By David Girling
GIRLING REAL ESTATE INVESTMENT GROUP
Understanding the stories behind the headlines will prepare REALTORS® to address questions clients may ask about the real estate market.
Tax reform, reduced housing affordability, limited inventories, and rising home prices and rents dominate the headlines. All are interrelated. As REALTORS®, we need to read past the headlines and make sense of the facts for our clients. The goals of this article are (1) to give you some information to address questions that may arise from recent headlines and (2) to clarify the conclusions drawn concerning these headline topics.
Note: For additional headline interpretations, backup data, and commentary, see the longer and more-detailed version of this article that is posted on the Orange County REALTORS® website (www.ocar.org/headlines).
Headline No. 1: Homeowners Can’t Count on Property Appreciation for Wealth
Faculty at Florida Atlantic University, Florida International University, and the University of Wyoming, November 2017.
According to the authors, “On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation, because property appreciation is highly correlated with gains in the traditional financial asset classes of stocks and bonds.”
Some of the follow-up articles that resulted from this study included headlines that prompted some readers to conclude that renting is always better than owning, such as the following: “Homeownership Doesn’t Build Wealth” (CNBC, November 16, 2017). This is an example of where you need to read beyond the headlines. This study is based on the assumption that renters will invest the savings generated by renting rather than buying and, as a result, will create more wealth by renting than by owning a home. The assumption is that the renter will save and reinvest, not consume. Homeownership is a good, forced-savings vehicle and, because most renters are not likely to save to the extent necessary, continues to be a good alternative for wealth building.
Headline No. 2: 58 Percent of Homeowners Think the Housing Market Is Set for a Correction—Are Bubble Fears Founded?
Forbes, August 15, 2017
Bubble—No. The conditions that led to the housing crash in 2006 (i.e., easy credit, speculation, etc.) do not exist today.
Price Correction—Yes. If you believe in housing cycles, a correction is approaching. Depending on how you interpret the graph shown in Figure 1, the previous housing cycle lasted anywhere from ten to seventeen years, flat from 1990 to 1997 but picking up momentum in 1997 until it burst in 2006/2007. Cycles have historically lasted seven to ten years, and we are in the ninth year of the recovery. As a result, a correction may be on the horizon. Other factors, including the potential for increasing interest rates and the lack of affordable housing, also suggest that a correction may be coming.
David Girling completed his undergraduate work at the University of Southern California and earned the degree of Master of Business Administration from the Anderson Graduate School of Management at the University of California, Los Angeles. In 2008, he formed Girling Real Estate Investment Group (Girling REIG) with his father, Bing, and has more than thirty years of experience in the ﬁnancial services industry. Dave and Bing are also aﬃliated with Villa Real Estate.
Disclaimer: The opinions expressed and the conclusions reached in this article are based on best-efforts analysis and are offered solely for informational purposes. The accuracy of the information is deemed reliable, but is not guaranteed by the author, who is not responsible for typographic errors or other inadvertent inaccuracies. Any individual or entity intending to rely on this information should seek verification through personal investigation or investigation by qualified individuals. All information is provided “as is,” without any warranty of any kind, either expressed or implied.