The Future of US Real Estate Prices: Rising or Resting?

The ongoing debate about the future of real estate prices in the United States has never been more contentious. While some argue that prices will continue to rise, others claim that they are approaching a limit. This article explores the various factors influencing the housing market and provides insights into the direction of future prices.

The Role of Interest Rates

As of recent developments, interest rates have indeed served to dampen the rapid rise in home prices. Higher interest rates make borrowing more expensive, which in turn cools down the housing market and reduces demand. However, this measure alone isn't enough to halt the overall trend of increasing prices. The rental market, which is closely tied to the housing market, is also feeling the impact due to the broader economic conditions.

The Impact of Inflation and the Rentier Class

The true determinants of the housing market's future are closely linked to inflation and the actions of the Rentier Class. In recent years, there has been a significant shift in residential real estate, primarily driven by institutional investors and banks using cheap money from the Federal Reserve. These entities are able to pay much higher prices and acquire properties en masse, making it increasingly difficult for individual consumers to compete.

The primary motivation of these institutional buyers is to convert middle-priced properties into rental income, which has driven up rents and made homeownership unaffordable for many. The working class is disproportionately affected, while the wealth of the billionaire class continues to grow. This is part of a broader geopolitical narrative known as the 'Great Reset,' where wealth and resources are increasingly concentrated in the hands of the elite.

Geographical Considerations

The geography of the United States plays a crucial role in predicting the direction of housing prices. Regions like the Southwest face unique challenges, including water and power shortages due to prolonged drought and empty reservoirs. As these resources become scarcer, their cost will inevitably rise, potentially surpassing home payments. The impact on the local real estate market is profound; eventually, the strain on these resources could lead to a significant downturn in property values.

Examples like the Oroville Dam, which has had to shut down due to water scarcity, and the rapidly depleting Lake Mead and Lake Powell further illustrate the mounting pressures on the region. The regional government is aware of these challenges, which suggests that proactive measures such as relocating to more resource-rich areas could be a prudent strategy.

Long-term Perspectives

Despite the current challenges, historical trends indicate that real estate prices will continue to rise over the long term. Stagflation, a period of high inflation combined with stagnant or declining economic growth, was a significant factor during the Obama years, which suggests that a reset in the housing market cycle is possible.

Those looking for appreciation in real estate should consider diversifying their assets. Creating something tangible or pursuing specialized niches in the market may prove more beneficial. Simply buying and holding properties without a clear strategy may not be a wise investment, given the unpredictable nature of the market.

However, with interest rates historically low, it remains difficult to imagine a future where home ownership or long-term rental income would not be feasible. Institutions will continue to play a significant role in driving demand, ensuring that prices will not stagnate indefinitely.