Real estate and other markets have been on s fantastic run, the last 6 years. Most markets have made a full recovery from the previous down-turns. Yet, as we’ve all heard the old saying “too much of a good thing…”
Jonathan Lasner, took and indepth look at where we’ve come from, we are currently, and where we might be headed, in his “Big Orange Index”, in his Orange County Register article, on January 24, 2016. He noted that our 2016 economy has started strong, but that this steak “is creating challenges…beneath the surface.” His Big Orange Index, which is a compilation of 3 dozen benchmarks, shows a new record high as 2015 ended. Yet that 4th quarter report showed the second smallest increase since the upswing began in 2010.
Jonathan noted the following areas where there appears to be a new lack of confidence; CEOs (last 3 quarters), shoppers, property owners. Another economist (unknown) noted that 41% of Americans are also nervous about rising interest rates, this year.
Governor Jerry Brown, in his infenant wisdom, has declared a state of emergency on housing rentals. This could limit rent increases to 10% in the very near future. Real estate investor purchases have been helping to keep prices appreciating. While this may not create a huge sell of, it could slow appreciation significantly. Lasner also noted that do to the limited supply of properties (for both owner occupied & non-owner occupied), which has driven prices to record levels and stretchered buyers’ abilities, has lead to falling Property Owner indexes.
The Asian economy is also something we must watch closely. As you can read in my previous blogs, Asians make up a HUGE portion of the buyers in many US areas, including LA/Orange County. Earlier this month China had to close it’s stock markets 30 minutes after opening, due to a huge sell off, which prompted even more selling and then flattening. This prompted their government to dump $18 Billion into their markets. If this massive sector of buyers were to pull out of US markets, appreciations would slow, and if they started selling many of their holding, in any or all of their areas of influence (residential, retail & commercial), this could have a devastating effect on home values.
Lasner also mentioned that this upswing has run for one year longer than in the last decade. He suggested that if the current “…skittishness remains so widespread…how will Orange County react”, and questions whether it will “…turn into stagnation or worse?”
Don’t get me wrong, I’m NOT predicting a doomsday scenario. Yet, we have to ask ourselves, How much riskier do does the real estate market have to get, before we decide, its time to move?
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