2016 Spring / Summer Mid TN Housing Projections and Why You Should Be Concerned.

By Jesus “Jesse” D. Gonzalez Jr. Broker / Owner of Liberty House Realty LLC

Mid Tn housing recovery is poised to bust.

For many, here in mid TN, you have seen your home prices rise over the past 12 – 18 months. If you live in the inner core of Nashville and your neighborhood has gone through a gentrification, not only have you see prices rise, you have seen them sky rocket. For all intents and purposes, the vast majority of mid TN residents can say their property values have at least returned to 2007 pre-recession levels and in some cases, have exceeded pre-recession levels. This robust housing recovery is spurred on by several different factors however, I am going to focus only on a few here in this blog, in order to explain why I believe our market is poised to bust in 2016.

Free Money

Like it or not, let’s all be honest and acknowledge the largest impact to our property values rising is the role government has played in making mortgages easier and easier to get, all in the name of affordable housing policy. If we step back a little and take a look at the even larger picture that government has played in creating cheap or even free money, you have to go all the way back and look at all the bailouts and freewheeling Federal Reserve policies on lowering and lowering interest rates. Lets also not forget the massive capital injections, better known as quantitative easing. All of this cheap or in some cases, free money is that our economy has started growing and as a result, the housing correlation that the better the economy does, the more housing we need has kicked in. As a direct result, here in mid TN, homes have seen more competition from buyers and a direct result prices have gone up.

The problem with this model is that borrowing money can’t always be free….or at least very cheap. Due to fears of inflation, interest rates have to go up, just as we saw last month. Of course, raising interest rates isn’t the problem, it’s raising rates when essentially the fundamentals of our economy are unchanged and the lessons of the 2007 collapse seem to be fading in the minds of policy makers and Wall street alike. The really scary part is, here we are, moving our economy forward through “free money” policies with no real plan in place to guard us from having to slam on the brakes, if necessary.

Europe is no Joke

People are always talking about how China is the huge economy in the room and that when it sneezes, the rest of the world economies get a cold. The problem is, that’s not true. Some of the world’s economies will get a cold but, others will catch the flu and, still others may end up terminal. Let’s be clear on a couple things about Europe, their economic fundamentals are no better than our own and in some cases, when it comes to wage growth, unemployment and the migration of refugees, their economies are fragile. Let’s not forget, some of those countries like Greece, Portugal, Spain, Italy and Ireland all had massive debt crisis that caused austerity measures that resulted in civil unrest. If and let me be clear, when China’s market collapse, as our number 1 buying partner, our economy takes a hit because the Chineese people just can’t buy as much of our stuff but, when this happens, it also causes Europe to take a hit and being our 2nd largest trading partner not buying as much of our stuff, it would be a 1, 2, knockout punch for our economy. If and I speculate when, China’s market really starts nose diving in 2016, it will take Europe with it and as such, our two largest trading partners will keep their hands in their pockets and we will be left with products on the shelf that aren’t moving. Prices will drop, profits will be lost and short selling will begin. This will cause a ripple effect through our economy which will result in job losses, starting with the economic low classes. I truly do believe some of the first housing casualties we will see at the start of this next recession will be low income housing and by the time we react, it may be too late.

China is a Bust

I hear the media reports, like many of you, and I am lead to believe that China is now the largest economy in the world however, what if that was all a lie? What if it’s not as big as they say they are and all they have been doing is lying to the world about exactly what they are capable of economically? What if all these money control policies they enforce on their market place like, no short selling and the mandatory 15% cut off were all in place just to keep the world from seeing that all the money we have put into China to develop its economy and turn it into a consumer economy was a waste? Even worse, what if….just stop and think about this for a minute, what if this fall of the Chinese economy was purposefully planned by their Communist regime in an effort to collapse the American economy to ensure a change in the world currency from the American Dollar to the Chinese Yuan? China is no trading partner with the USA, it’s a trading adversary and sadly, our politicians don’t see it this way and as a result, we are heavily leveraged and as a result, we will pay the price with whole American companies collapsing with China and as a result, job losses on a global scale.

Unemployment, not as it Seems

So…you think unemployment is at 5%.....how wrong you are my friend and let me explain. In an effort to prop up a failing domestic jobs policy, the Obama administration has decided to put some of that common core math logic to our unemployment numbers. In fact, our government has 6 different ways of describing unemployment and sadly, most people don’t even know this. The U3 Unemployment rate is the “official” unemployment rate used by the bureau of labor statistics however, it’s not the real unemployment number. For the real unemployment number, you need to look at the U6 Unemployment number which as of last month, was at a 9.9% unemployed. You heard me correctly, that 5% you have been hearing on the news is a farce at best. In fact, this is why our economy isn’t seeing a boom with gas prices as low as they have been because the truth of the matter is, all that money people are saving from cheap gas is going to pay bills just to survive because nearly 10% of our population is unemployed or marginally employed at best and can’t spend those energy savings on anything other than bills, just to survive. For more information on where our nation’s real unemployment is at and descriptions of what it all means, visit, http://portalseven.com/employment/unemployment_rate_u6.jsp

Wage Growth or Lack Thereof

Not only is our government trying to deceive us about the unemployment status of America, even worse is that those who do have jobs are noticing that they aren’t making as much as they did before the Great Recession. Simply put, we have so many people looking for jobs, employers can offer jobs at lower and lower wages. It’s a matter of supply and demand. When you have hundreds of people competing for the same jobs, that competition puts downward pressure on wages and benefits. Even if you have a job, you are much less likely going to ask for that annual raise when you know you have 20 people in the wings ready to take your job for the same wage you’re making now…or in some cases, willing to do your job for less. Truth is, wage growth is a great way to see just exactly how well or in this case, how poorly our economy is doing. Let’s face it, if we were doing well as a whole, people would have jobs and those jobs would pay well and the truth is, that’s not where we are at. Make no mistake my friends, we aren’t as recovered as the media and politicians would have you believe.

