Real Estate To Follow The Oil Market
In many posts, I surmised that we are going to see a radical change in the real estate market going forward.
Consider this scenario:
At some point, we are going to see a housing collapse. This is the natural cycle of housing. This market historically goes through long bull markets and, relatively speaking, bear markets.
Typically, when the market crashes, it takes a few years to come back. There is a clearing out period that has to occur. Prices pull back while debt is reduced. It is a painful process for the market to go through. It is often accompanied by home builders being caught off guard when the market turns.
After a few years of cleaning up the market, things can start to turn around. Prices eventually get to the point as well as demographic factors can some into play. All of this starts the process to improve demand.
Nothing here is any great secret. However, what if, right around the time things are to turn, they do not?
How could this happen?
Remember $140 a barrel oil? Back then, there were projections that oil could reach $300 by many of the analysts that cover the market. Why did they believe this?
Simply they felt that we were headed for peak oil. Back then, it meant that there was not going to be enough oil produced to supply the demand. Of course, this was before fracking totally altered the market by pulling more oil out of the ground. We also saw the march forward into renewable energy.
All of this changed even what the belief of peak oil is. Today, that means that the demand is going to drop at some point.
Could his happen to housing?
It sounds absurd but, then again, the idea of oil never getting back to the peak price was absurd. Even after this recent run up, oil is still more than half of the peak. In other words, there is no way, short a major war in the Mid-East will ever see $140 oil again.
So what could cause real estate to follow oil?
The idea is that we are seeing a lot of technological development in the real estate sector. Robotics, AI, 3-D printing, and the material sciences are all being actively pursued to produce more for less. The goal is to spit out more product for less money while reducing waste.
Today, we are in the primitive phase of this. However, if the housing market continues on the same path for another year, give or take, and then have a few years where things are down, we might see the bounce back thwarted.
We need to keep in mind that the artificial urban real estate bubble is likely over. What is this? It is the concept that real estate in urban areas were pushed up due to the monopoly those areas had on good jobs. The work-from-home movement is serious and likely to grow as automation grows. In other words, we are going to see less companies having people in the office.
The obvious impact this is having is on real estate. If people can work from anywhere, they are, in many instances, going to opt for the areas that are less expensive to live.
We have another factor to consider in all this. Smart cities are going to be a part of our future. The belief is this will penetrate our present structures as well as cities.
However, this could be a mistake in thinking. It is far easier to build something from scratch in this area that it is to add to existing structures. This is only compounded if, due to some of the technologies just mentioned, the cost of construction is seriously reduced.
Thus we could see new cities constructed in more rural arenas, where there is space, that are smart from the start as well as orders of magnitude less.
It seems like an outrageous idea right now but, again, that is how people looked at oil 12-13 years ago. Yet, due to technology, things changed very quickly.
Judging by the timing, if the bottom in the next real estate pullback is around 2026 or 2027, things could get really dicey. By that time, we could see a big adjustment in the employment market as well as the technology associated with real estate. It is obvious nothing is operating in a vacuum.
Another factor to keep in mind, around that same time, it is estimated that VR will start to be entering mass adoption. The different factors could really alter how people think about paying for scenic views overlooking Central Park, the ocean, or mountains.
All of this come combine to really make like tough for those looking for a return to normal after the next real estate collapse.
What are your thoughts? Let me know in the comment section.
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