The World Braces for a Real Estate Slump
While this is probably one of the more ominous titles ever written in the history of real estate it comes with a silver lining. Recent reports suggest that Europe and Asia are experiencing real estate slumps that are eerily similar to the United States’ sharp declines in the real estate market two years ago. The good news is this isn’t the first time the U.S. has endured a recession which it eventually came out of.
While real estate is seen as an integral part of the economic downfall the last two years, it actually has its own pattern of recovery and may recover sooner or later than the rest of the economy. The real estate market is stifled by consumer’s lack of confidence and savings, but even more so by home value declines.
These declines can be explained by supply and demand. The real estate market saw record rises in property value prompting a real estate boom that would eventually end in bust. Real estate was hit harder than it should have been due to the frenzy of rapid residential real estate expansion several years ago. Basically, residential developers far exceeded the demand for residential property.
The lack of demand that exists in the real estate market is a major problem, but is currently on track to recover. The same problem exists in Europe and Asia but since the U.S. has already experienced two years of decline U.S. demand for property should return before that of Europe and Asia. While Europe and Asia had their chance to buy up U.S. property in its two year decline, as soon as the U.S. housing recession is over they’ll find themselves in a position to invest in European and Asian real estate.