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Is Real Estate a Bubble in 2018? These are the most common economic red flags and how they impact real estate prices - enjoy! Add me on Snapchat/Instagram: GPStephan
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The stock market is artificially inflated by low interest rates and it will decline, bringing down real estate. The FED lowered interest rates to record lows to stimulate the economy post 2009. This creates cheap money for businesses to borrow and people to borrow from - and I don’t disagree with this, low interest rates DO artificially inflate prices beyond what would be capable under a higher interest rate. But, my only defense is that we can’t expect interest rates to rise to insane levels overnight to put the economy in a tailspin.
Growing government debt - experts predict we will be reaching 24 trillion dollars of debt by the end of 2018. BUT, about 2/3rd of the debt is owned by US citizens and corporations, half of the national debt is owned by the US, and a large part of that is in social security. Debt isn’t always bad, and in some years inflation is actually higher than the interest rate the US pays - so they’ll actually make money. But overall what matters most is debt in relation to the gross domestic product of the US, and right now we stand just above 100% which is perfectly healthy. Ultimately, taking on more debt is risky - but this has more to do with rising interest rates and how THAT will effect housing prices, than the level of debt itself, as the US would have to raise interest rates to help offset their debt.
The third thing people say is “student loan bubble.” Student loans have gone from half a billion to $1.4 TRILLION between 2007 and now. I do see us having disastrous problems for individuals graduating with debt..but this won’t have a direct correlation on housing prices, from my perspective. With a low supply of homes, there are still not enough properties to meet current demand. Student loans are not “hurting” the market - they’re just not adding to sales numbers as buyers, which is already at a record high, even accounting for current student loan debt. But I agree, student loan debt is awful - but I can’t see this leading to a decline in real estate prices.
Finally, wages…wages haven’t gone up as high as housing prices have, therefore it’s a bubble! This has truth to it, but it’s not the entire picture. It’s true that wage growth hasn’t grown much, although wages HAVE gone up dramatically for highly skilled workers in large cities, and these are the areas that are seeing the largest booms in housing prices. This is big law, tech, engineering, and executives. And because of this concentration of growth, foreign money continues to pour in, further increasing demand. So yes, for low-skilled workers - it’ll be a tough one to go up against, and housing prices are exceeding low-end wage growth.
We’re still about 14-20% away from pre-recession prices when adjusted for inflation. This leads me to think that we still have some upward growth.
Interest rates are still at historic lows. We all know interest rates are going to be going up…so locking in now has some insane long term advantages. This creates an urgency to buy like we haven’t really seen before, which should continue to bolster real estate prices.
Limited supply. People aren’t selling. The reason: they don’t want to become buyers. There’s just not enough to go around - builders can’t keep up with demand, building restrictions hinder larger cities from building more housing, and this creates a limited supply of homes to chose from. While many areas are just starting to develop more housing, it’s just not enough, and even though it’s picking up, it’s still a long way from there being an oversupply. This in itself has the power to continue keeping housing prices bolstered for real estate, and real estate investing.
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