If you own a home, have you considered selling it at today’s high prices, renting for a while, then buying back in after the next real estate crash? I will admit to having those same thoughts myself at times. I am aware of several who followed through on the idea and now are painfully waiting in rentals while the price of homes continues to skyrocket.
The real estate crash of 2008 left many scars and some homeowners today, not wanting to miss out on an opportunity, are getting anxious. They should act with caution however, because 2008 was a much different situation. With real estate prices in many areas hitting new record highs monthly, let’s consider some of the main causes and whether this is likely to continue.
Low interest rates – Most Americans buy their home based on how much they can finance. Higher interest rates would slow demand and pressure prices lower, but it’s difficult to see them moving significantly for several years. The Government is the nations’ largest debtor so there is huge incentive to keep rates artificially low. Even if rates increased a couple of percentage points, they would still be near historical lows.
Millions now working from home – When people work from home they often need or desire more space. As the virus effect diminishes many will return to the office but a large portion of those who have become accustomed to working from home report that they plan to continue doing so.
Regulations – Governments in many localities continue to make it more difficult to develop new properties, pushing prices up as the supply chain is restricted.
Wealthy investors competing for properties – Entire financial sectors are being built by investment firms and individual investors seeking a future in owning large portfolios of residential rentals. It is difficult to find decent monthly cash flow with interest rates so low, which makes owning rental real estate more attractive. These cash heavy investors are tough for a middle-class home buyer to compete against.
Millenials are finally starting to buy homes – There was a huge real estate boom in the 70’s when the Baby Boomers came of age. The millennials are starting a little later in life but their effects on the housing market should last a decade or more.
There is a huge residential real estate shortage – This is partly due to labor and supply problems but also because we have been underbuilding since 2008. The National Association of Realtors estimated last month that America is currently short more than 6 million homes. With current construction of both houses and apartment units at less than 2 million per year, the shortage is expected to be severe for many years to come.
I don’t have a crystal ball, but my guess is the housing crisis will get worse for many years before it gets better. I wouldn’t be too quick to cash in on the family home if I didn’t have somewhere else to live.