When the Real Estate Bubble Bursts, It’s Going to Be Due to Lack of Resources

Some predict that a softening in the market has started and that we are sitting on the brink of another bubble burst. The slowing of real estate value appreciation and an increase in the marketing period to sale are just a couple of the tell-tale signs fueling the aforementioned predictions. I agree that a softening in the market may have begun, but it’s for very different reasons than the downturn that occurred 2008-2010. This time it is due to lack of resources required to maintain the velocity of the current market. The lack of two resources in particular: trades and financing.

Healthy Market, Not Enough Horse Power

The bulk of jobs lost in Florida’s economy since 2007 has been from trades. During the recession, trades had to find other work, but when the market recovered most of the experienced and certified trades didn’t come back. There are several reasons for this, the primary one being that former trade professionals had already invested in repositioning themselves in the market, learning new skills, starting new careers and making good money again (finally). Add that to a decrease in the number of new trades entering the marketplace and you have more demand than there is supply.

The decrease I speak of comes in part from the last recession but also from the federal government’s two-decades long policy of easy financing for college educations and Bachelor’s of Arts degrees over other specializations. Eventually the supply and demand for trades will correct itself, but for a time it may seem like plumbers make more (and cost more) than doctors. I recommend supporting the trades now because if the economy continues its steady upward trend, there will be a strong resurgence of the trades.

Tight Fists Are Choking Continued Growth

There’s no denying that banks got burned badly in the last recession when Main Street bank lenders were the ones left holding the proverbial bag for bad loans that were, for the most part, originated within loan policy but were decimated in an economic free-fall created by Wall Street greed. While bankers hesitancy to enter fully into the market is understandable, fear to the point that it hinders growth is not – it only becomes a self-fulfilling prophecy.  Because of the predictions of wide spread market softening or observations of multifamily housing being overbuilt in some markets, banks and lenders have tightened their fists. This is only paving the way for those predictions and opinions to become reality.

Don’t get me wrong, banks and lenders are still giving out loans – as long as your balance sheet is substantial and liquidity makes up the bulk of your net worth. This is less risky, yes, but it’s also an option that creates a disconnect between Wall Street Greed and Main Street Need.

As an experience professional in the financing industry who specializes in financing real estate development and business growth, I want to see the momentum we have experienced over the past several years continue. My appeal to all those who play a role in the market is this: keep developing, keep lending, don’t doubt the smaller, local guys, and don’t stunt our economy’s growth!

Tom Rummel
Senior Managing Director

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