Real Estate for Millennials: The Catch-22 & The "Bubble" of 2016

[David R.]

Need a ride? A room? Food? Open just about any app and make it happen — in seconds.

Many early millennials went through post-secondary education only to find themselves employed in unrelated fields or underemployed and job hopping more frequently than previous generations. Their expectations may have resulted from the very encouraging, involved and almost ever-present group of parents that became known as helicopter parents.

The impact of millennials, specifically the emergence of the sharing economy, is prevalent across America. In a sharing economy, it's not the idea of sharing that's new; people have been doing that for years. The difference now is the introduction of technology and the role data plays to access demand. This economic model is where technology enables people to get what they need from each other rather than centralized institutions-- think of Uber or Airbnb. Why is this so important? As the millennial generation enters employment in vast numbers, they are expected to grow this sharing demand in all facets of the economy. What does this mean for real estate? What will be some of trends?

I want to bring your attention to the following article: http://fortune.com/2016/01/11/real-estate-bubble/

As a millennial, I am obsessed with efficiency and value. Like most people on BiggerPockets, I utilize numbers when making decisions, especially with money. While each real estate deal is unique, the overlying concept here is that while money is cheap right now, current valuations across the country are absurd. As a first time home buyer, I am reminded how cheap money is every day and that I should purchase my first home instead of paying rent. While I get the underlying variables that go into the decision between buying and renting, the current valuations make the decision more complex than it seems. I, see myself, like many other millennials, in a catch-22. I am faced with a difficult circumstance from which there is no escape because of a mutually conflicting or dependent conditions — interest rates and valuations. If I wait, I'll pay more interest (assuming rates finally do rise), but if I buy now, I pay more for the home and my mortgage notional increases.

For me, the most interesting aspect of this article is claiming the"bubble" is arguably coming not from mortgage demand, but foreign cash and homeowners buying second and third homes to rent. From my view, the type of demand that is allegedly causing this valuation "bubble" is unconventional.

What are your thoughts about this article and the "bubble"? What are your thoughts about the catch-22?

Appreciate your thoughts. 

[Russell Brazil]

At any point in history there are people claiming there is a bubble in something. Most of the time they are wrong and occasionally they are right. A broken clock is right two times a day.

Even if we were in a bubble, it would be impossible to say when the bubble bursts. Maybe it isn't for 10 more years and prices will fall to a number we hit in 5 years, so even if you bought now you would still make a lot of money. Or maybe the bubble bursts tomorrow and you lose half your value 

However if you buy right, buy something that is cash flowing....it doesn't matter if the bubble bursts. At some point values will rise. I have no doubt that in 20 years prices will be higher than they are today. Time is the greatest ally of those that own real estate.