2010-07-05T22:55:00.001-07:00

Is the Bottom Falling Out of U.S. Real Estate?

A dominant theme as of late in the real estate news has been the idea that the bubble is about to burst. Depending on who you read and what you believe, it’s either going to be a minor speed bump that only a few investors will even feel, or it’s going to be a elevator drop straight down, accompanied with a nuclear winter that will last until demand once again passes up supply.

While no one can see the future, a recent prediction by the National Association of Realtors paints a gloomy picture. For the first time since 1991, prices on new houses will actually fall this year. Prices on existing homes are still predicted to rise, but it will be the smallest rise ever. The main cause of this shift it thought to be a glut of supply and not enough demand.

This fall in price, while not steep by anyone’s definition is expected to be around 0.2 percent, which would put the median price for a new home in the US at $240,500. The drop seen in 1991, 2.4%, was much worse.

The five-year boom is housing in the US is expected to come to an end this year, and the almost unchecked about of building during that time is what’s causing it. The amount of business many of the industry leaders have done this year in new home building is down sharply, compared to sky rocking business over the previous few years.

While no one likes a downturn in business, many investors have a nice nest egg, thanks to the 11 percent increase in new home prices over the last 11 years. Just to give you some perspective, the average over the last 50 years is an increase of 5 percent.

Although final numbers aren’t in yet, the drop in previously owned homes is looking to be down almost nine percent this year, while the drop in new-home sales is down a whopping 17.3 percent. And while the drop isn’t good news, the final numbers at the end of this year will still be the fourth most ever.

So, this leaves us with the question, how far will it fall? That is the billion dollar question. No one knows for sure, but be warned if you’re looking to invest in real estate over the next few years, the elevator may continue to fall for years.

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