I think the term bubble isn’t the right one here. There may be pockets of certain markets which are overpriced due to a lack of new buyers earning high salaries locally, but what I’m seeing is a more fundamental shift.
In the past, investors might sell to take a gain but today, if there is no pressure to sell, rents are coming in, inventory is tight and foreigners are competing for the few homes on the market, and it’s harder to get a mortgage (i.e. real ability to pay matters) I’m not sure that bubble is the correct term. More lack of good perceived safe alternatives for mid to long term funds.
For now, the only catalyst I can see that would bring down housing would be if the risk free rate earned on T-bills and other “safe” assets would go above 4% on the 10 year. Not to say it can’t happen but it’s not in most forecasts for the next 5+ years.
“The implied forecast also shows forward 10-year U.S. Treasury yields rising to 2.71% in 2025, down 0.25% from December 18.” from seekingalpha today.
The doomsayers who suggested that commodities/oil/gold/the Euro were safe havens, have been proven wrong for the time being.
Even oil futures show only $53/barrel in 2019 which get us closer to the average price of 2015.
As the dollar continues to strengthen and more capital comes into the US, real estate will benefit in my view.
There may be some shift in perspective in a few years if other assets with solid yield become relatively cheaper but for now, there is liquidity and the perception of safety in US real estate. I just don’t see a specific catalyst which would change this dynamic in the next few years barring another huge 20% spike in prices (blow out phase) but I also don’t see that happening in San Diego specifically. I’m thinking more 2-5% gains/year over year. Driven by income growth of 2-4%/year, population growth of 1.5%/year, lack of building and continued low interest rates.
Days like today in the stock market only reinforce this.
If there is a solid counter point, I’d like to know but I’m not seeing it now.