Energy May Send Us Into a Nose Dive

Everyone need to be watching energy prices, specifically the cost of sweet crude oil. Essentially, this is where America get’s it’s gasoline and gasoline is one of the biggest cost of goods and services. Today, crude got below $30.00 a gallon and closed at $30.44 per barrel. The fact is, most American energy companies can’t pay their bills with crude prices at this level. What’s causing me to stay up at night is the fact that leading economist are suggesting, by end of the year, crude prices could be as low at $22.00 per barrel. At this price, we will begin seeing energy companies go bankrupt and massive energy sector layoffs will begin. Truth of the matter is, I really suspect that 2016 will be the year that the oil wars escalates, prices fall and the largest contributing factor to the 2016 recession will be cheap oil.

Conclusion

Our economy has a lot of downward pressure from many different sources both nationally and locally. Like I said earlier, we just don’t know what the straw will be to break the camel’s back. Right now, I see too many home buyers paying too much for their homes, yes…I said that. Sadly, I do believe a lot of buyers are going to be stuck holding the bag when the bottom falls out of this fragile economy.

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Jesse Gonzalez is a highly accomplished and respected real estate professional with a wealth of experience in the industry. With a career over 15 years, Jesse has established himself as a leading real estate sales and marketing expert.

As a licensed real estate agent since 2005 and a broker since 2008, Jesse has a comprehensive understanding of the complexities of the market. In 2013, he founded his firm, Liberty House Realty, LLC demonstrating his entrepreneurial spirit and commitment to delivering exceptional service to his clients.

Jesse's expertise extends beyond traditional real estate transactions. He obtained his Registered Appraisal Trainee in 2019, providing him with valuable insights into property valuation and market analysis. Although he decided to focus primarily on sales, his appraisal background gives him a unique advantage in understanding the intricacies of property values and trends.

With a dedication to excellence, Jesse consistently achieves outstanding results for his clients. Last year alone, he closed over $20 million in sales and received the prestigious Sapphire Award from his local association, recognizing his exceptional achievements in the industry.

Beyond his successful career in real estate, Jesse is passionate about education and personal growth. He is completing his undergraduate degree in Forensic Psychology, with plans to attend Law School in the fall of 2024. Jesse's ambition is to become a real estate litigator, focusing on real estate consumer protection law and advocating for the rights and interests of homebuyers and sellers.

As the owner/operator of the nation's largest social network for REO professionals, <a href="http://www.REOProNetwork.com">www.REOProNetwork.com</a>, Jesse has positioned himself as a thought leader and industry influencer. Through this platform, he fosters collaboration and knowledge-sharing among REO agents, attorneys, asset management firms, and other professionals in the field.

With a commitment to professionalism, integrity, and providing a personalized experience for his clients, Jesse Gonzalez is a trusted advisor and a driving force in the real estate industry. Whether assisting clients with buying or selling properties, he consistently goes above and beyond to exceed expectations and ensure successful outcomes.

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Comments

  • 2018-2020 should be interesting years if history repeats itself.

  • Here is a bit more on how energy may end up hurting this economy, http://suremoneyinvestor.com/2016/01/what-the-energy-crash-really-t...

  • Amen Jessie.,..I've been tracking the numbers ( closed unit sales) for a couple of years now for several large mostly European Investment Banks.. they are very indicative of where the market is and is going.. Historically, if you look at 2005, 2006 and 2007 closed unit sales.. in the South Florida Market ( Dade, Broward, Palm Beach, Martin, St.Lucie and Indian River Counties) , overall closed units declined an average of 20% per year until hitting bottom in 2008.while prices continued to rise.. often wildly....and well beyond sustainable appreciation rates given the overall demographics.. "Free Money" made that happen then with non-existent Mortgage Qualifying scrutiny.. and   We're seeing that trend again and it's telling us that we're headed down the same path ..this time with a near Zero Fed rate..and ludicrous Mortgage and Savings Account Interest Rates..  I call it " REAL ESTATE AMNESIA" .. and i've Seen it Time and time again over the past 40 years I'm doing this.. My Recommendation.. 'Gird your Loins"... it's gonna get bumpy!

  • Well, it's not going to get any better if the Obama Administration does what Investor.com just wrote about. They are planing on giving out mortgages, through Fannie Mae to "high risk" immigrants / refugees. That's not all, lenders will be able to count "income" from non-borrowers who live in the home. NINJA days are coming back folks all in the name of "Affordable Housing".....here we go again.

    http://www.foxnews.com/opinion/2016/01/19/is-another-housing-crisis...

  • How do we effectively warn people about this without being looked upon as the odd man out!!?

  • Good points. Brazil whose people are big buyers in Florida, the economy is in recession. Then we have  http://thinkprogress.org/economy/2015/02/05/3619325/bespoke-tranche...

    The same collateral instruments that sank the market, now with a different name.

  • Hey Troy, I am hoping I am wrong but, after this week on the market, I don't think I am.

  • Jesse,

    You are on point my friend. People are ducking theirs heads in the sand on these facts. 

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