Real Estate enters the shaky foundation stage in 2022

10 mo
2 Min Read
424 words

Here's something I haven't seen in a very long time...

That's right! A reduced price sign on real estate. This one is at the corner of my block. I see it every day. It's been there for 2 weeks. Normally, I see a bidding war. People are paying above list price for homes in the United States in most markets. But then this. A Reduced sign pops up, and the house is still there.

Should we be worried? The answer is yes. The underpinning of the real estate market has started to wobble. Blame the FED for pumping up interest 0.5% this month and now mortgages are at 5.5%. That's gonna price some people out of the market.

Should we be worried? The answer is yes. Blame the mortgage brokers. I met with a real estate attorney this week and he said guess what he was closing that day? An adjustable rate mortgage. It's been a while since those were in demand. There's a reason why. Adjustable rate mortgages have a lower rate than fixed rate mortgages, at least right now. But the rate steps up if the underlying mortgage rate increases. That's what got us in trouble a decade ago!

Should we be worried? The answer is yes. The stock market is tanking. Blame the investors. Remember those low mortgage rates? What did people do? They pulled out equity in the form of cash and plowed the money into the stock market. Sound familiar? Didn't we do this a decade ago? Borrow cheap money, invest it for big returns in the stock market. What could go wrong? Oh yeah, those margin calls are coming soon.

Should we be worried? The answer is yes. Blame free money. Remember when the government doubled the money supply by pumping cash into the economy during the pandemic? If you double the supply what happens? Inflation. It's here, it's not going away. Wages are up, so what? Everything costs more and now because of higher wages, it cost even more. And let's not even mention that home values are inflated almost 50% in the last two years.

Should I be worried? Actually, no. I like real estate. It's been good to me. I've read this book before. People rent when times are tough. Pick an area of high demand for rentals. Watch the market, and when prices hit the 70 rule, buy property. You'll be fine. And a decade from now, you will be holding an asset that's ready to be sold at a huge return.