For me, the highlight of this annual gathering is always our Chairman of the Board and co-founder Gary Keller’s annual Vision Speech. In this yearly 90 minute lecture, he analyzes the previous year in real estate, current economic trends and factors that may influence the coming year, and what impact he believes this may have on the current real estate market.
This year, Keller pointed out that 2015 was the third best year in real estate history. That seems tough to believe compared to the boom years of the mid 2000’s, but the data bears it out. And, as we know from our experience over the last decade, what goes up must come down.
While not forecasting a market crash of historic proportions like the decade we just experienced, Keller did believe we are facing a coming shift in the market. In other words, what currently may be labeled a sellers market may morph into a balanced one, or, perhaps even a buyers market.
His reasoning for this is twofold. Historically, real estate runs in 7-10 year cycles (he believes we are in year 8 or 9 of the recovery cycle), and there are several economic factors which if they change at all, could speed change in the market.
The chief contributor in this prediction is low interest rates and the Federal Reserve’s quite public position that as soon as the economy appears healthy enough, they intend to raise interest rates. After all, interest rates are basically the only tool they have in their toolbox to stimulate the economy in a crisis. If those rates are already low, there’s no place for them to go.
These low interest rates are the very thing that has helped housing remain affordable in spite of a rising median sales price. A one percent increase in interest rates reduces a buyer’s ability to qualify for a mortgage by $10,000.
More importantly to duplex buyers, it changes the annual cash flow by one percent of the annual mortgage. That’s enough to turn a very good investment to a mediocre or even bad one.
A second economic factor Keller cited was the large amount of student loan debt many potential first time home buyers are carrying. The national average is nearly $30,000, with monthly loan payments of $333 per month. This expense, along with high rent have made it difficult for first time home buyers to save enough for a down payment or make have a budget for a mortgage at all.
First time home buyers are the engine on the housing train. Without them, home owners can’t move up to bigger housing.
Normally, first time home buyers are responsible for 40 percent or more of annual housing sales. Last year, they accounted for just 32 percent. This may ultimately put a drag on the market.
Keller added that economic uncertainty in global economies, losses suffered by businesses in the oil industry and an anemic gross domestic product may hasten a coming real estate market shift.
If you’ve been thinking about selling your Minneapolis or St Paul duplex, this may mean it’s time to investigate selling. I’d be glad to sit down and talk with you about your duplex’s value and what your options are. Just give me a call.
To see the Powerpoint of Kellers speech in its entirety, click here.