Real Estate Bubble Discussion with Clayton Morris



I recently spoke with Clayton Morris, president of Morris Invest, on a podcast about the subject of ARE WE IN A HOUSING BUBBLE? The conversation takes into account Millennials, vacancy rates, the economy, and more. In addition to the podcast, you’ll find my thoughts in the article “Is There a Real Estate Bubble in the Making?

Rather than a real estate bubble, the general market is more likely in a period of stabilization. Historically, this means that home prices will appreciate more in-line with inflation. Prices will increase slightly faster than inflation but slower than the hyper-rate they have been increasing in some markets for years. That does not mean residential investing won’t remain one of the most reliable and profitable investment vehicles available.

People often toss around the phrase “Real Estate Bubble” with some inaccuracy. Although first time buyers are finding and always have found it difficult to close on a first home, all is not doom and gloom. Following the 2007/2008 meltdown, government and banks made significant changes to prevent a similar fiasco. Indicators that existed in 2006/2007, such as zero equity, undocumented, and negatively amortizing loans are no longer being made. Owners are building equity that greatly reduces the chances of mass foreclosures as long as the economy remains relatively healthy.

In fact, the approximately 30% appreciation in home values over the past several years has been mostly a recovery of value lost during the Great Recession. With exception for major metropolitan areas, prices are only now beginning to appreciate in value above what they were before the recession. This is what can be expected to bring appreciation back into alignment with inflation.

The opportunity to buy low – sell high may not be as robust in the near future. Today’s market is geared more towards a buy and hold investment strategy. Today there is a lot of profit being made from rental cash flow. Vacancies are down and rents continue to go up. Compared to the volatile stocks and bonds markets, rental cash flow is similar to stocks paying dependable dividends and high yield bonds. Of course, brick and mortar real estate assets don’t dramatically fluctuate in value with every news headline the way stocks do.

Economic indicators of a continuing strong housing market include:

  • Very low unemployment.
  • Strong GNP (expanding economy).
  • Rising but still relatively low mortgage interest rates.
  • Continued influx of foreign investors.

You can’t wait to invest in real estate until there are no uncertainties in the global economy. You’re simply not going to find a prolonged time without military conflict, trade disagreements, energy supply fluctuation, inflation, etc.

Based on years of recovering lost equity, home prices are only now truly beginning to appreciate in value and in alignment with inflation. Investment opportunities continue based on cash flow. Improving rental ROI (return on investment) will be based on low unemployment, rising wages, sustainable inflation, and supply not keeping pace with demand.

For more on the subject, please listen to the Morris Invest podcast about the subject of ARE WE IN A HOUSING BUBBLE?

What are your views of a potential real estate bubble? Please leave a comment.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for eleven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

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