Why The Housing Market Won’t Crash Any Time Soon

I'm bullish on the housing market over the next decade. It's one of the reasons why I've invested $800,000 in a real estate fund focused on Southern and Midwestern properties. Real estate price and rents should continue to go up for years due to positive tailwinds I'll discuss in this post.

In addition to my real estate fund investment, I'm buying San Francisco ocean-view rental properties as well. Real estate is one of the most attractive asset classes to build wealth in a low-interest rate environment. As the pandemic subsidies, the demand for big city living will increase again. People want to be where the jobs and action are.

Reasons Why Real Estate Will Be A Solid Investment

In this article, you will read 16 reasons why the average homeowner will likely grow richer over the next decade. I have so much conviction in my housing market thesis that I've not only put my money where my mouth is. I've invested over $10 million in real estate so far.

Yes, with higher mortgage rates, the demand for real estate slowed since October 2022. In areas where home prices went up 40%+ in two years, I can certainly see a 10% – 15% decline in prices. However, this just gives savvy real estate buyers more opportunities.

Before I share all the reasons why the housing market won't crash any time soon, let me first share some more background so you know where I'm coming from. After all, we all have our biases, and I am positively biased towards housing.

Note: For those looking to leg into real estate, check out Fundrise. Fundrise offers private real estate funds that primarily investment in the heartland, where valuations are cheaper and net rental yields are higher. The minimum investment is only $10.


Brief Real Estate Background

Roughly 50% of my net worth is exposed to real estate. If I only owned stocks and real estate, real estate would account for a 60% weighting. My real estate portfolio consists of properties in San Francisco and Lake Tahoe, three publicly traded REITs, and a real estate crowdfunding fund focused on heartland real estate.

These assets generate roughly $150,000 a year in relatively passive income. If it wasn't for real estate, I'd probably still be working a traditional job.

I've been buying real estate since I first came to San Francisco in 2003 because I found valuations to be cheap compared to Manhattan real estate. I had worked in Manhattan from 1999-2001 and never imagined being able to find a 2/2 park-view condo for under $600,000.

I kept buying real estate because I also realized U.S. real estate was, and still is, cheap compared to international real estate. Working in international equities enabled me to explore various countries while working. And I always checked out the various local real estate markets while on business trips. Not only is U.S. real estate cheap on a global context, we also have jobs that make U.S. real estate affordable.

Take a look at the real estate statistics from one of our biggest foreign buyers, Canada. Cities like Vancouver and Toronto are equally as expensive as the most expensive cities in America. Yet, there are hardly any big Canadian companies that come close to paying as much as U.S. companies.

Go ahead. Try to name just three Canadian companies that pay new college graduates over $100,000 a year.

At the start of COVID in 2020, I encouraged readers to buy real estate through posts such as:

Finally, I followed my own advice and bought a forever home in 2Q2020. I put my money where my mouth is. Otherwise, there's no point talking so much about finances.

Reasons Why The Housing Market Won't Crash

For existing real estate investors, you should feel good about the risks you took to buy. It takes discipline to save up for a down payment. It also takes guts to buy a large asset with debt. My default recommendation for real estate is to hold on for as long as possible.

For new real estate investors, things are a little trickier. With elevated mortgage rates, a potential recession in 2024, low inventory, and higher prices, you need to be careful running with the herd. Housing affordability is near an all-time low, which makes buying with a large mortgage more risky.

Getting into a bidding war where you're the only one out of 20 people willing to pay way over ask has its risks. The housing market won't crash any time soon. But, if you buy a property this way, it might not appreciate for years as the market takes time to catch up to your top bid.

Let's review some reasons why I believe the housing market will likely continue to stay strong for years. I assign a 80% probability the housing market will not crash (a 10% correction or greater) within the next three years.

I also believe with a 75% probability the housing market will average midsingle-digit YoY gains over the next 10 years. Single-digit YoY gains means that the pace of price growth should start moderating. If I'm wrong, then I will suffer the consequences as anybody with skin in the game does. And just to note, Goldman Sachs and Zillow believes home price will rise by low-single-digits in 2024.

Median home list prices 2023 - Why the housing market won't crash any time soon

1) Mortgage Rates Will Fall Back Down

Although mortgage rates have come up from their 2020 bottoms, mortgage rates are now at 17-year highs. But looking at the 40+-year mortgage rate trend, rates should head lower by 2024-2025.

Interest rates have been coming down since the 1980s thanks to information efficiency, technology, global coordination, and learnings from previous cycles. Productivity gains have also been massive over the years.

The average duration of homeownership is only about 11 years. There's no need to pay more interest than you need to. It's much better to take out an adjustable rate mortgage with a lower rate than a 30-year fixed rate. Matching the fixed rate duration with your ownership duration makes sense.

With negative real mortgage interest rates, homeowners are essentially borrowing free money. On an inflation-adjusted basis, homeowners are actually getting paid to borrow money. As a result, there will be continued strong demand to take out debt to buy real estate.

fed funds and mortgage rates correlation

2) Inventory Will Remain Depressed For Longer

COVID has permanently increased the intrinsic value of real estate. When billions of people began spending more time at home starting in March 2020, the appreciation for a home's utility went up. Not only were homes protecting homeowners and their children from COVID, they provided a safe place for millions to play and work as well.

During perilous times, we hold onto what we treasure most. This is why real assets like homes held their value while stocks crashed 32% in March 2020. Unlike a home, you don't need stocks to survive.

Given how much homes have given homeowners since the pandemic began, the tendency is to hold onto our homes for longer. You don't get rid of things you love and use every day. You cherish them. Besides, what if there’s another pandemic or random disaster?

Homeowners also know that if they sell their home, they will have to compete against other homebuyers who want what they already have. Further, when 90% of mortgage holders have locked in a mortgage below 5%, they will want to hold on for longer.

With lower inventory for longer, rising long-term demand will continue to put upward pressure on home prices. With most homeowners locking in mortgage rates below 4%, selling and getting a higher mortgage rate doesn't make sense. As a result, both supply and demand are muted.

latest housing inventory

3) Potential Homebuyers Are Richer Post-Pandemic

The current potential homebuyer is likely much richer today due to a rise in stocks. The S&P 500 returned 16% in 2020. The NASDAQ returned 43% in 2020. Practically every single stock index went up in 2020. 2021 was another great year for stocks. Too bad 2022 erased a lot of gains. 2023 has been another positive year.

Further, the current potential homebuyer likely held onto their job during the pandemic. As a result, there was little-to-no income disruption as millions of people worked from home or found ways to make money from home.

Take a look at your own stock portfolio and net worth since January 2020. Chances are high you are up at least 10% since the start of the pandemic.

