Has the Housing Market Peaked? Let’s Analyze the Real Estate Experts and some of their Predictions...
Pete Frandano, CCIM, MBA
Seasoned Real Estate Expert and Industry Servant Leader, Supply Chain Practitioner, Lifelong Student, Author, Endurance Sports & AI Enthusiast, Coach, Proud Dad
So many ‘experts’ analyze the real estate market… Let’s have some fun and analyze the experts!
As someone who has been in the arena in the real estate industry since 2002, I have found it interesting over the years the predictions and all the experts with so many opinions on the real estate market…
Like many of you, I ran through the gauntlet of The Great Recession. It was a life changing event for me that was marked by some negatives and actually some significant positives that helped me grow as a person and helped provide wisdom and hard experience for my journey into the future within our awesome industry.
During that time, I was co-owner and broker-in-charge of an awesome 20+ broker small full-service real estate firm. My two partners and I were able to successfully navigate through the downturn, so I feel somewhat qualified to talk about predictions, both in the going up and the going down, though you will not see me falling into the trap of making many “hard and fast” predictions on any market.
How many of you remember that many of these “experts” predicted in 2006 that the market would run forever, often espousing “how much room there was for the market to run...?”
We all know how that story ended… Enter the Great Recession
Fortunately, I truly believe this time is different. This time, many of the banks and financial institutions are not out over their skis and we do not seem to have the subprime problem that we had back then.
In keeping with cycles, we have seen for at least the last six or seven years experts calling a market downturn – and by implication, the market peak. It’s almost as if some of these good folks are trying to make up for missing the call to the bottom back in 2006.
Is this to say I do not believe a downturn is coming? Absolutely not… I definitely think we have been long overdue for a tapping of the brakes in some form or fashion and one of the similarities to 2006, is that it has been another wild run up for sure.
According to some sources, data shows we peak about every 18 years or so in the real estate industry. In an article by Eric Goldschein titled The Complete History of US Real Estate Bubbles Since 1800 (January 10, 2012) from the Business Insider we find: "For the first 144 years of real estate enclosure in the U.S., land sales and/or real estate construction peaked almost consistently, every 18 years...The world’s worst downturns are always preceded by land speculation (the chasing of the economic rent) fueled by misguided credit creation courtesy of the banks." The articles then goes onto to note the 1974 to 1992 cycle (18 years) along with several others. Some experts talk about cycles lasting 9 years or so.
All can be debated for sure.
In football and most sports, we are familiar with the activity of “reviewing the game film” to help us understand what went right and wrong during a game.
In my little exercise here, I analyze a small snippet of the proverbial game film from some of these real estate expert's predictions over the past several years with the hoping of making a subtle point.
Having recently seen the article by Derek Thompson The U.S. Housing Market has Peaked, published a few days ago (May 19, 2022) in The Atlantic, it made me smile and I thought: “Ok, since The Atlantic says its so, it must be so...”
You probably catch my slight hint of cynicism.
It prompted me to go back prior to 2017 and run the tape forward to see how many experts have called the next peak since that time, and lo and behold, every year for the past (at least) 6 or 7 years (that is where I stopped) ‘experts’ have called the peak. Let it be noted that the peak has continued to push up, despite all of these calls.
Let’s look at a few of these calls over the past several years, some relatively low key implied warnings that the market is turning, and some clear “the peak is here” calls:
2017
CNBC
By: Diana Olick
April 13, 2017
From the Article:
"At some point consumer budgets will stagger behind the fast pace of price appreciation," said Nela Richardson, Redfin's chief economist. "The combination of low inventory, high prices and strong competition will continually challenge first-time buyers this year and they are the cornerstone of the housing market."
Bonus in 2017:
Business Insider
Akin Oyedele
March 29, 2017,
From the Article:
The commercial real estate market is showing cracks and will peak this year, Morgan Stanley analysts forecast.
"We expect 2017 to mark the end of the bull cycle for US CRE," they said in a note on Wednesday.
Author’s note: Well, here we are five years later… How’d that prediction turn out? Take two sectors: multi-family and industrial. Going into the pandemic, they were hot, coming out, they have been supercharged. I saw recently where Amazon is working to get out of some of their industrial leases and sublet. Could they be peaking now? Possibly. Did they peak back in 2017? No, they did not, Nor did they in 2018, 2019, 2020 or 2021.
