Understanding the New Real Estate Landscape
REAL ESTATE NEWS (California) — The American real estate market has always been a subject of intense scrutiny and interest, particularly after the dramatic downturn between 2009 and 2012. However, as we approach 2024, the landscape has shifted significantly, leading to a new era where the rules of the past no longer apply. Understanding why home prices can’t drop much in 2024 requires a deep dive into the current economic climate, housing market trends, and the lessons learned from the past.
The Ghost of 2009-2012: A Quick Recap
Before delving into the present, it’s crucial to revisit the past. Between 2009 and 2012, the U.S. housing market experienced a significant downturn, characterized by plummeting home values and a surge in foreclosures. This period, often referred to as the housing bubble burst, was a result of a combination of factors including subprime mortgage lending, overvaluation of properties, and an eventual market correction.
The Current Economic Landscape: Inflation Takes Center Stage
Fast forward to 2024, and the scenario is markedly different. The most striking change is the persistent inflation that has gripped the economy. Unlike the deflationary pressures of the late 2000s, today’s inflationary environment is contributing to a steady rise in the cost of living, including housing prices. This inflation is driven by several factors including expansive fiscal policies, supply chain disruptions, and a robust demand for housing.
Supply and Demand Dynamics
The basic economic principle of supply and demand is at the heart of the current housing market. There’s a significant shortage of housing inventory, a stark contrast to the oversupply witnessed during the 2009-2012 period. This shortage is due to several reasons: slower construction rates, regulatory challenges, and a growing population. On the demand side, the scenario is fueled by historically low mortgage rates (although they are slowly rising), a desire for more spacious homes due to remote work trends, and a generational shift with millennials entering the housing market.
The Role of Government Policies and Lending Standards
Government policies and lending standards today are much stricter than they were during the housing bubble. The Dodd-Frank Wall Street Reform and Consumer Protection Act, implemented after the 2008 financial crisis, imposed stringent regulations on mortgage lending. These regulations ensure that borrowers are more qualified, reducing the risk of mass defaults and foreclosures that characterized the earlier crisis.
The Impact of Globalization and Investment Trends
The globalization of real estate investment also plays a role in sustaining high home prices. U.S. real estate is increasingly viewed as a safe and lucrative investment by both domestic and international investors. This influx of investment capital keeps the demand for homes high, further supporting prices.
The Psychological Factor
There’s also a psychological aspect at play. The memory of the 2009-2012 housing crash has made both lenders and borrowers more cautious. Homeowners are less likely to engage in risky financial behaviors that could lead to defaults, and lenders are more diligent in their underwriting processes.
Bidenflation
According to the New York Post, the Biden administration recently finalized a rule mandating project labor agreements (PLAs) for large construction contracts, significantly impacting 50-90% of federal construction projects. They add up to more than $13 billion annually. Despite claims that these agreements foster labor peace, evidence suggests they elevate costs and hinder construction. For instance, a RAND study highlighted a 15% cost increase in a Los Angeles housing program due to PLAs. This policy change marks a significant shift from previous administrations, and could lead to increased costs and complexities in government contracting, especially amidst extensive infrastructure spending. This approach by the Biden administration, deemed the most aggressive PLA policy in history, raises concerns about the efficiency and cost-effectiveness of taxpayer-funded projects.
Costly California Lags in New Home Construction
California’s lag in new construction, compared to states like Texas, can be attributed to several factors, as highlighted by Marketplace.org. In California, new builds constitute only a small percentage of home inventory, significantly less than in places like Houston, Texas, where new constructions make up over a third of the home inventory. The primary reasons for this disparity include the availability and cost of land, with land in Texas being more abundant and cheaper. California’s construction environment is also heavily burdened by regulatory challenges. According to Dan Dunmoyer of the California Building Industry Association, developments in California can take up to 15 years to navigate through extensive red tape, including delays and fees. This bureaucratic environment has led to a relatively low number of new builds, with cities like Houston and Dallas-Fort Worth in Texas outpacing the entire state of California in home construction. This situation has also contributed to a trend of Californians relocating to Texas, seeking more affordable housing options. However, this influx is gradually driving up land costs in Texas, impacting the affordability of homes for local residents.
A New Era in Real Estate
While the ghost of the 2009-2012 downturn still haunts the American psyche, the real estate market of 2024 operates under a vastly different set of rules. Persistent inflation, tight supply coupled with robust demand, bloated bureaucracy, stricter lending standards, global investment trends, and a more cautious approach by all market participants are key factors ensuring that home prices in 2024 are unlikely to experience a significant drop. This new era in real estate, while challenging for some, also presents opportunities for stability and growth in the housing market.
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Copyright © This free information provided courtesy Entar.com with information provided by Corey Chambers, Broker DRE 01889449. We are not associated with the seller, homeowner’s association or developer. For more information, contact 888-240-2500 or visit WeSellCal.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Text and photos created or modified by artificial intelligence. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.