With more wealth from stocks and day job income, the buying power of homeowners has increased. With stocks continuing to go up and unemployment levels continuing to go down, homeowner demand will continue to increase.

4) Domestic And Foreign Institutional Demand Is Increasing

There is a clear increase in demand no from institutional real estate investors for rental properties. With a decline in interest rates, investors everywhere are looking for higher-yielding investments. We're not only seeing investors bid up real estate prices, but dividend stocks, and cash cow online businesses as well.

Technology has also made real estate syndication deals much easier to form. Capital raising is more efficient. Doing research online is easier. Signing documents and transferring funds is no longer a headache. As a result, institutional real estate funds are only going to get bigger, not smaller. More capital brings more competition.

The next uptick in demand will come from foreign institutional investors who buy up cheap American property. COVID helped serve as a throttle in 2020 and 2021. However, that throttle will soon be released. Foreigners are also hungry for yield. They have also experienced record-high stock prices while also amassing pent-up savings.

If Americans don't buy our own homes, foreigner real estate investors will buy our property for decades to come. Be forewarned. Foreigners will once again start buying up properties in international cities like San Francisco, NYC, Los Angeles, Seattle, and Boston.

But they are also getting smarter about heartland real estate as well. Americans have the head start. Be that as it may, foreigners aren't far behind.

Foreign Buyers of U.S. real estate through 2021
Expect foreign demand to rebound in 2022-2023

The U.S. housing market is cheap on a global context. The main reason why Canadians are consistently the number one buyer of U.S. real estate is because they recognize this fact. If the U.S. housing market were to turn into the Canadian housing market, prices could go up by another 30% – 70%!

5) The Federal Reserve And Federal Government Are Pro-Homeownership

Never fight the Fed or the Federal Government. If you fight the Fed, you will end up losing a lot of money. If you fight the Federal Government, you will likely get fined or get thrown in jail.

Given the Fed and the Government are pro-homeownership, it is only logical to invest in real estate. President Biden and Congress have clearly signaled their willingness to spend an endless amount of money on stimulus spending.

Besides the implicit support from the Fed and the Government, we have favorable real estate laws in place:

If you want to make money in real estate, you must put any negative beliefs aside about the Fed and the Government. Be politically agnostic and face reality.

Most of the time, the people who are most vocal against real estate are the ones who cannot afford to buy property, sold property at the wrong time, or didn't buy property when they could have.

For some reason, some people against real estate aren't able to accept that people who buy real estate also buy stocks and other assets as well.

6) Demographic Tailwind

Fannie Mae estimates there are 88 million people in the millennial generation. This is the highest number I've ever heard reported of people born between 1980 – 1999. The millennial generation definition seems to be getting larger. But, the point is there is a huge population of 22 to 41-year-olds who are in their prime home-buying years. All the previous talk of the millennial generation renting for life is turning out to be BS.

A good life tends to be the same as it ever was for most people – find a partner, own a home, start a family, work hard to provide for your kids, retire with a paid-off home, etc.

Millennials have been late to the home buying trend due to more education, more student debt, delayed unions, and more competition. But for the past 5+ years, millennials have been the largest percentage of buyers. This trend will likely continue for another 10+ years.

As an investor, it's generally a good idea to invest in long-term trends. Positive demographics are a long-term trend worth riding. Once you invest in a positive trend, you don't have to worry as much about the minutiae. You just need proper exposure.

Check out how the median age of US homebuyers continues to increase over the past decade. Thankfully, the median life expectancy is also increasing.

Median age of US homebuyer

7) Multi-Generational Wealth Transfer

The Boomer generation (born 1944 – 1964) is one of the wealthiest generations in history because Boomers have been able to invest in the longest bull market in history. As a result, Boomers have an estimated $30 trillion in wealth they will be transferring to their children when they die.

However, given how rich the Boomer generation is, they will likely transfer more of their wealth while still living in order to enjoy the benefits of their giving. The revocable living trust business is booming with the Boomers! My estate planning lawyer can't keep up with the demand and now takes forever to respond to my e-mails.

We are seeing an increasing percentage of parents buying homes for their adult children. Now we are seeing parents and grandparents buy homes for their little children or grandchildren decades before they need independent housing.

With the estate tax threshold likely to decline from a record-high $12.93 million per person in 2023, more rich parents will spend down their estates to avoid a 40% death tax. Further, more Boomers will start regularly giving $15,000 a year in gift-tax exclusion per person. More GRATs will be set up to avoid estate taxes as well.

The tsunami of inheritance money will inject more capital into real estate, stocks, and other asset classes. Younger people are more motivated to invest. Younger people also want to see what type of wealth they can build on their own. In contrast, older people are more set in their ways, especially when they already have everything they need.

8) Homeowner Equity Cushion Is Massive

Take a look at the homeowner equity and mortgage debt outstanding chart below by the Federal Reserve Board. The data is as of Q32020 and homeowner equity has continued to grow since then.

Homeowner equity was roughly $21 trillion versus $11 trillion in mortgage debt outstanding. With so much homeowner's equity, there won't be a housing market crash any time soon.

Total value of U.S. real estate and mortgage debt held by households

$21 trillion in homeowner equity with $11 trillion in debt is like having 65% equity in your home and a loan-to-value ratio of only 35%. Most first-time homebuyers put down 10% – 20% for a loan-to-value ratio of 80% – 90%.

If you have 65% equity in your home, your equity buffer is so large that you will likely never have to fire-sale your home through a foreclosure or short sale. You will do everything in your power to find ways to keep paying the mortgage to keep all your home equity from going to the bank.

In fact, with so much home equity, it is more likely the typical homeowner will take out a home equity line of credit (HELOC) to buy more property or consume more goods. Many homeowners are investing in public REITs and private eREITs through Fundrise to take advantage of the real estate trend.

If you have been a homeowner for longer than one year, just ask yourself whether you'd ever sell your home at a discount as the economy opens up. Of course not. You are going to enjoy your property and hold on to it for as long as possible.

Below is a another chart that highlights US owner's equity in household real estate.

Total U.S. household equity

9) Household Debt As A Percentage Of Disposable Income Is Low

As long as a homeowner can service their debt and pay property taxes, the homeowner will never lose their home. Given it's been much harder to get a mortgage or refinance a mortgage since the Global Financial Crisis, homeowners have had to increase their down payments. As time went on, incomes increased, homeowner's equity increased, and mortgage debt decreased.

Today, we find ourselves in a scenario where U.S. household debt service as a percent of disposable income is at its lowest level for over 50 years. Part of the decline most certainly has to do with a continued drop in interest rates.

For example, when my wife and I refinanced our old primary residence in 2019, our mortgage payment dropped to about $2,850. Back in 2005, our mortgage payment was $6,500 for another house we owned.

