Real estate prices is propped up with credit. Credit can be created at ever increasing numbers until there is a collapse in the credit markets or the monetary system. When loans become unpayable, defaults occur. If credit markets collapse, then housing prices go down.

Real estate has value & a premium associated with the credit markets & revenue generated by the property (e.g. rentals).

> Real estate has value & a premium associated with the credit markets & revenue generated by the property (e.g. rentals).

Yes for commercial - usually cap rate based which is related to return and risk, replacement cost valuation, or revenue multiplier.

With regard to residential - prices are going to go up when fed goes the other way. They have NOT been propped up with credit or favorable interest rates. Those factors have gotten worse but prices have held strong.

They have been propped up because supply is still low and new construction is expensive. Those things aren't likely to change anytime soon. Not to mention US RE is still a good place to park foreign cash in relative terms and is a good inflation hedge.

Rents will go up. Home prices will go up.

Commercial hasn't fallen out yet though. Office space should be converted to multi family residential or mixed use.

Commercial collapse is likely though which I think you are referring to.

But to the article at hand - could be a way to monetize a sharp drop in revenue due to WFH and the hike in interest rates - convert to affordable housing and offset any investment to cities (ie taxpayers) to address the homeless and affordability crisis.

> They have NOT been propped up with credit or favorable interest rates.

We really can't tell yet. Since interest rates have gone up, lots of people don't want to move (to upgrade or downgrade) because you can't just transfer your current loan to another house. That has led to very tight inventory problems, which makes the market even crazier.

We can tell that despite less favorable lending, there are still multiple bids on homes in many top markets.

If the lock in is a large factor, then inventory will shoot up as rates come back down. But then so will home prices as monthly payments come down and those dejected from losing bids before re-enter the market.

Is the market going to be flooded with new housing? No. Is the market going to be flooded with people downgrading and moving into rentals? Prob not. For every old couple downgrading there's a younger couple needing to upgrade for more space due to WFH and/or kids or a first time homebuyer ready on the wing. Or an investment group ready to buy and rent.

So basically - if rates go higher - many people are further locked in. Enjoy the favorable loan and inflation protection in RE. Inventory stays low.

If rates go lower - more buyers. Maybe some upgrade/downgrade inventory.

But there will be no magical new housing starts. Construction costs (labor/materials) unlikely to drop meaningfully.

Home prices remain stable in most places and going up with inflation and time.

And when the Fed reverses course - prices will jump.

I don't see how prices drop as some might hope (first time homebuyers) in the near future.

> We can tell that despite less favorable lending, there are still multiple bids on homes in many top markets.

But supply and sales are still down, because inventory is really tight. Less supply can affect prices just like less demand can.

> Is the market going to be flooded with people downgrading and moving into rentals? Prob not. For every old couple downgrading there's a younger couple needing to upgrade for more space due to WFH and/or kids or a first time homebuyer ready on the wing.

But that's just it. Those old people aren't downgrading because it doesn't make sense for them to downgrade. They would only be paying more for less, so why bother? That younger couple that needs to upgrade for more space is even more screwed in this kind of market.

> But there will be no magical new housing starts. Construction costs (labor/materials) unlikely to drop meaningfully.

Yes, but that isn't really the point right now. There are still plenty of ongoing projects in my neighborhood that were started before rates shot up. That is significant amounts of new supply, but it is balanced by much fewer second hand homes on the market.

> And when the Fed reverses course - prices will jump.

The economy is whacked by inflation right now, you better believe that the Fed has gotten religion in considering housing costs as part of their inflation measure. So...as long as housing costs keep rising, interest rates are going to stay high anyways. Given how many people are now asset heavy, with speculation and everything, don't count out some kind of political solution to get out of the hole.

> I don't see how prices drop as some might hope (first time homebuyers) in the near future.

I agree, but that doesn't mean the market is stable.

> The economy is whacked by inflation right now, you better believe that the Fed has gotten religion in considering housing costs as part of their inflation measure. So...as long as housing costs keep rising, interest rates are going to stay high anyways

The Fed is completely incompetent. "Inflation is transitory" over and over. And interest rates cannot stay high. At 32T in debt and rates, we'll eventually have to pay 1.6T in just interest annually. In the last quarter of 2022, we paid $213B in interest alone.

The longer interest rates are this high, the more pain on the entire world, as there are ~20T in USD denominated debt in addition to the 32T in US debt. And about 190T in unfunded liabilities in the US! Already insolvent. The only solution is to print.

The US and the world cannot sustain higher interest rates as the world reserve currency and the high debt load. But the Fed has to do something to at least appear like they are in control and competent. And to tame inflation to avoid civil unrest and political backlash. Most people have seen inflation outpace their wage growth.

I bring this up because the ones in charge are the ones with assets. And those with assets don't really care about inflation.

That's a large part of my thesis. And I'll be holding tangible assets like real estate when the printer goes back in overdrive because there is no other choice.

> That's a large part of my thesis. And I'll be holding tangible assets like real estate when the printer goes back in overdrive because there is no other choice.

You and everyone else, which is part of the run up on real estate prices right now. There is no such thing as a sure bet, especially when almost everyone is taking the same bet.

Don't know where you get "everyone else". I'm not talking about primaries and those with primaries aren't just "holding"... they need a place to live. Most people do not have real estate investments.

Investors are not in RE as a pure buy and hold. Maybe a few foreign entities parking cash in the US. But outside of that, no they don't. They live in them. Or they rent them for a profit or near break even. Rents have/can/will go up even more.

There aren't many properties that were purchased at elevated levels that have no economic prospect to them and could thus flood the market like you insinuate - ie an airbnb bought for 800k that now can't service the debt because short term revenue dropped and long term local rental revenue is too low. Even then, those that bought aren't looking to take a major hit and didn't buy with lax lending like 08, so the prices are what they are. You need foreclosures and short sales to make meaningful drops nationwide.

My properties cash flowed before the pandemic. During. And after. I honestly don't care about values, I'll buy more if they plummet but values have never been a bet in my plan. I care about cash flow and risk in an economic downturn but I'll take the inflation hedge too. You make money when you buy. There are still places you can buy now and make money. I look at a lot of things but always at replacement cost and cash flow.

The thesis is that there is no escaping the debt load. About the only sure bet IS that the money printer will return in overdrive. There is NO choice. And I don't care if it's this year or next year, but it will return soon.

You need assets before and when that happens. Not cash on the sidelines waiting for a dip that probably won't happen.

Whatever asset though - IMO, it should be cash flowing and be able to weather an uncertain economic and financial climate.

You seem to think Fed is going to fight inflation and bring down housing prices and save everything and also create this buy opportunity in various assets. Perhaps they keep hiking and we finally get a commercial RE crash and the Fed member's banks and associates can have a feast. Sure. I'm surprised that didn't occur a long time ago. But we're not talking about commercial RE.

How does the US escape the debt load and maintain these interest rates and higher and get to 2% target inflation?

Every solution involves printing. And how do you print a shit ton and keep inflation at 2%? You can't. You have to inflate something.

Best to have that something than cash or a non inflation hedging asset.