Is Real Estate in a new bubble? According to ZeroHedge, a website and Twitter feed that I follow and have a lot of respect for, their answer is yes. Based on my analysis of the real estate cycle, and where we are currently in that cycle, I have come to a different conclusion. I base my conclusion on the 18-year real estate cycle that I describe in my book What’s Next for the Economy. Since the last peak of the real estate cycle was in 2006, the next peak of the cycle would occur in 2024. What will drive current real estate prices higher than their already lofty heights? It will be driven by two factors: 1) the Stock market, and 2) Inflation.
In 1987, when the stock market took a dive and people were looking for a place to put their money to work, real estate was almost peaking and providing a high return on investment. It happened again, in 2000 and 2001, when the stock market crashed and people started to take their money out of the stock market and invest in real estate. The next opportunity for this to occur will be the next drop in the stock market. What would happen if there were a major stock market correction in 2017 or 2018? It could spark a significant shift in investments back into real estate. When that occurs, we will see another peak for real estate that will go even higher than the 2006 peak.
The next driving factor for real estate prices will be inflation. As inflation goes higher, the value of hard assets – gold, commodities, and real estate – will rise. Since the cycle for inflation is the 54-year Kondratieff cycle; the upward portion of that cycle is starting or will be starting soon. The inflationary cycle, like a rerun of the 1970s, will put pressure on real estate prices throughout the country and probably in the rest of the world. This is good news for the millions of property owners who are currently underwater on the value of their properties – their mortgage obligations are larger than the current value of the properties. Hopefully, most of those people have refinanced to a fixed-rate mortgage, because interest rates, like inflation, have only one way to go – up!