Today’s financial markets sure don’t make it easy on real estate investors.
With the Federal Reserve inflating and collapsing bubbles with its monetary policy, deciding whether to buy or sell a home is trickier than ever. Yet with that said, there are some conclusions that can be drawn about the market that could make or save people a lot of money.
With real estate levels in many parts of the U.S. and around the globe already higher than the pre-housing crisis levels, there’s plenty of evidence that the Fed’s latest money printing binge has inflated yet another real estate bubble. But where do things go from here?
Based on what we know today, there are 2 likely outcomes. Which is not to say something else can’t occur, but based on what we know now, one of the 2, or some mix thereof seem increasingly likely by the day.
Scenario number 1 would be that the Federal Reserve actually raises interest rates and sells off all of the mortgage bonds it purchased during the last crisis, when no one else wanted to touch them. Who they would sell all of those bonds to remains a mystery. Although if they really did unwind that position, rates would rise, which would expose a lot of the debt as insolvent, exactly like happened last time.
However what I continue to see as more likely is that the Fed says inflation isn’t high enough, or the market has weakened, and begins to run the presses again. In this case you might actually see stocks, bonds, and real estate actually rise in price, yet not as fast the price of all of the other goods we buy.
In other words, the Fed could print enough money to make real estate levels double, but if the price of everything else you buy goes up 3 or 4 times as much, your wealth has actually decreased. So the value of your real estate has gone down, even if most in the public don’t grasp what’s actually happening.
In either case I would be really hesitant to make most real estate purchases at this point. Which is not to say that there are not exceptions. If you find the dream house you want to live in for the rest of your life and want to take advantage of low interest rates, and also the ability to be paying back the loan in massively devalued dollars 10-20 years from now, that could make sense.
But for the most part, it seems incredibly risky to be buying real estate at new all time high levels. Especially when all logical signs indicate that the next financial crisis is a matter of when, not if.