HERE'S WHY I DON'T THINK WE'LL SEE A MAJOR CORRECTION FOR A WHILE

[Jason Malabute]

We all know the saying, “what goes up must come down.” We also know that the real estate market is cyclical. Historically, real estate cycles have lasted 8-9 years. However, we have been experiencing property values going up and interest rates going down since 2009 (over 12 years ago). In yesteryears, when interest rates increase by 1% property values have decreased by 10%. Although the feds have increased rates since January 2022 and intend to keep increasing rates throughout the year, I don’t believe we will see a correction anytime soon.

There are 2 reasons I don’t think we’ll see a major correction soon. The first reason is that there is a housing shortage. The Feds can increase rates by however much they want, but that will not solve the housing shortage most markets are facing in the nation. Another factor to consider is that the psychology of the majority of people is still bullish on real estate investing. I heard that close to 40% of our currency floating in the economy was printed in the last couple of years. Therefore, people are looking for a place to park their money to fight inflation. That is why in 2021, stocks, virtual currencies, and real estate were at record highs.

The two things I would watch out for that could affect real estate prices are over construction and rent controls. Recently more operators are transitioning to new construction to get a better return compared to the traditional acquisition model. However, if supply surpasses demand for rental units, that would decrease property values. Also, if there are nationwide rent controls to battle rent increases, that would make real estate investing less desirable and ultimately decompress cap rates.