2018
A decade after the housing crisis, sales may have reached an unimpressive top
MarketWatch
By Andrea Riquier
June 30, 2018
From the Article:
Shortly after the Realtors released their data, Regions Chief Economist Richard Moody wrote this in a research note: “Given that we see little reason to expect meaningful relief on the inventory front over coming quarters, we think it reasonable to conclude that we have passed the cyclical peak for existing home sales.”
2019
Home Buying Institute
By Brandon Cornett
May 30, 2019
From the Article:
Highlights from this report:
Bonus toward end of 2018:
Recommended by LinkedIn
Reuters
By Hari Kishan, Indradip Ghosh
November 29, 2018
From the Article:
“The peak in price increases has been reached and with rates rising further and the economy slowing, price gains can only decelerate,” said Joel Naroff, chief economist at Naroff Economic Advisors.
2020
Business Insider
By Taylor Borden
November 25, 2020
From the Article:
Homebuying, in all its trendy glory, only projects to get more expensive, if not impossible. If homes keep selling at this rate, US could actually run out of new ones in just a few months.
Author’s note: we have not run out of supply, but we have been experiencing historically low, unhealthy supply.
2021
The Business Journals
Residential Real Estate
By Andy Medici
September 8, 2021
From the Article:
The Covid-19-fueled housing market with homes selling well above asking price and record-setting prices may have reached its peak — at least according to recent data.
"We clearly see a pattern that basically the market hit peak levels of competition in the early spring...We still see that competition is easing even after controlling for the typical seasonality.”
And that brings us to today:
2022
The Atlantic
By Derek Thompson
May 19, 2022
To Mr. Thompson’s credit (for the fun of it, let’s hold him to this prediction in the article’s byline: “But no, we’re not headed for anything close to 2008.”)
Am I implying my crystal ball is clearer and more accurate than others? Am I refuting the peak may finally be reached in 2022?
Again, absolutely not.
To be clear, I was given a big dose of humble pie in the Great Recession, as were many others.
To be fair to some of my extremely intelligent colleagues who missed it, only a few had the guts to bet against the real estate market in 2006-2007. See John Paulson as Exhibit A, the billionaire hedge fund manager who had the guts to bet against (called “shorting”) the market as chronicled in Michael Lewis’ brilliant book, The Big Short.
In this write up, I am aim to merely point out the folly of trying to predict any market peak, no matter how much data is gathered and no matter how much analysis is performed.
I also want to restate my gentle reminder: If you call it long enough, you will eventually be right…
I hope you take this little white paper in the spirit I intended - a fun but cautionary look at the art and science of predicting market peaks; this is not meant to diminish these experts or their predictions or research because no doubt the majority of it is well intended (heck, I am a consumer of some of it and appreciate it!)
There are some really smart folks out there who thankfully put a lot of thought into some of this research and their writings (see John Authers (Bloomberg) ‘Points of Return’ column from Friday, May 20, 2022 (A Stocks Rescue is the Last Thing the Fed Wants; in this column, he has a section titled ‘Safe as Houses’ > an excerpt:
‘The U.S. housing market is showing distinct signs of slowing down. Is this a problem? The latest figures on existing U.S. home sales show a further fall, but sales remain higher than for the entire post-crisis decade. They also remain far lower than the extremes of 2005 that led to that crisis... How serious is this? For now, prices look secure, because the inventory of houses available for sale remains low. It is not a given that that will continue.’
Excellent stuff in my humble opinion.
My sincere and ongoing hats off to John and all of the others for the effort they put in to provide sound guidance and reliable information.
My end game for this post is to point out with a reflective caution pointed to myself and others not to get too terribly caught up in the noise, and all of the predictions.
At the end of the day, I do my best to stick to a few wide, diverse and trusted sources. Sources like our CCIM Institute’s awesome publication, Commercial Investment Real Estate (Commercial Investment Real Estate published every two months or so), the Wall Street Journal (The Wall Street Journal), John Authers’ column (John Authers - Points of Return), Barry Ritholtz column (Barry Ritholtz - The Big Picture) and a few others not to be named.\
I also use my own observations and discussions with other actual market participants. From there, I seek to set my own mark and with the goal of making sound decisions for myself, my clients and those I care about.
It is a process I call putting up guard rails, not withstanding the fact we all at times have to take risks. To be sure, it is a never ending process and one that needs to continually be fine-tuned.
With that, I end with a few of my key lessons learned;
Wishing you and yours strength and endurance in the valleys you encounter and a life filled with peaks and crossed finish lines!
Pete
Pete Frandano, CCIM is author of Endurance Real Estate