More questions are being raised about the future outlook of the economy, and now the real estate market. Is a new housing bubble inflating? If so, how do we successfully invest through it?
Housing Bubble Vs. Healthy Growth
There are those on both sides of this debate.
The Real Estate Bears
The Federal Reserve Bank of Dallas has recently warned of early signs of a housing bubble brewing. They join many experienced long-term investors who believe the market is overpriced. At least in terms of what most retail home buyers are paying, and how some funds are grossly overpaying by 50% or more above market value.
There are multiple factors suggesting we may be in a bubble, or at least ripe for a correction. Extreme inflation is probably the most obvious. Along with crazy bidding wars. Common sense price to rent, and price to income ratios are also being blown through.
Then there are the cracks in business and consumer debt performance, and the threat of huge rate increases.
The Real Estate Bulls
At the same time there are real estate and mortgage professionals who are adamant that we are in a sound, growing, and healthy market. That the only losers are going to be those that are not buying right now.
They point to low interest rates, large amounts of equity, and high rates of consumer savings as evidence that we have nothing to fear.
They expect prices to keep on going up.
Investing Smart Through It
Whatever comes next, how do we invest intelligently and profitably through it?
The truth is that strategy shouldn’t be much different.
It is quite likely there will be other indicators before a deep housing crash. Such as a decline in stocks, and data showing we are in a recession. Still, those that wait for it to be made public in the media headlines are going to be too far behind the curve to make the best of it.
Fortunately, some markets will be hit years before others, and will support those later in the cycle. Giving investors more lead time to adapt and restructure their portfolios.
With stocks and other asset classes likely to fall first in the next phase of the market, real estate is still the smartest bet. Especially with its tangible value and essential tax perks. As well as the ability to control and add value to assets and performance during any phase of the market.
Then it comes down to investing with common sense, and by the numbers.
We’ve seen the biggest multi-billion-dollar giants fall by ignoring common sense. Including Zillow, WeWork, and Netflix.
This may be a great moment to buy smart, and lock in low rates, and strong profit margins using strong equity positions and modest leverage.
Even in the wake of a bubble, there are great opportunities to invest in builder rescues, distressed assets, and to improve performance with efficient management.
Perhaps most importantly, prioritize expert management that has come through previous cycles, without losing investor money.