Joe Villaescusa Says Rebound But No Bubble For Real Estate
Many of those in the real estate market are constantly on the lookout for the next bubble, says Joe Villaescusa. “The bubble” is a feared reference to the collapse that occurred in 2009 when over-valued homes and an over-inflated stock market popped and threw the country into recession. Now, wary investors are pointing to the increase in home prices as another bubble ready to pop even though there are a multitude of easy eye tests to prove otherwise.
After the crash in 2008 home values began a slow chugging recovery. Recently, however, home prices have began to rise quickly and the speculation has begun again. According to Joe Villaescusa those pointing toward another possible crash should take the time to consider a couple different statistics that can put their speculation to rest.
Home values are notoriously hard to predict. With a multitude of different formulas and statistics economists take what they believe to be the most relevant information available and consolidate it into one price. One of the easiest ways to spot a bubble is to look at a home’s fundamental value vs. its current market value. The fundamental value is a tricky summation of a couple different statistics, including a home’s price to rent ratio. The ratio, which compares the going rate of renting a home to the cost of actually purchasing one, is one of the only reliable factors in determining actual home value. If the actual value of a home is lower than its fundamental value buyers should take some extra caution.
Currently, homes across the nation are undervalued by about seven percent. This is still a pretty big number for those crying bubble to contend with, considering home values across the nation were thirty-five percent above fundamental in 2004. With such a long way to go until a return to pre-recession numbers, conservative estimates such as these paint a pretty clear picture. Also to consider are the metro numbers. In 90 of the nation’s 100 largest cities, homes are undervalued. There are huge disparities in cities like Detroit and Las Vegas, each of them boasting values of twenty percent or more below fundamental value currently. As the economy continues its slow push to recovery buyers and sellers can expect to see these values rise, but not significantly.
There are also areas where homes are over-valued, according to Joe Villaescusa. Cities such as L.A., Austin, and Orange County California have over-fundamental values of six to nine percent. While this is higher than national average, a couple of common sense factors easily explain it. The homes are in luxury markets where buyers typically don’t play by the industry standard. To live in premier areas, many luxury buyers will throw estimated market value out the window and out bid their peers, a practice that drives up recorded value.
Joe Villaescusa Sees More Factors in Real Estate Rebound
While the evidence should be enough to quell most of those who are skeptical, some will persist. Joe Villaescusa can also point to several more factors that should quell any thoughts of a housing bubble.
As the number of Internet users has increased so has the number of websites. With this increase in sites comes an increase in information, both positive and negative. Now it is possible for customers to conduct what is known as a “Google Interview” where they type in an agent’s name and read every possible piece of literature about him or her. With so many websites there is bound to be a negative review somewhere, which is less important as long as there are plenty of positive ones to overshadow it. Joe Villaescusa encourages potential buyers to look up their agent and review his or her history. Agents who have made efficient sales and aided in smooth purchases will have at least a couple of glowing reviews on sites, both company based and independent.
For the last decade mortgage rates have been at all time lows. Aided by buying from the Fed, these rates have helped encourage buyers who were hesitant to make the leap into buying a home. Now, as the market recovers, the Fed is expected to cut buying practices and allow interest rates to drift back towards a more common baseline. Joe Villaescusa points out that interest rates rising won’t spell recession for anyone, just a more stable market.
Another factor to consider is the short inventory of houses. Many are currently over bidding on a scarce home market, a trend that will assuredly not continue. Building permits are up all across the country as construction companies are responding to the growing demand for new homes. As soon as the supply and demand of homes finds a happy medium, prices will level out. Joe Villaescusa is encouraged by the progress of the housing market and expects the harmonious period to continue as investors and buyers regain trust in the market.