If we adjust the mortgage amount to be the same as the mortgage we had in 2005, our mortgage would be about $4,300. Millions of homeowners are now much wealthier since 2009, yet are paying less to service their debt. The average tappable home equity is huge.

US household debt service as a percent of disposable income historical chart

10) Moderate Inflation Is Good For Real Asset Prices

Real estate is one of the best inflation hedges given housing costs are a key part of inflation Inflation whittles down the real cost of debt. Further, inflation acts as a tailwind to boost rent and property prices.

With the latest inflation print and the current average 30-year fixed rate mortgage, borrowers are experiencing a negative real mortgage rate! When you have negative real mortgage rates, you want to responsibly borrow all you can to buy a real asset that will benefit from inflation due to rising rents.

If possible, an inflation investor should go long healthcare, higher education, and real estate. Too bad none of us can buy private colleges that raise tuition by 7% a year! But at least we can buy healthcare stocks that gouge us every month, a primary residence, rental properties, and stocks.

The main reason why most of us work so hard and invest is so that we can afford a comfortable home, provide for our children, and one day retire without financial worry. Housing is a core part of inflation.

If you can invest in real estate that not only provides shelter, but also appreciates in value over time, you're winning. The housing market is a beneficiary of inflation. Renters are going to continuously get squeezed by rental inflation. As a result, more renters will decide to buy homes.

11) The Amount Of Funny Money Is Exploding

Every 40+-year-old investor learned his or her lesson from the 2000 dot com bubble. When you've had a multi-bagger homerun in names like Tesla, Bitcoin, and more, you convert some of those funny money gains into real assets like real estate. You most certainly do not roundtrip your Pets.com and Webvan stocks to zero!

As the mania for crypto, NFTs, Reddit YOLO stocks, and growth stocks rages on, more money will smartly find its way into the housing market for diversification.

At the end of the day, these huge gains will be converted to buy things that improve the quality of an investor's life. In other words, real assets like real estate, art, wine, cars, and so forth. Otherwise, it's all kind of pointless.

12) Credit Is Still Very Tight

When the dotcom bubble burst in 2000, real estate began to outperform until about 2H2006. That is when the euphoria hit its peak as banks lent to anybody with a pulse. Thankfully, lenders were forced to raise their tier 1 capital ratios and lend much more prudently since the 2008-2009 Global Financial Crisis.

Nowadays, only people with high credit scores and solid financials can get a mortgage. When I refinanced my mortgage in 2019, Citibank and Wells Fargo would only give me the best rate if my credit score was above 800. When I took out a new purchase mortgage in 2020, Wells Fargo required an 800+ credit score again.

During the 2020 crunch, the mortgage industry was very tight. There was a point where HELOCs and jumbo loan refinances were restricted, even to existing customers. Further, going through the underwriting process took a month longer than average.

Take a look at the mortgage originations by credit score chart below. Notice how anybody with under a 660 credit score has essentially been shut out from getting a mortgage or refinancing a mortgage since the GFC. Further, the percentage of borrowers with a 760+ credit score has increased.

It's hard to see the housing market crash when predominantly high credit score borrowers with huge homeowner's equity have been buying since 2008. Just look at the 1Q2009 blue bar compared to the latest blue bar. We're talking a 5-6X difference!

Mortgage originations by credit score 2003 through 2020

13) Rents Rebounded In Big Cities

One of the reasons for housing bubble concerns is that cap rates compressed to unattractive levels. As a result, a lot of capital flocked towards 18-hour cities where cap rates are higher. At the end of the day, a home price cannot keep going up indefinitely without rental price growth.

During the pandemic, we saw rental price compression in some of the most expensive cities in America. However, rent prices are now rebounding and will likely continue to rebound as people come flocking back. A continuous rebound in rent bodes well for home prices.

Rent price growth rebounding post pandemic

Besides big city rents going up, national rent growth had been accelerating. Ultimately, the value of a property is based on a multiple of its rental income. As a result, rising prices are supported by rising rents nationwide.

Here's another rent growth chart for good measure. Rent growth has slowed since 4Q 2022 and will help bring down inflation. More people are renting, ironically, because of higher mortgage rates.

Rent growth slowing in 2023 - Shelter CPI rolling over

Related: Rising Rents, Rising Fortunes For Landlords: But Is It Fair?

14) The Cost To Build Housing Is Rising

You may have heard that lumber prices are up 3X in one year as demand outstrips supply. Therefore, framing costs to build a house are up at least 2X as lumber accounts for 70% of framing costs. To build a new 2,000 sqft house, framing costs might be up $70,000 – $100,000. There are supply-chain shortages in many finished products as well. Expect delays.

Thankfully, lumber prices have cooled off as supply constraints normalize. That said, prices are still up double-digits from 2019 after the roundtrip in lumber prices in 2021. Remodeled home should sell for bigger premiums going forward due to the difficulty to remodel nowadays.

Then we have a construction labor shortage that is causing wages to rise. My contractor told me he is paying his subcontractors 50% – 100% more per hour than when he did a project for me in 2015. I don't doubt his word because I've been using one of his workers to do some side work for me over the years.

Finally, it is now tougher than ever to get a building permit in some cities due to the rise in home remodeling activity. Planning and Building departments are backed up. I've been waiting to get my within-the-envelope permit approved for close to four months now. What a waste of time.

The increase in cost and time to build or remodel a home makes a home more valuable. At the margin, new or newly remodeled homes will likely command a larger premium than fixers.

Note: You should re-shop your homeowner's insurance policy. With the cost of building a home going up quickly in the past couple of years, your homeowner's insurance policy is likely not enough. Check and compare the latest rates with PolicyGenius for free. Not only might you save money on your policy, you'll rest easier knowing you are properly covered.

15) Selling Costs To Sell A Home Are Still Too High

If the cost to sell a home dropped to $0 like stock trading, I'm certain there would be a lot more supply of homes for sale. However, many realtors are still able to charge a 5% – 6% commission to sell a home despite the internet. Therefore, the real estate industry is self-throttling, which is actually beneficial for homeowners who never sell.

In addition to high real estate selling commissions, there is also the cost to prepare the home for sale. Potential costs include painting, refinishing floors, painting, changing fixtures, repair, and staging. Then there are transfer taxes, recording taxes, and potentially capital gains taxes to pay.

Here's a sample table of the cost to sell a home.

The cost to sell a home is still so high - Real estate fees, transfer tax, inspection cost, staging

It took the previous owners of our home four months and ~$150,000 to get the home ready for sale. They put on a new roof, finished all the floors, painted the inside and outside of the house, changed many windows, replaced a couple decks, fixed a leak, re-did a ceiling and a wall, and landscaped. As a buyer and experienced home remodeler, I loved knowing this and seeing the before and after pictures. It meant I didn't have to go through any of that.

