I received a call from a real estate agent the other day asking if I wanted to sell my San Francisco home. She knew I wasn’t planning on going anywhere. But would $1 million over market tempt me?
Lately, I have been getting a lot of calls from concerned readers worried that we might be going into another 2008-2011 style real estate crash when home prices cratered by 50%-70%.
It’s not going to happen and there are a dozen reasons why. Worst case, I expect a short, shallow pause in the market, followed by a ballistic move to new all-time highs starting now. The latest S&P Case Shiller Data showing a 6.5% rise in home prices confirms my view.
Some sectors are already starting to heat up, while others, like San Diego, Miami, Tampa, and Atlanta never really cooled down.
If you have any doubt, look no further than the superheated bond market which is taking interest rates to new all-time highs. Despite a hefty 30-year fixed rate mortgage rate of 7.00%, prices are still holding up, except for San Francisco and Seattle where they have barely fallen.
You see, there is a method to my Madness.
It is all fresh fuel for a continuation in the bull market for US residential real estate, not just for this year, but for another decade, or more. More high-paying jobs means more big-spending home buyers and AI is creating those high-paying jobs at a record pace.
Although prices seem high now, I am convinced that we are only at the beginning of a long-term secular bull market in housing. If you don’t believe me check out the sky-high prices in Shanghai, Vancouver, and Sydney Australia.
Anything you purchase now is going to make you look like a genius ten years down the road.
The best is yet to come.
The big driver will be demographics, as it always is.
From 2023 onward, 65 million Gen Xers will be joined by 85 million late-blooming Millennials in a bidding war for the same houses. That will create a market of 150 million buyers, unprecedented in the history of the American real estate market.
In the meantime, 80 million baby boomers, net sellers and downsizers of homes for the past decade, will slowly die off and disappear from the scene as a negative influence. Only one-third are still working.
The first boomer, Kathleen Casey-Kirschling, born seconds after midnight on January 1, 1946, became 78 years old this year. A former schoolteacher, she took early retirement at 62.
The real fat on the fire here is that 10 million homes went missing in action this past decade, thanks to the 2008 financial crisis. They were never built.
This is the result of the bankruptcy of several homebuilding companies, and the new-found ultra-conservatism of the survivors, like DR Horton (DHI), Lennar Homes (LEN), and Pulte Group (PHM).
Did I mention that all of this makes this sector a screaming “BUY”?
Talk to any real estate agent and they will complain about the shortage of inventory (except in Chicago, the slowest growing market in the country).
Prices are so high already that flippers have been squeezed out of the market for good. Bottom feeders, like hedge funds buying at the bankruptcy auctions, are a distant memory. Some, like BlackRock (BLK) now own more than 40,000 homes and are the biggest landlords in the county.
Nobody wants to sell because it means giving up ultra-low 2.75% mortgages which they obtained during the salad days and will not see again in their lifetimes. I am one of those happy homeowners. We are prisoners of our own mortgages.
The rising rents that are turning Millennials from renters to buyers may be the first sign of real inflation beyond the increasingly dear health care and higher education that we’re already seeing.
And Millennials are having kids that demand a bigger living space! Who knew?
Have I Got a Fixer-Upper for You!
