Bubbles and Crashes in Residential Real Estate

[Account Closed]

There is increasingly frequent chatter about a real estate bubble and impending crash.  I think projections like this are often misguided and counterproductive.  Here are a few thoughts and I would love to hear what others think.

Real estate is cyclical and there will be ups and downs caused by interest rate movements, mismatch of supply and demand and general economic conditions related to expansion and recession.  This does NOT mean that asset appreciation is always a bubble.  I fear that too many people are succumbing to recency bias (availability heuristic) owing to the memory of the last housing-led meltdown.  Nationwide housing bubbles and crashes are extremely rare so why are many people predicting one as if they come around every X number of years or so?  Let's distinguish between bubbles in items with little and fickle real demand (like tulips, speculative land, dot.com start-ups, crypto) and real estate.

Have single family home prices far exceeded gains in incomes?  Are buyers not bringing equity to the table like during the years preceding the last crash?  Are many buyers expecting and relying on appreciation as their only path to profit?  Is construction far outweighing real demand?  Can we have a crash while interest rates remain low?  If there is a recession and interest rates remain low, would cap rates on multi-families increase more than 100-200 bps?  Are buyers of positive cash flow properties being irrational if those dividends exceed dividends of other asset classes today?

To be clear, a recession could occur, home prices could fall, cap rates could increase (and multi-family prices fall), banks could tighten lending standards, etc, but right now, market participants are making rational decisions based on the information they have and cash flow can service debt without relying on rent appreciation.  Markets that are richly valued predict low returns in the years to come--they do not predict the timing of a crash.  There are many scenarios regarding returns over the next decade and I don't see why a near-term, nationwide crash would even be the 4th or 5th most likely scenario.