Given all the costs and time required to sell a home, you have to be really motivated if you want to sell. Selling during a pandemic is just another hurdle. Therefore, perhaps pent-up supply is coming once there is herd immunity. However, unless selling costs go down, the vast majority of homeowners would rather hold on.

The cost and time required to sell a house makes panic-selling much harder. Therefore, the likelihood of a housing market crash is also lower.

16) Potential Long-Term Capital Gains Tax Hike

President Biden wants to raise the long-term capital gains tax rate from 20% to 39.6% for households who make over $1 million. If you are a long-time homeowner sitting on more than $1 million in capital gains beyond the $250K/$500K tax-free profit exclusion, then you may end up holding onto your home for longer. As a result, home inventory should decline.

It’s already difficult enough to move out of a home you’ve lived in for 40+ years. Why would you then sell it to pay a 43.4% capital gains tax (includes the 3.8% Net Investment Income Tax)? Instead, it's best to hold onto your gold mine forever and pass it down to your children when you die.

With lower housing inventory due to a higher capital gains tax rate, housing prices should continue to stay elevated.

17) Higher Conforming Loan Limits Improve Affordability

The Federal Housing Finance Agency (FHFA) increased the conforming loan limit for 2022 by an astounding 18% to $647,200, up $98,950 from 2021’s limit of $548,250.

In higher-cost areas, the new loan limit increases to $970,800, or 150% of the baseline loan limit. This ceiling applies to residents of Alaska, Hawaii, Guam and the U.S. Virgin Islands, as well as areas in which 115% of the local median home value exceeds the baseline conforming loan limit.

These record-high increases are great for homebuyers because conforming loan rates are generally about 25 basis lower than nonconforming loan rates. As a result, housing demand, especially for homes priced up to 120% of the conforming loan limits should remain high.

18) War Is Making Real Estate More Attractive

Sadly, Russia's invasion of Ukraine has made people look towards owning more hard assets like real estate and gold. Bond prices move up and mortgage rates go down as well. As a result, real estate becomes a highly coveted asset class during times of war. I really hate that I have to add this 18th bullet point about real estate.

Best Time To Get Into The Housing Market

With all the bullish reasons to get long the housing market, when is the best time to enter the housing market? I can think of four situations:

1) When You Can Afford To

I've made a case the best time to buy property is when you can afford it. In my opinion, you can only comfortably afford property if you follow my 30/30/3 rule. For those of you in more expensive metropolitan areas, you can stretch to buy a home equal to 5X your household income, but no more.

If you do stretch to 5X, you had better be bullish about your career. If not, you will likely have some sleepless nights for the first couple of years until your savings coffer gets refilled.

2) During The Winter

If you're looking for the best time to buy property during the year, the answer is during winter. Sellers who list their homes during bad weather and holidays months are usually more motivated. If they weren't motivated, they could simply hold off for several months and list in the spring.

I think the best time to upgrade your home is coming in the next 12-18 months.

3) When The Moratoriums End

The other potentially good time to buy property is when the mortgage and rent moratoriums end. The idea is many homeowners who are behind on their mortgages may have to foreclose or short-sale because they cannot afford all the back pay.

If banks are smart, they will simply tack on the back pay to the overall mortgage balance. This way, the homeowner gets to pay only a slightly higher mortgage amount each month. The lender also still gets paid with interest. Everybody wins. But, investors need to prepare for illogical legislation or moves by lenders by building up a cash hoard now.

However, institutional investors and retail investors are also waiting for such an opportunity. Hence, competition will likely continue to be fierce. Also, watch out for foreigns institutional investors flooding back in to the U.S. market.

For example, Fundrise, my favorite real estate crowdfunding platform, has been aggressively buying single-family properties. They run over $3 billion in assets under management and are vertically integrated for better efficiency and cost savings. Therefore, I'm happy to put my money with them so they can do the work and make the returns for me.

4) As Soon As International Economies Open Fully

Perhaps the best opportunity to enter the housing market is when people start traveling in droves. Everybody, including myself, wants to travel again. With more people traveling, there should be less competition. I'm noticing slightly more buying opportunities and less competition at the moment. That moment is now as many countries in Asia and Europe have dropped their quarantine restrictions.

The reality is that there are always good real estate opportunities if you look hard enough. Some properties are mis-priced and go stale-fish. Some properties are listed by an out-of-town agent without the proper marketing skills and connections.

You might also be able to get a deal if you send a real estate love letter or knock on a home that's looking to be prepped for sale. That's what I did in 2019 and it worked like a charm.

Real Estate Will Always Be A Core Holding

To get over your real estate buying fears, think in generations. What will your kids and grandkids say about the property you buy today? Chances are high that in 20-40 years they will be amazed at what a good deal you got. Inflation is too powerful of a force to combat. It tends to sneak up on you.

A savvy investor rides the inflation wave. Just like how it's not a good idea to short the S&P 500 long-term, it's not a good idea to short the housing market by renting long-term.

I don't care what your favorite financial guru says about the negatives of owning real estate. There's a reason why the net worth of the average homeowner is more than 40X the net worth of the average renter. Just the forced savings each month alone keeps a homeowner disciplined.

I think buying a house in 2023 looks like a good opportunity now. Rates are down, the stock market has rebounded, real estate prices are down, and there is growing pent-up demand.

What If There Is A Housing Crash?

If the housing market does crash one day, you will probably make out just fine if you bought responsibly and keep paying your mortgage, if any. Real estate is not like stocks. With stocks, you may go through daily heart attacks as their value disintegrates during a bear market.

During the 2008-2009 crash, my primary residence likely went down from $1,700,000 to at worst $1,400,000 (- 17%). But I refinanced the mortgage when rates declined to boost cash flow. Then, I happily kept living in my home until I found a new place in 2014. I turned my old home into a rental.

When my son was born, I sold the rental property for a lot more. Then I rolled $550,000 of the proceeds into stocks, muni bonds, and commercial real estate. When new opportunities arose in 2019 and 2020, I bought more single family homes.

Relatively Easier To Forecast A Future Slowdown

Unlike stocks, it can take years for the housing market to turn. Therefore, I'll let you know when I start to get a sense that it does. After all, to be a successful investor, we must practice predicting the future.

Housing price growth rates must decelerate over the coming years due to the law of large numbers. However, I expect the housing market to be higher in ten years time.

I won't have the capital to buy another single family home for a while. However, I do have the capital to buy publicly-traded REITs, private eREITs, and individual private real estate investments for more tactical exposure.

Take a look at my favorite real estate crowdfunding platforms: Fundrise.

Fundrise is a way for all investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and is the largest real estate crowdfunding platform today.

