Real Estate Bubble: The Effects Of A Hangover By Zarita Senekal At Isnare.com Ezine Articles

We all know that 2000 - 2005 comprised one of the hottest real estate markets on record in which the industry enjoyed tremendous growth. But are there any consequences to the industry?

“Definitely” says Stefan Swanepoel, author the annual Swanepoel Trends Report in his latest 2007 edition. “During this period of growth the country experienced a buying frenzy fed by low interest rates, a plate full of new mortgages, bullish customer confidence, low unemployment, strong economic growth and excellent price appreciation. Many economic factors were required to be in place for the prolonged real estate boom,” Swanepoel says. “The consumers’ hunger seemed to have no end but it took more than just an appetite for bigger and better to fuel such a run in real estate”.

According to many sources outside the real estate industry, this market is destined to have its bubble burst with higher mortgage rates, a downturn in home sales, an increased inventory of unsold homes and an economy headed for a recession. Industry insiders, however, paint a much different picture based upon: strong employment; an artificially high demand for home buying that has dissipated; the balancing out of homes purchased by investors for rapid appreciation being put back on the market; lower interest rates; and a strong economy.

Supply and demand form the basic foundation of a capitalistic market. In real estate terms if an increase in home buyers and investors (including flippers and speculators) has artificially driven up demand and hence prices, then when the low-interest-rate stimulus is removed, a “correction” will occur. If the increase in demand is a result of job growth or an influx of new homebuyers to the area, then the resulting home price appreciation is naturally driven, and hence there will be little or no correction if interest rates change.

According to the Report a surge in media directed new programming at the housing market from home-repair to fix-and-flip to home-make-over shows and compounded the frenzy. Many people started looking for a “get-rich scheme” while others just didn’t want to be left behind. Tens of thousands of people were pulled into real estate as it became the new “Internet Craze” where anything containing the words “home or real estate” seemed to be as hot as anything with a dotcom during the late 1990s.

“Adjustments on various levels, not just pricing, would be a good thing for the real estate industry” Swanepoel says. “The industry still has to deal with the morning after affect and challenges such as:

• Too many agents and brokers
• Too many inexperienced agents
• Too many new mortgage brokers
• A decrease in housing prices
• A rise in the number of foreclosures
• An increase in mortgage fraud”

Swanepoel cautions that for a great many agents who have never experienced anything other than the most recent feeding frenzy this is the first time they’ll be learning them, and for the rest who have “been there before”, it’s a time to reflect on the last time through the cycle, and add the new lessons learned.

“The effects mentioned above will of course be felt differently in every region,” Swanepoel says “as the impact will be regionally amplified in areas where home prices have risen sharply or had a disproportionate surge in agent count.”

It’s not that the industry hasn’t experienced any of these challenges before Swanepoel says. It’s rather that the combination of all of them, including the changing consumer and advancing technology, will probably expedite the restructuring of the real estate brokerage industry.

So how will the industry deal with the effects of a hangover? For a balanced and invigorating discussion on this and many other real estate issues affecting the industry get a copy of the 2007 Swanepoel TRENDS Report (http://www.RealEstateBooks.org). This 159-page Report will give you lots of food for thought.

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