The Real Estate Market: Correction or Revival?
The real estate market has been under scrutiny for a while now, with various predictions and opinions circulating about its future. Some argue that a correction is imminent, while others see a potential revival. It’s important to evaluate these perspectives carefully to understand where the market might be headed.
Conditions for a Correction
Some experts suggest that a correction might be on the horizon. However, it’s unlikely to be a major one, as the market is expected to cool down rather than undergo a drastic downturn. This cooling off period could stem from several factors, including the upward trajectory of interest rates, pent-up demand from the past few years, and a shift in investment priorities.
Interest Rates and Demand Dynamics
The Federal Reserve (FED) is indeed working to correct the housing market, primarily from a demand standpoint. By reducing the number of buyers, the Fed aims to stabilize the market. However, real estate prices for the most part will likely continue to rise, unless the neighborhood is in a declining or deprived area.
Arguments Against a Correction
Others argue that no significant correction is necessary, and that houses are just commodities. They point out that everything is selling quickly, sometimes within days or even hours. This resilience suggests that the market is strong and that any adjustments are minimal.
Federal Reserve’s Role
On the other hand, some believe that the Federal Reserve has intentionally increased interest rates by another 0.75 percentage points. Their dual objective is to both curb inflation and force the real estate market to correct itself. By reducing demand, the Fed aims to alleviate some of the pressure in the market, leading to a cooling effect.
Predictions and Concerns
Market Downturn Prediction
In our book, "Easy Money and the American Real Estate Ponzi Scheme," we predict that a downturn in the real estate market will occur between 2020 and 2024. With the effects of the coronavirus pandemic, the Federal Reserve has engaged in an unprecedented spending spree. While this has been a short-term success, it will eventually face resistances.
Federal Reserve’s Unprecedented Measures
The Federal Reserve has printed money at a rate that is equivalent to the tax receipts in 2019. This short-term fix is unsustainable. Starting in the next spring, after the presidential election, there will likely be a push to stop this monetary policy to prevent a severe economic downturn. Using printed money in this manner is analogous to photocopying bills to pay debts and purchases, which is illegal.
Economic Consequences
If faith in this debt continues to wane, interest rates will rise dramatically, leading to hyperinflation. Alternatively, the Federal Reserve might decide to stop the printing presses, which would cause a significant stock market crash and affect other businesses. This could push the country into another recession, even more severe than the 2008 recession, according to some experts. The real estate market would be a key player in this financial quagmire.
Conclusion
The real estate market is complex and influenced by various factors. While some predict a necessary correction, others see a potential revival. The key will be how the Federal Reserve manages interest rates and demand to ensure a stable and sustainable market. As an investor or homeowner, staying informed and prepared for potential fluctuations is crucial.