The platform has consistently generated steady returns, even during stock market downturns. It specializes in single-family and multi-family homes in the heartland of America. For most people, investing in a diversified eREIT is the easiest solution.

I've personally invested $954,000 in private real estate funds since 2016.

private real estate investment dashboard

Best of luck in your real estate hunt! Stay disciplined. Run the numbers. Forecast worst case scenarios and only buy if you can survive them. I truly believe the housing market will stay strong for years to come. The housing market won't crash. But it will likely soften after such a huge run since 2012.

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114 thoughts on “Why The Housing Market Won’t Crash Any Time Soon”

  1. Great article. Very thorough, and as someone who works in Real Estate, music to my ears, haha. I talk to more people than you could imagine who are refraining from anything to do with real estate due to scare tactics and inaccurate information they get from sources that don’t truly understand the housing market. They call the next 5 years “the next 2008,” when In fact, I believe right now is the best time you can buy in the next 5-10 years. No one can perfectly time the low point when prices stop declining and begin to increase- but if you buy now in many situations at a reduced price, then wait till interest falls & demand returns and refinance, you will have mortgage payments going DOWN with your home value going UP and you’ll be happy you didn’t listen to the scare tactics going around right now on Fox News

  2. What do you think now of housing market for first time house buyers?

    I have enough downpayment but still hesitating to buy with this rediculous prices..


  3. Well, sounds like you went all in right at the top of the housing super bubble. I’ll take the opposite side of your thesis and believe a multi-decade housing bear market has begun. Population demographics, cyclical forces, multi-year rising mortgage rates, income decline etc. are all aligning to put an end to the 70+ year housing bull market, IMO.

    1. The recent top was around March 2022. I didn’t buy a house then. I bought in mid-2020, but also bought in 2003.

      A multi-decade housing market is something I can definitely bet against. Real estate markets go in 7-10-year cycles. We’re now going to see a softening until probably the end of 2023 and I’ll be looking for deals. It was a great run until the beginning of 2022.

      Inflation and rates will go down again by 2023 and then it’s back to normal trend. This is the beauty of the market. We can invest and do what we want and accept what comes next.

  4. Whats your thoughts on investing in BREIT or SREIT and owning real estate through them rather than doing the grunt work personally.

  5. Dear Sam,

    I am now well invested in real estate(Thanks to your informative analysis and posts).

    On the other hand to safe gaurd my interests, I would like to hedge my real estate investments just in case. Can you please advise of any real estate short stocks or alternative vehicles to hedge against a real estate fall scenario.

    Thanks in advance.

    1. If you want to short the housing market, you can short Invitation Homes, American Homes 4 Rent, Home Depot, Vanguard Real Estate ETF VNQ, Redfin, and Zillow.

      I wouldn’t short. But those are some options. Good luck!

      1. The market is already in crashola mode, EVRYWHERE! Listen to the pro’s not not two bit real estate people, lol

        1. Try not to generalize. Many good agent, many bad ones, just like other industries and professionals. Most likely you either had an unpleasant real estate experience, or you are bitter because you failed the r.e. exam.

  6. Hi,
    As always great article. The 3 yr period that you mention at the start of this article, “I’m bullish on the housing market over the next three years” is this 3 year period from your original post date or updated/edited date i.e. 06/24/2021.

    Thank you,

    1. Pretty similar as I just wrote the post and am updating it monthly.

      Through 2024, and I’ll update if I change my views.

      The pace of housing price appreciation will slow for sure, but will still appreciate.

  7. Dividend Power

    I agree with what you are saying. Builders are much more conservative in building and supply is tight. This will drive prices up. Interest rates are low but I think the Fed will move more quickly than people think when they do.

  8. Should I buy a condo apartment as first investment property if it is cash flow negative by about $300?

    If rates don’t increase. I can probably refinance the mortgage to decrease mortgage payments in a few years to make it cash-flow positive.

    If I keep it forever, I will eventually get passive income when it is fully paid.

  9. “The average duration of homeownership is only about 10 years.” – is this still true in light of points 2) and 8) where you highlight the value of holding on to your home for as long as possible? Are we possibly seeing the beginning of a trend where people hold onto their homes for longer than 10 yrs on average ?

    1. A 10-year holding period is the latest data. 10.5 years actually. Before the pandemic, the average was about 9 years. I think the average holding. Will only increase over time. Savy investors will simply accumulate more real estate and hold on for as long as possible.

  10. I don’t think the market will go down. I’m 33, just bought a two acre parcel off I-80 45 minutes from Tahoe to build our dream home (I’m a contractor).

    All of my early 30s friends bought their first homes this year, these are my “smartest friends”, they have 800+ credit scores, secure jobs at big companies, have fantastic taste/style, and aren’t idiots.

    The landscape has changed, every person I know around my age is dead set on investing/buy and hold/passive income. This is basic information about how to be successful as a millennial. Work hard, buy the right assets. The boomers now understand it too, as this info is all over the internet. Why would my dad (tradesman) sell his house that he bought for $215k in the 90s and blow the cash when he can rent it out for 5k a month and still own the asset to pass down? People aren’t stupid anymore- it’s all about holding onto valuable assets that are in short supply, if the economy crashes and everyone looses their jobs who gives a shit? People will hold on for life- they will house hack their rooms/garages/living rooms as rentals to keep their asset. People need to live somewhere, as Sam has said multiple times.

    The only people I see losing right now are my friends in service jobs without higher education- they stopped paying rent, their credit scores suck, it’s a recipe for being bounced around from rental to rental for the long term, financing someone’s retirement.

    I’m probably wrong. I don’t know shit. But this is what I see at the moment.


    1. In other words, it’s the same as it ever was. People get jobs, people find love, people want to start families and settle down. And the thing is, real estate is becoming more of a common investment for Passive income in retirement. So instead of just owning your own home, he start to accumulate a portfolio.

  11. Did you ever write a post on the rationale behind your 2Q 2020 purchase? Would love to read your thought process on buying as I want to buy a home too.

    It’s quite amazing how great real estate is doing and how much I expect real estate to not crash anytime too. It’s like these days, there’s no way to lose with investing. When people don’t expect to lose is when everything crashes but I just don’t see it.

  12. This chart is my favorite pandemic chart: fred.stlouisfed.org/series/CDCABSHNO

    Individuals are flush with cash, student loans are suspended (forever?), the FHA cohort is about to start receiving $300/mo per kid, and construction labor is super tight.

    Looks like a pretty good setup.

  13. Is it possible to have a live debate between you and Patrick(patrick.net) on real estate futures?
    This will help us understand two sides of “real estate” as investment.

  14. I think it will crash, I hope not. It seems like the housing has been propped up by the government printing, spending and giving away taxpayers money and secondly people with a lot of money are buying expensive property because they know that inflation is going to increase by an incredible amount.

