How long will the current Real Estate boom last?

Recent articles in the press note that current real estate prices are significantly higher than their post financial crisis lows (>50% higher in real (inflation adjusted) values). Other articles show how the annual increases in real estate prices are slowing down (but still going up). Some articles predict that the “end is near” with respect to the current housing boom.

My response to those articles is, “not so fast.”

Here are the reasons why I think there are still legs left for the real estate boom: 1) stock market jitters, 2) Federal Reserve actions, 3) the coming recession, and 4) a bear market. The stock market gyrations are driving some investors to head for the safety of treasury bills, which is driving up the prices and lowering their yields – which drives down rates. The Fed is also trying to balance the need to keep the economy from getting too heated and driving up inflation, with the need to protect the economy from a “hard landing” and a potentially severe recession.

The coming recession, predicted to occur by late 2019 or early 2020 by some economists, will force the Fed to lower interest rates to keep monetary liquidity in the economy, which will induce more people to purchase or upgrade their living situation. People who don’t want to give up their 4% interest rate loans will reconsider that condition if interest rates once again fall into the high 3 to low 4 percent range. Also, if a recession does occur, this will be bad for the stock market and could cause a bear market condition (stocks falling by 20% or more from their previous highs). When bear markets occur, that is usually good news for real estate, as investors (who are always looking for better returns) will turn to real estate to turn a profit.