All real estate is local.
You probably have heard that saying.
Yet, since the Great Recession has ended, you couldn’t be blamed if you read national real estate reports and concluded that there is one real estate market, whether you live in California, Connecticut, Colorado or anywhere else in the U.S.
After all, during the Great Recession and, the housing bubble collapse that started in late 2006, every housing market in the U.S. was dragged down by the same market forces.
Economists and other observers described that housing bubble era — fueled by, among other things, easy credit, loose underwriting, risky subprime mortgage programs and the idea that home prices could only rise in value — as the first national housing downturn since the Great Depression that started in 1929.
The idea of “geographies of markets” is the topic of this month’s question and answer conversation between Lane Hornung, CEO and founder of 8z Real Estate, and John Rebchook of InsideRealEstateNews.com.
This Q&A is part of 8z’s Real Estate 101 series of articles.
John: Given that all real estate is local, should a consumer pay attention to what is happening nationally?
Lane: I think that is a good starting point.
John: Why is it important to look at the national picture?
Lane: I think it is helpful to know the backdrop and macro-forces that do impact all markets, such as mortgage interest rates.
John: Was the Great Recession, a period when all markets fell to some degree, typical?
Lane: That was an aberration. All markets truly are local. It takes a huge macro-event or macro-events to cause all markets to move in sync. That’s what happened around 2006 and it was an unusual event.
The Great Depression was another example of a huge macro-event.
John: Do you think a lot of consumers still think of real estate as one, big market?
Lane: If you read the headlines in the national press, you might come to that conclusion. But you have to take those headlines, if not with a grain of salt, with an understanding of the context.
John: What is happening now?
Lane: Now that we are well into the recovery phase, we are seeing markets decouple. That is much more the norm.
John: What do you mean by decoupling?
Lane: Markets are not moving in lockstep, as they did during the recession. Instead, home prices and sales activity vary from market to market.
John: How are we seeing markets decouple by geography?
Lane: A lot of markets in the West are heating up. They have low inventory of homes, strong demand and rapidly escalating prices.
We see that in the Front Range in Colorado and the Peninsula market in the San Francisco area.
That might not be happening so much in the Northeast, Midwest or the South.
John: Not even all local markets are the same, are they?
Lane: There are submarkets not only in cities, but submarkets in individual neighborhoods.
Some streets might be more attractive or less attractive than others in the same neighborhoods.
There might be geographic boundaries that give you the first choice of getting your kids in a popular school, for example. The same home on one side of the street might carry a premium to a similar home on the other side, for example.
There could be very local event that is making one part of a neighborhood more or less attractive.
John: How does a consumer get a handle on the nuances of a neighborhood?
Lane: A consumer needs to be working with a real estate professional, who has a hyper-local understanding of a neighborhood.