Housing Market Set to Crash?

I’m going to give it to you straight. The housing market has me worried. We all have a significant portion of our wealth tied up in real estate, whether that be in our primary residence or investment properties. Therefore, the direction of the real estate market has a direct connection on our retirement.

  • According to their monthly index, Redfin recently reported that year over year, housing demand fell 9.6% in June, while the number of people requesting home tours fell 6.1% annually in June. Is this the crack in the amour, and if so how bad will it get?

Two big headwinds are now getting stronger.

First is affordability. Prices have risen so much, so fast that average people simply cannot afford to buy a home. Of course it depends on what region you live in. Obviously, if you are a Facebook engineer with more money than God (does God have money?), then it doesn’t matter. However, if you work for the State, PG&E or AT&T, then there is a max on how much of your salary you can pay for housing, and we are near that limit

Second is rising interest rates are starting to have an effect. Higher rates mean higher monthly mortgage rates, and as I just discussed above, many people are at their limits. Higher rates will push them farther away from home ownership and or drive away the people that are almost borderline qualifying.

I wouldn’t be so worried about the value of your primary residence. You have to live somewhere, so take advantage of the mortgage deduction. It is one of the few gifts the government gives you. I am concerned however, about investment properties, especially if it’s leveraged. Real estate is quite likely peaking and it will hurt the investment market the hardest.

It’s not that a crash is imminent. There is still demand, but there is evidence that the real estate market is slowing:

“We’re still selling most every home, but now it’s usually with just one or two offers over the 10 to 15 offers we were seeing earlier in the year,” said David Fogg, an agent at Keller Williams Realty.

The bottom line is that a slowing housing market could affect all assets and investments and possibly even slow down the economy as a whole. I expect real estate prices to be lower, possibly significantly, 12-18 months from now. Therefore, be very cautious on your real estate exposure and deleverage.

Real estate is just one asset in your portfolio of which should be directed by your retirement master plan. Success only comes when everything works together as a solid plan. Remember, failing to plan is planning to fail!

If you need my help establishing a retirement master plan or reviewing your existing plan, don’t be afraid to ask.

Cheers -Keith Springer
916-715-4607

Smart Money Newsletter

Written By: Keith Springer

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