Ignoring Market Fundamentals a Recipe for Disaster

Across the United States, market fundamentals are changing. From demographics, income and household composition to consumer psychology, the nation today is at a very different point than it was just a few years ago. In Florida, for instance, more seniors will be struggling with finances than in the past and affordability will be critical to market success. With only 20 percent of Baby Boomers in a healthy financial position, demand for country club and golf communities will remain relatively low for at least the next five years. And across the board, more Americans are looking to simplify their lives by choosing homes and condominiums they can afford for the long term.

However, few builders and developers recognize those market shifts or understand how critical they are to the success of a residential or commercial project. It’s easy to fall into the trap of following the herd after reading headlines like “Multifamily Rentals – The Next Big Thing.” But ignoring the many differences in regional and local markets is a recipe for disaster under any conditions. It’s like a disease that afflicts all aspects of the real estate industry, including builders, developers, brokers, agents, lenders, and condominium associations. You simply cannot view the world from a desktop without getting out into the field. The old saying, “garbage in, garbage out” certainly applies to anyone who forgets about conducting a real estate analysis or market analysis.

Back in 2004, our real estate consulting firm’s research clearly showed that the end-user market would not support the vast wave of speculative residential development throughout the U.S. At the time, I was soundly criticized for being a “nay-sayer.” But soon afterward, the speculator-fueled investment boom was followed by the housing bust – four years of recession, foreclosures and gloom. Now, it seems like this downturn will never end.

It’s all too easy to blame global economic issues or political leaders or the lending industry when things don’t go as planned. But rather than point the finger at someone else, take responsibility for your own actions. Look closely at your own beliefs and assumptions, and see if they correspond to reality or not. And remember that real estate is cyclical. There are opportunities at any point in the cycle – as long as you pay attention to the market fundamentals.