The Market Today Is Exceptionally Volatile
Many real estate professionals describe the real estate market of 2020 and 2021 as “stupid”. It is—interest rates have gone exceptionally low, people are moving from big cities, and they’re heading to smaller municipalities. The net result of this is a real estate bubble. There’s low inventory supply and high demand.
Here’s the thing about real estate bubbles: they’re not permanent. They do burst. The present real estate bubble was put into expansion well before 2017. It was expected that the distended property bubble we’re seeing now would burst in 2017. Will, it finally quit expanding in 2021?
Some expect it will, others expect the burst to come in 2022. Regardless, today’s volatile market isn’t going to continue the way it has. Inflation rates as of May 13, 2021, are soaring—now, The Fed doesn’t seem to be worried; but then again, their hands are sort of tied. If they say what they think, it will affect the market. So let’s explore the 2021’s market.
Why Expert Advice Must Be Taken With A Grain Of Salt
If Warren Buffet thinks the stock market is tanking, he can’t say that publicly, or his opinion will cause investors to sell their holdings, and suddenly he will have initiated a self-fulfilling prophecy. The Federal Reserve is in the same situation to some extent. So one must filter the advice of experts and authority through a sieve of common sense.
Here’s the truth: trillions have been nationally and internationally distributed under stimulus programs. The panic of 2020 imploded global economic stability owing to associated lockdowns. The third world has similarly imploded, and millions of people have been impacted by malnutrition and starvation.
As it stands presently, hundreds of thousands of people are seeking entry into the United States. These travelers are afforded solutions through tax and incentive legislation which reduces the total economic stability of the country. Coupled with oil pipeline issues affecting two major pipelines in the United States, and travel cost inflation, real issues become evident.
Experts aren’t interested in panicking anyone and causing worse economic fallout, but avoiding the truth can be just as problematic. These things affect real estate. The worse things get in communities like L.A., New York, Atlanta, Philadelphia, Denver, and Chicago, the more people move.
How Big City Real Estate Markets Are Affected
In 2021, there’s a solid distinction between big-city real estate markets and smaller markets. In New York City, some properties that should command more aren’t.
Real estate is sort of like that guy with a delayed reaction. With liquid markets, a stone dropped in a pond immediately initiates ripples. Whereas the man who doesn’t react on time may have someone jump out in front of him wearing a spooky mask, only to react twenty seconds later.
Well, it takes two to three months to sell a house on average. So when there’s an impact on the economy, the time it takes for that impact to hit real estate is slightly delayed. However, that delayed impact itself has an impact. On the stock market, when something goes high enough, everybody sells, then it bottoms out, and people buy back in.
Part of the insanity of the 2021 market is that the market took a huge dive and people jumped onto the bandwagon, which initiated an increase in the bubble expansion. It’s like the bubble got to a certain point, seemed to peak out and deflate, but then halfway through the deflation got blown bigger than it ever was before.
What To Do About It
FOMO is Fear Of Missing Out. FOMO is prompting many people to buy overpriced properties they shouldn’t out of fear they won’t be able to later. However, doing so could well put them on the hook for a property they can’t afford, forcing a sale at reduced equity later on. Remember, real estate lags the economy; accordingly, big bubbles are followed by big busts.
Regardless of whether or not you’re buying now, it’s important to reduce costs wherever you can. For example, if you’re looking to tread water in an apartment as you explore a local market, you might want to use a service like UMoveFree. Financing is important, and it can be smarter to go with a cheaper property than a costly one.
In the event of hyperinflation, tangible assets are the only ones that retain value. There is a fear of inflation in the United States, if not hyper-inflation. So that means the real estate will retain value—but perhaps not the value at which the properties in question are purchased. A home worth $200k in Arizona that is purchased for $600k won’t stay at that value.
The problem is, $600k—in an inflated market—becomes worthless. So the home’s value in terms of dollar amount will increase, even though the “weight” of that value decreases. However, hyper-inflation may not come to the USA. Regardless, the property is a wise acquisition if properly acquired right now, despite the market is crazy.
If interest rates go up, the amount property will list at should become less, and inventory should increase. However, if that happens in conjunction with inflation, prices could tread water. It’s anybody’s market right now, so do your homework before any investment.