Are we in another Real Estate bubble?
I’ve been hearing about a potential real estate crash since 2014. Smart people, big names, and all these predictions have been wrong. The truth is no one can predict a crash, and these predictions are more about selling books and seminars than giving practical information. No one would buy a book titled: Real estate probably won’t change much in the next 6 months. Not a very compelling title, is it?
Prices are higher now than they were even during the late 2000’s run up. But that doesn’t mean there’s an eminent crash - the late 2000’s crash was mostly due to risky subprime lending to unqualified buyers on adjustable interest loans using “stated income”. Underwriting for the last 13 years has been much stricter, giving loans to qualified buyers who can weather a storm if something ever happens. Not to mention these buyers have locked in long term financing at historically low interest rates.
Interest Rates
Speaking of interest rates, they’ve been ridiculously low for far too long, as they rise further that may cool of demand slightly. But that won’t take care of the supply problem. And homeowners who would have been sellers may not want to lose their low interest rate, and may choose to not list their house. This won’t help supply either. Maybe the market will normalize some, and outrageous, higher than asking price offers will go away.
It would be nice to be in an environment with low prices, low interest rates, and high rents, but that’s extremely unlikely to ever happen. There won’t ever be a time when all the lights are green.
Supply and Demand
The run up in pricing this time is less on speculation, and seems to go back to that simple economic factor: there’s a lot of demand and very little supply.
Smart investors have been making money and accumulating wealth in real estate for the last 8 years, while chicken littles have sat on the sidelines waiting for a crash that may never come.
What to do
Ignoring the anomaly that was the late 2000’s, the best thing to do in real estate is the same as it’s always been. The truth is if you need a historic, once in a lifetime event like the late 2000’s crash to be successful in real estate, you probably shouldn’t be in it in the first place. These 3 things never go out of style:
- Purchase at a discount
- Don't over leverage
- Have reserves for a rainy day
