It doesn’t seem like that long ago when real estate was seen as a sure-fire investment in the same way that if you could afford the menu prices, fine dining assured you personal wine advice from the sommelier. Now, it’s about finding a deal in a sea of discounted listings and hoping that value increases with time. Comparing the housing market to, say, McDonald’s is admittedly campy, but surprisingly fruitful as one tracks the timeline of recent real estate trends.
Making the Reservation: The Housing Bubble and Fine Dining
In the second quarter of 2006, median home prices peaked above $230,000, a price that seems exorbitantly high in retrospect. Meanwhile, the luxury home market was even more bloated. Likewise, the most luxurious restaurants have recently jockeyed for such dubious titles as “Most Expensive Meal” or “Most Expensive Dessert” with items that exceed $20,000 and include 24-karat gold jewelry and tableware. Anybody interested in conspicuously consuming at the dinner table? Since when does dinner require taking out a second or third or fourth mortgage?
The Appetizer: A Quick Anecdote
Ironically, The Maisonette—the most decorated restaurant in North America with a 5-Star rating that spanned 41 consecutive years—closed in July of 2005 at the height of the housing boom. The restaurant had planned to relocate from its location in downtown Cincinnati to a nearby suburb, but the Hamilton County Planning Commission denied zoning for the $60 million development project, eerily reflecting the burst housing bubble. Instead, the restaurant played the role of a foreclosed property and sold off all its assets at auction.
The Entrée: Fast Food Housing Market has Arrived
With a growing chorus of experts claiming that the housing bottom has arrived or is imminent, housing sales have spiked with new home-buyers entering the market. With maintenance needs that may have been neglected for many months, foreclosed homes may not have the greatest nutritional value, but seeing their listing price is like trying to drive past your favorite fast food franchise on a long, road trip and stick to nuts and berries. Even people, who weren’t planning on buying a home this year, may see the $8,000 tax credit set to expire at the end of the year and move their plans along. Thus, value and convenience, the hallmarks of fast food, have become the driving forces in today’s real estate market.
Fruit and Cheese: Future Wagers on Housing Handicapped by Wages
Fast food—from hot dog stands in New York City in the early 20th Century to the Drive-Thru of the West Coast in the 1940s and 50s—quickly transformed from fad to icon of American culture. And just as fast food exploded in the 1970s as income, measured against inflation, began their prolonged descent, the key questions surrounding the future of the housing market are, likewise, tied to people’s incomes. Will home prices strongly rebound and follow an upward trend toward eventually recovering its full value from 2006? Or, moving forward, will home prices parallel wages to avoid another cascade of loan-defaults? And, if so, what direction will Americans’ wages take? The answer to these questions will likely determine whether the housing market returns to its previous 5-Star dining or remains the equivalent of real estate fast food.
The Dessert: Real Estate Agents/Waiters must Rely on Volume
As the housing market recovers, higher home prices are expected to lag considerably behind the pace set by a spike in housing sales. As such, real estate agents will once again find clients, but will make substantially less per sale. This, too, follows the analogy of the restaurant industry where waiters, who work in high-volume restaurants, must serve more tables and hustle twice as fast to make anywhere near the same amount of tips. But, like any other industry, if you’re good at what you do, there will always be a place for you. Many people with nominal skills at selling real estate nevertheless entered and temporarily thrived during the housing boom. Meanwhile, seasoned pros, who are able to combine solid real estate practices while adapting to new market realities, will once again dominate the real estate market.