Around the Block: 6/11/2021

On the other hand, when someone asks what I think of the Philly market or to predict what it will do, I can confidently state that the dynamics of our market are really strong. Philly has solid demand based in part on its livability and a really nice housing stock. We also have low supply and prices that are quite reasonable relative to other top-tier cities. Therefore, the Philly market will remain robust until…the next national housing downturn and/or recession.

So paradoxically, while all real estate is local, the Philly market is so strong that it should remain solid until the next national downturn. It is from this angle that I found this Bloomberg Businessweek piece quite informative. Here are a few of the highlights—

• One thing I like about the article is that it acknowledges the universal truth that no one knows what the market is going to do. Yes, people make predictions. Some have actually predicted 14 of the last 3 downturns (to rephrase the eminent economist Paul Samuelson). You keep predicting a bear market and you will get one eventually. You may just miss multiple bulls along the way. The article states, “To figure out whether U.S. housing is due for a correction requires digging into a hundred factors… and it’s unclear in which direction those signals are pointing.” I 100% agree with this.

• The biggest difference between now and 2006 leading into the Great Recession is the availability of mortgage loans. It is the polar opposite. In the early Aughts, mortgage loans were easier to procure than at any time in history. And the types of loans were insane, from no-docs, to absurdly risky ARMs, to 0% (or even negative) LTVs. Good, and, or no credit. Fixed appraisals. All of it was insane. Now, loans are as difficult to get and as conservative as anytime in the modern past. This is a huge advantage that should steer us away from a bubble or lessen the effect of any downturn when it does come. (Note I say when, not if. There will always be a downturn at some time. Always.)

• There is disagreement among economists about whether the current rapid appreciation will lessen or continue to boom.

• One factor that could keep the market strong is that:

• • “the tightness [in inventory] has been years in the making. Having overbuilt in the 2000s, chastened homebuilders underbuilt in the 2010s, according to a calculation…of the number of housing units added per additional adult in the U.S. population.

• • And now millennials, the largest generation, are reaching their peak homebuying years at a time when starter homes are in the shortest supply. On June 7, Bank of America Merrill Lynch estimated that only 65,000 starter homes were completed in 2020, less than a fifth the number built annually in the late 1970s and early ’80s.”

That is an incredible fact that I never knew. That the number of homes built in 2020 is 1/5th the annual number that was built 30 to 50 years ago. That is fasci

nating.

So, while all real estate is local and you can’t really predict the future of an economic market, you can still learn information and form an understanding of some of the factors that make up these most interesting times in residential real estate.

Thank you so much for reading. I really appreciate it and hope you enjoy. Have a great weekend.

Warm regards,

Jeff