Following the long, dark night of market volatility in Delaware real estate, the frenetic housing boom followed by the bust, builders, buyers, and agents are all faced with a surprisingly stable afterglow. That is to say that by sheer good fortune, after the crest and collapse of the entire economy- the local real estate market has found itself on remarkably firm footing. It bears repeating since it’s been such an unexpected development.
So what’s the explanation for this unforeseen security? The most outstanding contributing factor is that retirees, moving in and staking their tents in Delaware for the relatively more affordable property taxes, are helping to anchor the situation. It’s a one-dimensional phenomenon that has yielded steady, if not dramatic growth.
The growth may not be spectacular- but it is spectacularly stable. Data from the Delaware Realtors Association show that for three years in new castle Country and four years straight in both Sussex and Kent counties home sale prices have gradually risen. That’s no match for the five-year growth of the previous decade when prices doubled and even tripled in some cases, but in light of the shifting ground that could easily have left Delaware mortgage rates and the whole state in an economic sinkhole – it’s marvelous.
Market predictions that had the local economy down as volatile are now calling it balanced. Plus, the number of people in the market to purchase a home is close to being in perfect sync with the available listings. George Sharpley, an economist with the Delaware Department of Labor said, “Before the crash, the market was off-balance on the side of demand.” There were not enough units to satisfy the demand, leaving many buyers out in the cold.
How Did These Low Delaware Mortgage Rates Develop?
So how did Delaware end up in this unusual situation? Sheer luck? Not entirely. The influx of private investors attracted by low property taxes goes some way to explaining it, but there are other states that also have low property taxes, lower even. Louisiana, Alabama, and Hawaii all have lower rates of property tax, and the first two are well within reach for anyone considering Delaware. Another part of the answer is that most of the influx is coming from New York and other northern New England states where property taxes and the cost of living, in general, are quite high. But also, the culture and atmosphere of Delaware are relatively familiar to people coming from those areas. It’s not far from home for these investors, and it’s a much friendlier looking economic environment compared to what they’re used to.
Another component to the unexpected stability is that there has been a hidden surplus of houses that were locked up in mortgage defaults. Many homes were abandoned after the collapse. People were totally upside down on their mortgages and found themselves with no other option but to turn the property over to the banks. This unfortunate circumstance created a situation where there were a lot of vacant houses just waiting to be renovated and that were available at cut rate prices. So, a huge amount of enterprising locals bought them up, fixed them up and put them back on the market. All of a sudden, boom, the supply meets the new demand.
Of course, the story is deeper than that. It’s common knowledge that the local real estate market was riding high early last decade. In 2002 and 2003 easy credit, quick profits, and bullish predictions had everyone believing that the housing market was all high rewards with low risk. It was short sighted, maybe even irresponsible – but it was the same story, more or less, nationwide. So many people, even the so-called experts fail to study the history of the housing market and neglect to learn the science of real estate cycles – which are massively predictive.
Real Estate Market Cycles
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While external factors can cause a given market to experience a degree of volatility, the overall effect on that market will – in all cases, excepting major existential disasters like massive storms, earthquake, and war – remain predictable. In nearly all cases, the normal phases of the real estate cycle will remain the same. Builders, agents, and buyers always act as if the phase they are in will last forever and fail to adjust to the change.
Phase 1. Recovery
The lowest point in the cycle sends investors, sellers, and builders into recovery mode. As demand for units pulls back, inventory is curtailed. In this way, those who weather the storm will cut their losses and become stable.
Phase 2. Market Expansion
Recovery eventually gives way to growth. This is the point when people start noticing that it’s a seller’s market. As demand slowly returns, and supply is still relatively scarce- prices begin to ripen.
Phase 3. Abundance
Having failed to adjust for the growth, builders invariably overproduce, saturating the market with supply. That is when prices drop. This is a buyer’s market.
Phase 4. Recession
With overhead increased by a bloated supply and decreased relative property values, the market becomes unstable. This is when rents and prices begin to become inflated, driving people out of the market.
So Where are We Now?
Today, we are in Phase 2, the market expansion phase. Prices are slightly up, but mostly due to fear surrounding the slow national recovery nationwide, buyers are buying slowly. What this means is that this phase is going by slowly- making it an exceptionally stable period in the market cycle. The growth is not frenetic. The prices are not spectacular. They are good, and they are stable. We’re burning the candle at one end.
At the moment, mortgage terms are low for investors to borrow and for builders to build. Many builders are saying that we have already passed through the boom, which may mean that we are passing into the abundance phase of the cycle. This is good news, much better than if we were in a violently booming upswing – because that wouldn’t last. At the moment, mortgage rates are hovering between 2.8% and 3.6% with a fair amount of stability. Experts are saying that the Fed is likely to refrain from putting a damper on lending. If that’s true, it looks like we’re coming out of a seller’s market and moving into the beginning of a buyer’s market- Â and it too should be nice and steady for a good few years to come.
2 Point Highlight
In 1876, Henry George observed cycles that all real estate markets predictably go through, like planets in their orbits. His observations can be summed up in four phases.
It looks like we’re coming out of a seller’s market and moving into the beginning of a buyer’s market.
