Is the Real Estate Bubble Coming?

It’s 2017 and Real Estate is going strong, Case/Schiller index is at 253, although still off its high of nearly 275 at the height of the 2008 bubble.

In my opinion, there will be a slow down in housing prices, but not as severe as in 2008. This slow down should occur within 1-3 years.

For one, 2008 was a one-off crisis that won’t be replicated for a very long time, similar to the dot-com bust. The banks are still (and maybe will never) lend at the rates they did in 2008.

The graph above displays the relationship between rent and housing prices. As we can we, the rent amount never experienced the severe drop that the housing prices did. This underscores the importance of judging investment properties based on rent and the fact that their income production isn’t affected by crisis.

The markets that will be most severely affected once the next crisis hits are, as usual, the Western US – California, Nevada and Arizona. This region is America’s foreclosure capital, especially Southern California. We can expect to see severe price reductions, as much as 2-3 times in certain areas like Riverside and San Bernardino Counties. Orange and LA counties can expect a 10-20% reduction in prices.

Serge Bronstein