THE FUTURE OF REAL ESTATE IN AMERICA

In United States, many people really want to know the future of real estate. Being in real estate I get asked the question quite a bit about which direction I think the real estate market is headed in the next few years.

First, nobody has a crystal ball. Nobody I’ve talked to figured housing prices would do what they did post covid.

Second, I’m not biased. I feel some people look at a post from their favorite guru or real estate person and just repeat information without considering all the facts. I try to keep an open mind. I don’t care what the facts say, I just want the truth so I can create my own thesis and make my move from there.

Unsubstantiated optimism can be the death of you in the real estate business.

I follow extremely smart people on both sides of this opinion.

That being said, my mindset for the past few months has been that the supply and demand dynamic will continue to push prices higher.

But I think what myself and others that fall on that side of the ‘debate’ have overlooked is that there’s two levers to the supply/demand equation. We look at the supply, and there’s not much available right now, so the obvious effect would be pricing continuing to rise.

But if the Federal government continues to raise rates in United States, this changes the other side of the equation, the demand. Less buyers will be in the market, so even if the supply doesn’t go up, there’s less competition to create that inflation in prices. (The other side to that is, maybe there won’t be less buyers, maybe they just start looking for houses at a lower price point to keep their monthly payments the same)

Is that enough to tank prices? I think the big factor there is how far the fed pushes rate hikes.

Also, we live in a completely different world than we did in 2008. There are so many people, from young entrepreneurs looking to get in the game, to private investors holding 20-5000+ units, to hedge funds, sitting on funds and looking for opportunities that I feel if 2008 were to happen again right now that prices wouldn’t have a chance to drop like they did then. If the market floods with foreclosures and short sales I think we’ll see investor competition more intense what we’re seeing on the retail side now.

I’ve also read that 70%+ of the times when the fed has hiked rates, a recession follows. And we all know, markets go in cycles. Just by taking a quick look at the history of housing prices, they go up, down, and back up. Yah, it’s simple thinking but just knowing that, you have to expect a pull back at some point. The questions is how bad and how long? Again there’s a lot of factors that go into that. Way more then what I can write about here.

All that said, Here’s my opinion. I can see the housing market cooling off. And possibly even experiencing a small drop in the short term, but continuing to rise long term.

And I’m no economist. I don’t understand everything that plays into market cycles. But I like to learn, read, and come up with my own hypothesis. So that’s my opinion.

Like I said earlier, there’s no place for unsubstantiated optimism in this biz. We could experience another 2008 again. And the best way to make it thru is stress test your ideas and finances, make sure you’re set up to weather a storm. You can never go wrong by being prepared.

I’ll add a piece of information that I’m running into that’s interesting. We’re seeing a bunch of remodeling jobs for families moving into their extended families houses and building out basements and adding in-law suites. The common word is they can sell at a high price now and will wait until the market goes down a bit to buy something else. So not only are they adding value to their extended families homes, they are a buyer in waiting.

Our strategy to hedge risk is to try and buy houses that will resale below the median price point in our area. Folks who previously would be buying 50-100k above the median are the ones we think will end up buying our supply if rates take a rocket shop to the moon.

I don’t see a massive crash happening, what i think is more likely is that people who are buying the expensive homes (anything twice the median price point for your market) are going to slow down and fall into more affordable housing. Could make competition at that level even worse for buyers.

For me right now I’m continuing to buy. I think as inflation continues, and the dollar continues to go down in value, the long term effect is assets will continue to go up in value. I don’t bank on that when I buy, I buy for cashflow not appreciation, but that’s my thesis on the long term. So I’m going to keep buying at discount, preparing for the worst and let time do its thing.

NOTE : This is not financial advice.

THE FUTURE OF REAL ESTATE IN AMERICA