American Real Estate Values Are Just Warming Up

Image Source: Mark Mozart

Image Source: Mark Mozart

US property has now added trillions in value since the real estate market began to recover around 2011. Mortgage lenders, homebuilders, investors and financiers seem overwhelmingly bullish on the market. Still, there are a few outliers that questioning whether American real estate is already looking frothy.

American Real Estate Trends

Overall the national property market is up on all fronts. Rents are marching up consistently. Home sales are up. National median home prices are now up to $230,000. The only figure that seems to be down is the amount of time it takes to sell a home.

A few sensationalists are calling all of these rebounding stats a major warning of a new impending crisis. We’ve seen similar warnings about the Canadian real estate market for years, even though Toronto keeps marching to new highs at more modest rates of growth.

Historical Real Estate Data

The best information we have to date is the historical real estate data, which is readily available to everyone. On average upward phases and declines run an average of 7 to 15 years and the first pockets of the US market like Key West, Florida began turning around in 2011. That was just 4 years ago, which makes it extremely unlikely we’d see any downturn for at least several more years.

It is also critical to note that before really returning to a true growth phase, a market has to complete the recovery phase. America’s rolling recovery shows many local markets are just getting back in the game. Note that even in some of the hottest and healthiest markets like Southern Florida and California, there are still properties that are underwater and haven’t made it back up to their previous price levels prior to the downturn.

DistressedPro estimates there are still over $170B of distressed real estate loans and REOs on the banks’ books. All of that needs to be worked through before the country can truly enter a real growth phase.

Additional Factors Supporting New Levels of American Real Estate Growth

  • High rents and low fixed rates making it cheaper to buy than rent
  • Masses of millennials entering the market
  • Hundreds of billions in foreign capital coming to the US annually
  • Increased unrest in Asia and Middle East driving flight capital to the USA
  • American real estate is still dirt cheap versus London prices pushing $10k per foot
  • Mortgage credit easing consistently since 2012
  • Job and wage growth finally kicking in

Summary

Someone will always enjoy arguing an opposing point of view to get attention. In this case all the data shows that not only is American real estate not frothy, but has a long way to go up