Is a Real Estate Crisis Looming?

Hi everybody, Joe Hillner with Your Home Sold Guaranteed Realty, where we guarantee the sale of your home or I'll buy it!

Every week, I share market data to keep you informed about the local real estate market.

Here is this week’s Boca Market Watch.
 

Single Family Homes

This past week, 60 new listings, that's up from last week , and ranging in price from $469K to $9.75M! 14 homes back on the market, while 47 homes listed took a price decrease, and 2 sellers raised their asking price. And another down week, with 34 different properties under contract, and just 17 going pending. 18 homes were unsuccessful in selling and were taken off the market or the listing expired outright. And a little better week with 68 homes sold, ranging from $399K to a cool $12M!

Condos and Townhomes

57 new listings, not good, and ranging from $109 Grand to $5.95 Million! 24 units came back on the market, 72 properties with a price decrease, and 11 sellers with an increase. And a poor week with 37 different properties under contract, and 25 going pending! Just 18 condos or townhomes were unsuccessful in selling and were taken off the market or the listing expired. 65 closed sales this week, like last week, and ranging in price from $110K to $3.75M.
 

Here's what's making news right now

A growing chorus of influential and wealthy public figures have warned of a looming real estate crisis in the United States. These include real estate billionaire Ross Perot Jr., Corcoran Group founder Barbara Corcoran, famous for Shark Tank, Twitter owner Elon Musk, and Big Short investor Dave Burt.

These experts cite a number of factors for their concerns, including rising interest rates, a decline in commercial real estate values, and a shortage of housing inventory.

Rising Interest Rates
One of the biggest concerns for real estate experts is the rise in interest rates. The Federal Reserve has been raising interest rates in an effort to combat inflation. This has made it more expensive for people to borrow money to buy a home. Perot said that if the banks don’t start doing loans again, especially construction financing, real estate will go into a recession.

As a result, home sales have been declining. In April 2023, the National Association of Realtors reported that home sales fell by 3.4% from March. In our area, home sales in April were down 23% from a year ago.

Declining Commercial Real Estate Values
Another concern for real estate experts like Barbara Corcoran is the decline in commercial real estate values. Office buildings, retail stores, and hotels have all seen their values decline in recent months.

This is due to a number of factors, including the rise of remote work, the decline of brick-and-mortar retail, and the ongoing pandemic. And as the values decline and rates rise, many owners will not be able to refinance their balloon mortgages - folks, we’re talking about trillions in looming debt! Consequently, we're expecting a blood bath in commercial real estate in the next year or so, oh boy!

Shortage of Housing Inventory
Finally, real estate experts are concerned about the shortage of housing inventory. Despite that, Elon Musk tweeted, “Commercial real estate is melting down fast. Home values next.” He claims to have sold off all of his properties and is sleeping on friends couches.

There are simply not enough homes for sale to meet the demand from buyers. This is due to a number of factors, including the high cost of construction, the lack of available land, and the aging population. Sounds like Boca Raton, right? Our inventory of homes for sale is up 72% over a year ago. Sounds good. Except we were at such a low point, that increase isn't nearly enough to feed the demand. Currently, we have just a touch over 3 months supply on hand, with a balanced market being defined at 5.5 to 6 months of supply - still a long way to go.

So, What Does This All Mean?
It is still too early to say whether or not a real estate crisis is truly imminent. However, the factors that are driving these concerns are real.

If interest rates continue to rise, home sales will continue to decline. If commercial real estate values continue to fall, it will put a strain on the economy. And if the shortage of housing inventory continues, it will make it even more difficult for people to buy a home.

Only time will tell what the future holds for the real estate market. However, it is important to be aware of the risks and to be prepared for the possibility of a crisis.

What Can You Do to Prepare? If you are concerned about the possibility of a real estate crisis, there are a few things you can do to prepare.

First, you can make sure that you have a good financial cushion. This will help you to weather any storm that may come.

Second, you can start saving for a down payment on a home. This will make it easier to qualify for a mortgage if interest rates continue to rise.

Third, you can stay informed about the real estate market. This will help you to make informed decisions about when to buy or to sell a home.

Finally, you can be patient. The real estate market is cyclical and it will eventually recover. So whether you think the market is going up, or you think it's going down, you're right! It's just a matter of timing...