One of my fellow yogis asked me that question before yoga class the other day. I answered “No. It’s an economics 101 text book case of
low supply + high demand = higher prices.
Easy, right? Class started, so I didn’t get a chance to explain any further, but there’s more to the story…
The luxury market, priced at $2 million and up, has an oversupply of listings and price growth is much slower. This market may have reached a peak or be nearing one.
We all know the economy and real estate markets are linked and they’re cyclical. When we hit a recession, interest rates rise significantly, or a major global catastrophe happens, the market will change, but today’s real estate market is completely different from 2005’s.
2005 created such an unstable market because banks allowed people to borrow money they couldn’t afford to pay back. Now credit is much harder to get and buyers are forced to be more fiscally responsible when purchasing a home.
For example, in 2006, California’s median down payment was 11.8%.
In 2016, the median downpayment was 18.6%, which means most people aren’t over-leveraging their homes.
Also, back in 2005, we had an 11 month supply of inventory on the real estate market. In contrast, today’s market has a 4.5 month supply. New construction isn’t keeping pace with job growth and people are keeping their homes a lot longer than they used to, creating less inventory.
As long as conditions don’t change too much, we could continue to see an average 6-7% increase in the real estate market for years to come.