgages, something that shouldn’t be happening in a healthy market. Forbes reveals that foreclosures have been on the decline since 2010, reaching a twelve year low in 2017, but that’s a national average and the story may be different in certain markets. In New York, foreclosures are at an eleven year high.

Who is driving the market

Another key factor to consider is who exactly are the customers buying homes. Foreign investors or people buying properties to flip them, meaning to quickly resell them without living in them, could be warning signs of a bubble. The Motley Fool suggests keeping an eye on the local economy. If prices are going up but the per capita income doesn’t have corresponding growth, it could mean a market is in the bubble, with a decline inevitable.

 

Leave a Reply

Your email address will not be published. Required fields are marked *