      1. I don’t know how but, the way everything went up overnight and adding $4 trillion to the debt in a few month’s is not wise. I don’t keep running my credit card up and then get another credit card to pay it. I’m not claiming to know much about economics, but, this looks to me like tough times are coming. I hope not. I have 2 pensions coming when I retire and 1 of them was in trouble. Congress just passed a recovery plan (bailout) which is good news for me but I would truly rather see this nation in a healthy financial state for the future rather than individual benefit.
        The government is encouraging people take welfare rather than learning a skill and getting a good paying job. They are going to run out of other peoples money. Time will tell.

  15. Whatdoiknow

    I sold my house and signed one year lease. I put the cash at different banks to the 250k fdic limit. A year and a half into the pandemic and we still are losing 600k jobs per week. Still the eviction and mortgage moratoriums in effect. I say depression hasn’t started yet. Give it some time.

    1. Thanks for sharing your view. The employment and forbearance data doesn’t point to this direction, but one never knows.

      I have begun to de-risk a little in stocks. But my net worth is still majority exposed to the YOLO economy.

  16. The only way the housing market will crash is only if there is a black swan event x 10. The Baby Boomer generation is not downsizing, their kids are moving in to assist parents and parents are leaving their kids the house and any rentals. The millennial generation is much larger than the baby boom generation.

    Millennials are starting to buy, builders slowed way down. Also think about this aspect in the early 70’s Roe vs Wade. So Generation X was so much smaller. Builders are not building first time buyers type homes (profit margin is to small to build them).

    Starting in the 1950’s up to 1999 each decade an average of 25-27 million new homes were built in America. The last 2 decades it has averaged 5-7 million new homes each decade, basically a fourth (1/4) less. So it’s back to the old faithful saying, supply and demand.

    There is no real estate crash unless some serious black swan. The Feds are stuck and rates will remain low for next few years. I’m looking to add to real estate portfolio of 5 SFH’s!

    1. Maybe not black swan event X 10 given a black swan event is already a 3 standard deviation outlier. But I get what you mean.

      5 more SFHs is a lot! Please run your numbers over and over again before you buy! And if you buy with all cash, then enjoy!

      1. Sam,

        Yeah I know, I was exaggerating on the 10x. I currently own 5 SFH’s. Not looking to add 5 more anytime soon..if I had the $’s I would though.

        1. As I recalled, there was a 7.0 earthquake in 1990 which caused housing crash in the Bay Area. People from Bay Area went and bought house in Sacramento after the quake. I hope there is no earthquake anytime soon.

  17. What an echo chamber you have going here Sam! I think you’re getting a little worried about California real estate when you’re writing these lengthy posts trying to convince people how real estate is a good investment. Inflation is historically bad for housing prices. Look no further than the inflation adjusted home prices of the 1970s. Yes, it’s true that the absolute home prices may not fall much (the fed will make sure of that), but there will be a much better return on investment in other assets classes such as stocks, bonds, and commodities.

    1. You could be right! And the great thing is, we can always revisit this post in 1-3 years and see who ended up being right. At the end of the day, everything is rational. We are either richer or poorer because of our investment decisions.

      I wrote this post because I’ve been the least worried about housing in a long while. So I’m hoping more people will share with me WHY you think housing will decline or crash.

      Are you a renter or a homeowner, and for how long? I’d love to get your background and know where you’re coming from. Why do you think real estate will not do well?

      I hope you are right about stocks and bonds because I’ve got heavy investments in these asset classes as well.

      1. I’ve always been a renter for the past 10 years since graduating college. I’m frustrated that no matter how much I try to save, I can’t keep up.

        Therefore, I’m hoping real estate prices go down so I can buy.

        1. Well, hoping things crash or people stumble is on way to get ahead. But it’s out of you control. Hence, a better way is to focus on new ways to earn income. I decided to start this website when I knew my days in banking were numbered. Use the energy of your youth to try something new!

        2. You should likely try house hacking then. Perhaps you can get some others to go in on it with you? You are renting anyway, may as well rent from yourself and buy with some friends. Eventually your “rental” payments will shift along with the equity increase. Then you can borrow from the house and go get your own. You and the friends can keep the original house and keep renting it out.

          I did similar back when I got out of college. I ended up buying it myself, but always had a roommate with me prior to moving on to my next one. I then kept that property for another 3-4 years before selling it off.

          I would just look for something cheap in the area you want to live, rather than renting something that you want to live in. You’d be surprised at how efficient it can be. I used to get to downtown DC in about 8 minutes while paying 1/5 the housing prices and rentals other were.

    2. We are in uncharted financial territory by a lot of metrics and I’m noticing that folks who want the housing market to crash are seeing a lot of reasons why it will crash (me as I am eager to buy but refuse to get in a bidding war over inflated prices in the Bay Area right now). And folks who do not want the housing market to crash are seeing a lot of reasons why it won’t (Sam who is a homeowner here).

      Whatever happens you should be prepared is all anyone can do.

  18. Sam how will Biden’s doubling of cap gains tax to 43%, increase in corporate taxes, removal of the step up provision for inherited assets and subsequent increase in interest rates after this year affect the housing market?
    Also do you subscribe to the view that we are currently in a cyclical inflationary period but really a secular deflationary period going forward. Thx for your reply

    1. Cap gains tax increase will discourage RE investment, just as any tax would.
      Municipalities will look to additional taxes to rebuild finances and real estate is the easiest target.
      Investors will look to crpyto where it is easier to evade tax.

      1. I just think investors will simply end up holding onto their investments longer, resulting in more scarcity and higher prices.

        Investors can simply borrow from their equity to do whatever.

  19. Hi sam,

    When you say your net worth is 40% in real estate, this means your EQUITY in all properties, crowdfunding and reits right? It doesnt count the debt portion yet? The reason i asked is like you, i really like real estate a lot and am contemplating of a comfortable percentage of networth tied to property. Thanks!


    1. Yes, estimated equity is what is used to calculate net worth. However, total property value is used to calculate total real estate exposure.

      I don’t like having any one asset over 50% of net worth, including real estate. Although, I understand that is hard when one is first starting out and buying their first home with debt.

      As soon as your buy a property, do your best to grow other parts of your net worth.

      Related: Recommended Net Worth Allocation By Age And Work Experience

      1. Great advice. I’m sitting at 60+% of networth in real estate. Now, this isn’t just primary home equity. It includes an office space and rentals producing positive cash flow, but I understand I need to bulk some other areas of my NW. It’s just been hard to do so, as properties are increasing in value faster than I can type!

