REAL ESTATE

House of Cards

As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology, and several previous Real Estate blogs, the purchase of a home may be one of the biggest decisions, and investments, to make in one’s lifetime. It has never been more difficult for first time buyers, which are usually in their late 20’s to early 30’s, to purchase a home, and the process can be very harrowing and nerve-wracking. Investment properties have now become very challenging as well, with potential “rent freezes” and new system regulations, and increases in insurance and property taxes.

      Our focus in this blog is to discuss the very fragile real estate market in many locations across the United States and the globe.

      Needless to say, the current disaster in Los Angeles, as well as recent disasters in Florida, No. Carolina, and Hawaii, have put a strain on market conditions in those locations. Whether you stand on the climate crisis or government mismanagement side, there is no debate that the true victims of these emergencies are the consumer. While the effected properties themselves potentially lost most or all of their value (most worth $3 million or more), and quite possibly their equity, the land itself may be desirable to some, mainly developers and investors. Others may need to be rebuilt, if salvageable, all of which drops the value significantly. Neighboring areas may experience an increase in value, as there may be rising demand from those who were displaced and looking to move nearby. The number of properties “on the market” will skew normal figures in those areas, giving the illusion of a strong market when presenting only the numbers.

      In addition to these types of situations are the widespread and increasing issues regarding rising property taxes, insurance costs, job loss, and credit defaults. Regarding the job market, massive layoffs, seasonal and part-time jobs, and high interest rates do not create more eligible home buyers. There are many underlying weaknesses to the economy that generally go unreported, so be careful not to get caught up in the sentiment that one needs to “hurry up” and purchase. The more important factors are the rising costs, lenders tightening their standards for loans, and affordability. Defaults will also create more “activity,” however those homes will likely be sold at a lower than market price.

      Meanwhile, there are also major issues in the commercial real estate sector, as a large number of mortgages/loans are coming due in 2025. Businesses and investors in default with these properties will also lose their asset, some of which are tied to their homes. For those who rely on their business for income, and to pay for their residence, may default on both, causing a ripple effect in the market.

      Another major “red flag” that has surfaced is the failure of insurance companies in “high-risk” areas to continue coverage at a reasonable price. Some policies have simply been cancelled, leaving the homeowner with no recourse should their property be destroyed. Astronomical rises in premiums, as well as refusal of coverage, will also make these homes very difficult to sell, and raises the likelihood of major price reductions.

      Despite some reports from on-line real estate sites and select locations, prices of homes are decreasing in many areas due to any and all of the above stated issues. At the same time, some of these companies are laying off thousands of employees, which would contradict reports of a booming industry. In these current conditions, be extremely careful, and diligent, when searching for a home or investment. Ask questions regarding property taxes, insurance, systems ages, and previous damage for all homes, in addition to tenant payment consistency, local eviction laws, and new regulations for investment properties. Condominium seekers should also focus on association fees, special assessments, and monthly meeting minutes that disclose future purchase/repair plans and rental allowances. 

      Finally, be careful not to believe everything you hear, or read, regarding current interest in housing, pricing trends, and “hot” areas, as the information may be misleading. Distinguish between who is trying to “assist” you, and who is trying to “sell” you. Remember that some popular sources/real estate brokerages are in the business of making money (through the hype of real estate), not friends. Seek education on reliable video platforms and by asking the “right” people and questions.     

      Please visit the website www.augustassociatesllc.com for home values, listings, and professional assistance.