I recently had a question from someone, who asked the following;
Hi Bryan,
It was really great to hear from you. I hope you and your family are doing well. We are all good. Since you contacted me, I would love to get your opinion on the housing market. Do you expect a downturn and if so, when or do you expect it to continue to climb? I know you stay up to date with the market, mortgage rates, etc. and would appreciate your input.
I thought about this for a few hours and wrote the following. I felt that some of you might find this conversation helpful, so I'm posting my response below.
Well, I hope all is well as well for you all.
You certainly open a can of worms here but what I can tell you is what I see.
What I see is that pricing will continue to increase, but volume will be lower than average. In fact if you look at this graph below,
you can see that the volume has been declining over the last 4 years. I see nothing that will change that trend for the moment. The fed is unable to reduce rates and may never be able to do so again, at least not to the level we got used to for the last 5-6 years. The reason being is that it has done everything it can to keep the economy afloat despite its incredibly stupid decisions made by people that should know better. The fed has printed money at crazy rates, thus diluting the value of each dollar but by a very large amount and you are seeing the result of that when buying groceries or a car or a house.
Additionally, the decision to freeze Russian assets has made the entire world realize that it cannot trust the dollar or the US government to protect their assets if they are invested in either dollars or US assets of various natures. If the US government can freeze assets of governments or people that it disagrees with then it’s no longer a safe haven for those assets. Not only did they freeze them, now they are talking about confiscating those assets and using them to fund the war in the Ukraine. This has been a bridge to far for foreign money and the dollar is quickly losing it’s status as the reserve currency of the world as other countries are quickly turning to other ways to transact international business that doesn’t involve the dollar or the SWIFT system which uses the dollar as it’s core.
What this is meaning is that inflation will be picking up rather than slowing down. The fed has no chance to slow down the inflation we are going to see. Real Estate and Gold are great assets during an inflationary environment and we are about to see inflation at higher levels than we saw during the 70’s I believe. In fact, I think, except for the current interest rates, inflation is already at 70’s levels, but it’s is being underreported in order not to make the government look bad.
So to summarize, I see higher housing prices due to both inflation and the tremendous growth Texas is seeing to its population. While many of those are moving into rentals and apartments as home ownership is at 60 year lows, percentage wise, we will still see an increase in prices but at lower volumes of sales that we are used to. So sales are slower than normal, but prices are rising and we most likely will see us matching the highs of 2 years ago this summer, even with higher interest rates.
Could I be completely wrong on this, sure? But I think it’s a wise bet that this is what is and what will be happening in the short term.