I don’t believe we will see these types of home purchasing conditions – low interest rates and relatively cheap prices – for another 60 years. We are at the cyclical inflation and interest rate low for the century; we are also experiencing a low in cyclical home prices for the current real estate cycle. My recommendation would be to invest in real estate with fixed-rate loans, and expect that home prices and rents will eventually rise. Remember always that the three most important words in real estate are location, location, and location. Also consider the likely scenarios that ocean levels will rise in the next 15 to 30 years and that low-lying areas may be underwater in the next decade or so. In addition, the US population is expected to increase by almost 100 million, to over 400 million people, by the year 2050, and the majority of that increase is expected to be in cities and suburban areas.
What this amounts to is a recommendation that larger cities and metropolitan areas that are not threatened by rising sea levels should be the best places to invest. In particular, places in the Sun Belt, which tend to become retirement sites for graying America, should provide the most favorable opportunities. Las Vegas, Phoenix, Dallas, and Atlanta are areas that saw a significant decline in home prices in the recent real estate bust, and they should see a recovery in those prices. I also think that the Sun Belt and Southwest are ideal places to invest in, due to climate change. As extreme weather gets worse over time, there will be a continued migration of people leaving the North and East to live in the South and West.
We have all witnessed the carnage of the real estate bubble, which burst in 2006 and then plagued the financial markets for the next several years. The number of people with upside down mortgages was staggering. Many people had purchased at or near the peak of the bubble, expecting the good times to last forever. Lots of people used the equity in their home to pay for cars, boats, expensive vacations, and to pay off credit cards. This only added to their debt load and their misery when housing prices came crashing down and loan-to-value turned upside down. The depths of this “debt hangover” have affected millions of people and caused a real change in attitudes toward consumption and in feelings about what are “necessities” versus what are “luxuries.” Only time will tell whether this is a permanent change in attitude.
The real estate sector and the housing market will rebound from this most recent bubble implosion, and prices will recover. Given time, there will even be significant growth in this sector, as inflation drives prices of real assets higher. The real estate market has an 18-year cycle that repeats. The most recent boom and bust cycle of the real estate market was dramatic to all and traumatic to many. It is this trauma that provides opportunity, in that many people have been burned by the experience and will be reluctant to dive back in. A lot of Americans have been experiencing a debt hangover and are weary of their prior real estate experiences. However, with the current housing price and mortgage interest rate levels at their cyclical lows, there may never be a better time to buy real estate.