Inflation, Stagflation, Warren Buffett and Real Estate | The Housing Market 2022

May 31, 2022

Inflation, Stagflation, Warren Buffett and Real Estate | The Housing Market 2022

Let’s talk about real estate. Everywhere on the news, I keep on hearing about real estate, and there is a divide between people talking about the housing crash, the housing bubble, home prices will continue to go up, and people are continuing to buy homes.

I'm going to use statistics from this fantastic article I found to show you exactly what you should be doing as well as if you should be concerned about the real estate market.

But first, let's see what comes up when we search for housing market news on Google.

Google’s top search results for housing market news

See the thing that we’re seeing everywhere is a big division. The one thing that is certain is that the current rates are at the low fives (if you have a good FICO score of about 720) and home prices are going to continue to go up. 

Inflation and Stagflation

Yes, inflation is here.

In an article by CNBC, Warren Buffet said, “The Oracle of Omaha also commented on inflation, building on prior remarks he has made. Buffett had previously said that inflation ‘swindles’ equity investors, but noted Saturday that it ‘swindles the bond investor, too. It swindles the person who keeps their cash under their mattress. It swindles almost everybody.’”

Here’s the thing -  where else can we put money and have it not just “waste away” as it does in the bank? The answer is real estate.

Think of the long-term play when it comes to real estate.

So, if you need to buy, go ahead and buy. The housing market is doing pretty well. But first, I’m hearing words of stagflation. I want to get ahead of that.

According to Investopedia, stagflation is “characterized by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e., inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).”

All we have right now is rising prices. Our economy is somewhat okay, even though Q1 has negative GDP. Our unemployment rate is not that bad right now.

So, there is no stagflation even though some people are talking about it. 

Why the housing market won’t crash anytime soon

This article by Fortune talks about why US housing prices are unlikely to crash in the coming years.

Millennials are the biggest demographic in the country

According to the article, “these are the most common ages in the US starting with 2010 and showing projections through 2035,” and the biggest demographic in 2025 is 30-34 years old. “Following the Great Financial Crisis of 2008, many pundits proclaimed millennials would never buy houses,” Fortune’s article continues.

As a real estate agent that is consistently in the top 1% of the world, this is just my opinion. I keep on hearing this - that millennials are the generation that is never going to own a home. And experts are sometimes wrong.

That’s why we are looking at the data right now. We look at what happened in the past, and what’s going to happen in the next year.

The article goes on, saying “the idea was they saw what happened to the housing market, the job market wasn’t great, and young people were just going to live in cities forever. [...] That’s exactly what’s happening. Millennials accounted for more than half of all mortgage loan applications in 2021.”

Was it right? No. That didn’t happen. The pandemic hit and all of a sudden everybody wanted to buy a house. The rates went super low. And the millennials are getting started in their goal to become homeowners.

We don’t have enough housing supply

“The period [2008] left some serious scars. So builders pulled back in a big way. Housing starts in the US went from 2.3 million in January to 490,000 by January 2009,” according to Fox.

They started slowly building more houses in 2010, but the supply is still not enough.

The demand is so much right now. The interest is still at 5, and even if it gets to 6%, it is still low. And there are other factors we’re going to talk about.

According to the article, “There were roughly 210 million people in the US in the early 1970s, and they were building more than 2 million houses a year. There are now 330 million people, and last year there were less than 1.3 million houses completed.”

“Mike Simonsen of Altos Research notes we now have the lowest inventory of listings on record. As recently as 2015, there were as many as 1.2 million homes for sale in the US. That number is now closer to 260,000 for the entire country,” the article continues.

We’re just so far down the line that the supply is not going to catch up to the demand anytime soon. Even if the rates continue to go up (unless it goes up significantly like 9 or 10%) then we’re in a different world.

But right now?

No one wants to sell

Think of what is happening to the rates. Right now mortgage rates are at 5%, and you own a home with an interest rate of about 2.8%. Why would you sell to move to a house that is almost double the interest rate? 

People with houses that have great equity and amazing interest rates will not want to sell. This in turn creates even more demand.

“According to housing expert Logan Mohtashami, people lived in their homes for an average of five years between 1987 and 2007. But since 2008 that average has now doubled to 10 years,” Fox reports.

To sum it up, the article says, “We have the biggest demographic in the country in their prime household formation years. We underbuilt houses for a decade. Current homeowners are going to have a hard time letting go of their 3% mortgages to buy a new place. And the finances of those buying are in such good shape that people are willing to pay up for a house right now.”

That’s going to continue as long as rates are there. As long as something crazy doesn’t happen again, our economy is not that bad, unemployment is low, and interest rates are up.

If you want to buy a home, go buy a home. Don’t listen to all the negativity that is out there. What happens is as you start listening to this fear, it kind of plays into your decision. And then it becomes emotional. Let facts drive your decision.

Final Thoughts

I wanted to show you one last thing.

I saw the news that Michael Eisner sold his home here in Malibu. If he ends up selling this home then it’s going to end up being the biggest sale in California by far. The highest one sold is also from Malibu.

Things are still going to sell. If you want to buy, don’t let the media scare you into not buying. Do your research. And in some areas of the US, it’s not even going to slow down.