For something that has historically been a boring asset, real estate has become posh and trendy over the last few years. With new shows about the “top” agents in Cali and New York popping up all of the time, social influencers, investor gurus, a million home search websites (realtor/zillow/redfin) etc. There is no lack of access to exposure about the residential real estate market in this country.
“I realize that not everyone has the same interest in history as I do, but history can give us clues about what we can expect in the future” – B Geist
Real estate has always been a long term investment.
The real estate market over the last few decades has gone through cycles that in hindsight, were somewhat predictable. Depending on the source, you’ll see average home value appreciation is roughly 3% – 4.5% over the last 30 years on a year-over-year basis. Vastly different from what we saw during the 20’- 21’ timeframe 15% – 20%. For the bulk of the adult population, homeownership is their main source of wealth, so it’s understandable why people take so much interest in what’s going on with real estate.
The market we are experiencing today is in some ways like none other. Nationally, there is an ongoing shortage of single family homes to the tune of 5.5 million units according to the National Association of Realtors. A gap that’s been predicted to take 10 years or more to fill. Locally, the census data shows the Metro population grows by approximately 10k people per year. You might be asking yourself “who cares”? Well… One of the biggest fears of home buyers and sellers today is missing the timing or buying too soon, buying today and prices crash tomorrow. I’ll be the first to admit I don’t have a crystal ball or have any success at predicting the future. I can, however, read the data and come up with an opinion.
I like real estate because in a lot of ways it’s a simple asset whose value mainly follows supply and demand principles. See illustration below:
Low supply (today) moderate/ high demand = stable/growing value vs
High supply (08’-12’) low/ suppressed demand = reduced value
The main factor driving the real estate market today is fear, that being said here is my opinion. We will experience some short term pain around a slower pace of sales and navigating price adjustments to the higher interest rate environment. That being said, in the long run real estate wins. Real estate has always been a local game. What’s going on here in Iowa is different than Texas and what’s happening in Des Moines is different than Dubuque. Trust your local experts… If you want to know more about what’s happening here in Des Moines, give me a call. -Brian