      2. Hi sam,

        Thanks for this. Im finally going long real estate, i bought my house 2 yrs ago which got me to neutral. Ill be at 30% net worth exposed to real estate after my down payment for this second house. I checked with your 30/30/3 rule and i think i passed all parameters. One thing im a little worried about is prices of single detached homes in manila increased by 30-35% for the past couple of years. Keeping my fingers crossed that property wont collapse. Lol



  20. Sam,
    You left out the most important reason real estate won’t crash soon. The cause of SFH prices increasing (and all other assets; stocks, other real estate, crypto; you name it) is the UNPRECEDENTED increase in the money supply. See below for link showing the M1, M2, M3 money supply skyrocketing over the last 12 months. The government(s) have used COVID as an excuse to increase money supply to levels that have never before been seen. All that money has to go somewhere. It’s going to income producing assets such as stocks and real estate. It’s also going to speculative assets like gold, cryptocurrency, fine art and more.


    M1: forbes.com/sites/investor/2020/06/26/inflation-baked-in-as-us-money-supply-explodes/?sh=2b131aa87829
    M2: tradingeconomics.com/united-states/money-supply-m2
    M3: shadowstats.com/alternate_data/money-supply-charts

    1. The jump in M1 is misleading. The Fed redefined the money in savings accounts when they removed the 6 times per month withdraw limit on savings accounts. The majority of M2 (savings and money market accounts) suddenly was considered M1, hence more dramatic vertical line jump.
      There is even a disclaimer explaining this on the Fed’s website.

  21. Hi Sam. I’m in contract for a SFH in SF. Will lease out for a couple of years then sell. Is a fixer so there was only 5 offers and I didn’t have to pay way over asking. However, a friend was outbid recently on an average 3 bedroom home on the peninsula. Listed for 1.8M & sold for 2.4M. Crazy. I’m thinking at least 50% of the people who left SF will come back as the economy continues to reopen. Fingers crossed!

    1. Good luck with your fixer! I used to love fixers in my 20s and 30s, but no more in my 40s as a dad of two young kids.

      I think 50% – 70% of the people who left SF will come back too. And I think even more people who didn’t think they had a chance to compete in big cities will come back. Just look at college admissions at the Ivies, up 20% – 30%!

  22. FinancialFire

    Great post Sam! Why haven’t you gotten your real estate agent license? It won’t be difficult for you and it would solve the barrier of high commissions for you.

    1. I should if I want to sell. But then, what a PITA to try and save in 2-2.5% commission. Further; I may get to emotional selling and don’t have the Rolodex of buyers.

      But when I buy, I buy directly from the listing agent and represent myself. I’ve done this for the past three homes I have purchased, and each time, I have saved at least 2%.

      1. How do you know that you managed to save 2% by buying without an agent? My understanding is that listing contracts usually say that a seller’s agent receives some percentage as a commission (5-6%, which is remains stubbornly too high in my opinion). Seller’s agents usually share half that commission with a buyer’s agent. But if there is no buyer’s agent, won’t a seller’s agent just keep the full commission for herself? How do you make sure that you’re getting a discounted price instead of the seller’s agent just pocketing the extra?

  23. Hi Sam,

    In addition to investing in Fundrise, would you recommend to buy VNQ at the moment given the price has already increased a lot in the past year?

    1. I’m not selling, so I guess I’m still willing to buy. Just look at VNQ today as the stock market sells off. VNQ is up, partially due to asset rotation and partially because rates are coming back down.

      The answer of whether to buy or sell depends on your risk tolerance and current asset allocation of real estate and stocks and bonds and so forth.

      The one thing to realize from the March 2020 meltdown is that publicly traded REITs sold off even more than stocks. Therefore, in a big market correction scenario, if you are buying publicly traded REITs for lower volatility, it’s probably not gonna help.

      1. Makes sense. However, VNQ is almost at all times high now, do you think there is still potential to go further up over the next few years? I’m considering holding this long term..

        1. Hi Kate, definitely ask your financial advisor. You haven’t shared your net worth, asset allocation, goals, get etc, so it’s hard for me to give any advice. Let me know what she or he says!

          I’m bullish for the next 3 years as I’ve stated in my article.

  24. Hey Sam,

    Do you still plan to buy in NYC? If so, when? Which neighborhoods and kind of properties (coop, condo, brownstone, etc) are you researching? Why?


      1. Hi Sam,

        I have also been trying to acquire a rental property (looking at condos; brownstones are beyond my budget :) ) since last 3+ months without much luck. Do you think NYC condos/brownstones still have room for appreciation given the high city taxes that eat into the returns? I know it’s a generic question but would love to learn any high level insights/hypothesis you may have.

        Thanks Sam!

        1. I’d love a post on buying real estate in NY. Your perspective on rental or abnb yields, pros/cons etc. Thanks in advance Sam :)

  25. Wow 47 is the media age to buy a home these days. That’s kinda… really bad.

    I don’t think the housing market will crash in the upcoming years too but I think a lot of people felt that was from 2005 – 2006. Do you think that the frenzy of house buying is as bad as it was back then? People are rejecting six figures above asking because they got a better price. It’s just insane.

  26. Thorough and helpful post with great data points! I guess I’m just a little puzzled on how people are able to afford these homes with similar income from last year (larger savings cushion, larger investment portfolio)? Is their cashflow keeping up with real estate prices?

    I would not be able to comfortably afford my home if I bought it today.

    1. Many homeowners who bought homes 5+ years ago are not comfortable paying market value of their home today. This is how inflation sneaks up on us. I thought the home I sold for in 2017 might have sold for $2.4. I would have been ecstatic if it sold for $2.5. But it sold for $2.745. I couldn’t believe it.

      1. I had a similar conversation with a new neighbor the other day. They seems like they are late 50’s early 60s, and have their 23 and 25 year old sons living with them. Both graduated college, and the 25 year old at least wants to buy a house. However, the house pricing in this area shot up a lot since COVID. Some places increased $200-600k in the last year. It’s kind of remarkable. The point is, the mother is not letting her sons buy a home this year. They want them to wait as they think there is a market correction coming. She is fearful of everyone buying now is going to be under water. I’m not as convinced. surely, there are some people paying more than they should, however, given COVID changed the rules and isolation is only another random virus away – space is a premium. I cautioned her, that while trying to protect them she might be costing them more money by waiting, inflation isn’t going anywhere. It’s a tricky balance, but I would think the prices aren’t going to come down hundreds of thousands, could be wrong but who really knows. Best to lock it in now I would think.

  27. The contrarian argument is that overall real estate prices have outrun wages, and that the demand will decline as housing prices rise further. Long term real estate prices come into balance with wages (mean reversion). It’s also possible we will see higher mortgage rates sooner rather than later that will depress demand.

    1. Yes, real wage growth not keeping up with real estate prices cannot last in definitely. However, maybe you can if you just look at our neighbors up north in Canada.

