Evidence that the United States is on the verge of a massive collapse in real estate values is mounting. The value of both commercial and residential property across the nation is likely to drop dramatically in the next few years forecasts indicate.
A number of analysts think that a major correction in the red-hot real estate market in some parts of the U.S. is imminent, news articles indicate. Disturbingly some of them are making a very good case for their predictions.
Five Warning Signs of an Impending U.S. Real Estate Crash Include:
1. House prices in some U.S. markets are now so high that most people cannot afford them.
House prices in the Denver Metro area in Colorado are now 4.5 times higher than the average household income, real estate analytics firm Location Inc. told The Denver Post. That prompted Location Inc.’s Scout Vision analytics solution to predict that home prices in Denver will fall by 20% between 1999 and 2022.
The median home value in Denver is $377,500, a price that went up by 10.2% over the past year, Zillow reported. The average home value in the United States is $196,500, a price that increased by 6.8% over the past year.
Disturbingly Denver is one of several cities in the midst of regional housing bubbles. The average household income in Denver was around $71,146 making it one of the more affluent American cities.
2. Retail space in the United States greatly exceeds the demand. Some observers have gone so far as to call the country “over stored.”
“Retail square feet per capita in the United States is more than six times that of Europe or Japan,” Urban Outfitters CEO Richard Hayne told The Washington Post. “Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s. Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst.”
This means commercial retail in the United States is overbuilt at a time when many brands are closing stores.
3. U.S. retailers are closing large numbers of brick and mortar locations because they cannot compete with e-commerce.
U.S. retailers have announced the closing of nearly 3,000 stores in the first three months of 2017, Market Mad House and other media reported. One chain Payless Shoes is planning to close 400 stores, The Washington Post reported.
There are 12 retailers planning to close to close more than 100 stores apiece, Market Mad House reported. There are also four retailers that are planning to close more than 200 stores each.
The outcome of these mass closings will be obvious empty stores, lower rents, and abandoned shopping centers. The trend is even beginning to impact some high-end shopping districts such as Manhattan’s SoHo (South of Houston Street), The New York Times reported.
4. Aging Baby Boomers are about to dump tens of millions of homes on the market, and depress prices.
There are around 74 million Baby Boomers (persons born the end of World War II in 1945 and 1965 in the United States). These people are growing older, which means a lot of them will start trying to sell homes for which there might be no buyers.
Boomers or their heirs will try to sell 26 million homes by 2030, the Bipartisan Policy Center predicted. Many of those homes will be hard to sell because their style and location will not appeal to younger buyers, Market Mad House predicted. The Boomers like large homes in suburbs, their children and grandchildren; Generation X and Millennials, prefer smaller places closer to the city center.
A related problem is that many younger Americans simply lack the money to buy a home largely because of student loan debt. The average American now graduates college owing $37,172 in student loan, Student Loan Hero reported. Persons in certain professions such as medicine or might owe several times that.
Total student loan debt in the United States now exceeds $1.4 trillion; and it is mostly owed by Millennials (those born between 1980 and 2000) and Generation X (those born between 1965 and 1980). That means a large percentage of middle class Americans can no longer qualify for a mortgage.
Many Boomers will end up staying in homes they do not want, turning to questionable financing arrangements such as “reverse mortgages,” or making cash sales to speculators. The long term effect of this situation is clear lower property values, which will fall even more once large numbers of Boomers start dying off or moving to care homes.
5. The high prices in some “hot” U.S. real estate markets are driven by a shortage of new housing – not increased demand.
The number of homes for sale in the U.S. fell by 12.9% between February 2016 and February 2017 even as overall activity increased, The San Jose Mercury-News reported. That prompted bidding wars which caused 63% of homes on the market in San Jose (Silicon Valley) to sell above list price in February 2017. The situation in some cities is worse with housing inventory in Sacramento; California’s state capitol, falling by 25.4%.
This is indicates the high housing prices are artificial and should fall if builders start meeting the demand. Yet it might also point to an even more troubling trend, homeowners; afraid they will not be able to find a new place, are afraid to sell.
Unfortunately homebuilders might not move to fill the demand because younger Americans simply lack the money to buy houses. The Dallas Morning News reported that the biggest demand for new homes is among people between 50 and 54 years; of age in other words Baby Boomers. Builders are catering to them because younger families simply lack the money to buy a new home.
America it seems might be in the midst of a new real estate bubble that’s about to collapse. The insanity in the real estate market might explain why so much cash is flowing into the U.S. stock market. American real estate has become so insane that stocks look safe in comparison.