      Vancouver and Toronto real estate rival of the most expensive cities in America. Yet, the income there is so much lower than the income in the United States. Can you name just three Canadian companies that pay your new college graduates over $100,000 a year? I can’t.

      US real estate, adjusted for income, is so affordable compared to Canadian real estate. And if we start adding the bank of mom and dad and foreign investors, It just seems like we are likely going to continue the way of Canada and many other countries.

      1. Those are both international cities attracting rich foreigners. So if international money were to increase the flow into US real estate it could provide some additional tailwinds to keeping the boom going longer

  28. Sam. The comment I offered last evening grossly underestimated the number of homeowners currently in forbearance. I read an article on Thompson / Reuters this morning that makes it seem more likely that huge numbers of foreclosures might start flooding the market later this year and into 2022.

    “As of April 4, an estimated 2.3 million homeowners were in forbearance, according to the Mortgage Bankers Association.”

    “Home equity loan delinquencies rose 1.65 percentage points to 5.82% in the fourth quarter of 2020, the first rise since April 2020, the latest American Bankers Association data shows. “We remain very concerned about a potential wave of borrowers seeking assistance after the emergency protections expire later this year…,” said the CFPB spokeswoman.”

  29. I wrote a longer response here but it seems to have been lost (?) but anyway, to take the bear point of view:

    -We’ll see more supply. Usually 1M homes sold a year (quite consistent) but only 500K last year. That will come back (and more?) – we have friends selling only because the prices are too good. What caused the reduction in supply? Covid. And that’s almost over.
    -2.6M homes in forbearance – how many of them decide to sell at the peak and then rent for a while? Even if your mortgage co wants to help you, you might decide the numbers are far too advantageous to sell. (Slight rise in rates and rise in supply will moderate prices, that’s just economics.)
    -Check reddit – a lot of the growth in prices is in places that make no sense. Exurbs of middle tier cities, being bought up by millennials who apparently had to buy now and couldn’t afford anything else. Seems like a recipe for buyers remorse. What happens when you have to go back to the office and all the restaurants and events are back? The FOMO turns into your friends being glad that they dodged a bullet.
    -Condo prices are stable or dropping in some major markets. So are rents. Your graph would be more illustrative if it showed average monthly rent, which still is much less than pre-pandemic in a lot of places. I don’t think that diverges from SFHs for long- and acceleration in rents/condos would lead to less demand for SFHs.
    -Things always get craziest before a correction. Here in the Bay Area people say prices are going up 1-2 percent a WEEK. Even salaries don’t go up 1-2 percent a month, right? Most people believe long-term stock returns will be 6 percent, not 8-9 percent for the coming years due to the current bull market. So, what sustains these home increases?
    -How long will you lose on a buying a home as one of 20 bidders? Months? Years? Some of these people will just go back to renting, taking demand off, but that’s as supply is coming.
    -Demographics – I think the fact that we see median age going up and to the right is because there are fewer and fewer buyers (a lot of younger people just can’t afford it) – so, saying that based on ages, we’ll have lots of buyers is not the right number. Can they afford homes? If not, age won’t matter! What if half the people currently looking for homes actually are totally unrealistic? They actually have no chance – in the Bay Area you have listings grossly under value, and you have agents with few clients – how do we know that some of these home buyers just need a few months of looking to understand that realistically, they can’t afford a home.
    -Credit scores- a thesis on this is that lots of people are buying second homes, not first time buyers. That might have been covid-induced more than anything else.
    -Foreign money – price to rent ratios must be horrible in SF, NYC, etc these days…
    -Herd mentality- a lot of demand continues to pull forward, just like last year, but that also means that people can afford to wait. What happens when you just bought a home at its expected 2023 price, but home price growth evaporates due to the above, and in 2023 you move somewhere else due to a life/career event. A lot of rational people are going to call BS on the market when they think this through.

    Lots more – all speculation of course – but I am not so bullish!

    1. Not sure what you are looking at but existing home sales last year were the highest in over a decade, even with a big drop in March/April and existing home sales are about 80-85% of the market.


      1. Good point – I mixed my data up, but I think the point is that there may be supply waiting (due to covid) and that also includes those in forbearance

        1. Maybe, but I don’t think its going to be that much

          1) most of those in forbearance probably don’t have to be in forbearance, but why not if can get away with it? same with those not paying rent. Most of them either kept their jobs or have more than enough UI to cover everything. I think most of these will simply be added on to the back end of the original terms and just continue as normal once the government rules change.
          2) Rents are going up too in most of the country, and renting is more expensive than owning in 80% of the country, and espec if their credit scores are dinged – they will not a lot down for a rent if they want to go through with an eviction
          3) firms like Blackstone etc are waiting to buy these. They won’t be on the market long even if they do show up. Even a lot of retail investors that have made a lot in stock market in the last year are looking to diversify as many feel worse about stocks than real estate.

          Building costs coming way down or interest rates going way up is the only thing that’s going to end this parade and neither seem likely, especially the former. And even if interest rates go up a decent amount, I’d rather be in real estate than stocks.

  30. joe aamidor

    Great post. I will be the bear and share some reasons that I think we might see housing prices moderate or slightly decline. I don’t think a 2008 style crash is coming!

    Also, I think that the situation is going to be very different in different places. We’re in the Bay Area and I’ve been surprised by how many people are moving far from work and also bidding up prices in the exurbs. I would not be surprised if major employers here expect people back 3-4 days a week (a commute from Napa/Sonoma to SV or SF would be pretty horrible even 3 days a week!). We are seeing the major high salary employers like Amazon do just this. They don’t care if you leave to get another job because they know they have among the best jobs. And everyone will want to work there. I also would not be surprised to see these employers transfer some jobs to lower cost locations – look at office leasing activity. Also, we might see salary growth moderate as there are other options for employers – you don’t have to support your employees who live in HCOL locations to the same degree. You just offer them a job in Nashville, etc… You can’t force these market making behaviors such as- if housing rises then employers will have to pay everyone more!

    But – the biggest question I have had – we went from a narrative of millennials not being able to buy property due to college debt and other expenses, to one of millennials that are driving the increase in prices. What gives? How did Covid actually change this dynamic? Really, I think there are probably a lot of other dynamics and the nuance is lost. I have read that some are putting college debt in forbearance – seems crazy that this would be ok while also getting a home loan, but I think it is happening!

    Any, in what I have seen, it seems like a few trends are clear (which you touch on above):
    -Movement from HCOL to LCOL locations has driven up prices (if you read threads on Reddit, locals in middle America are besides themselves for losing out on homes by $5-10K but that’s a rounding error in other places)
    -Low rates (but, some say this has pulled forward demand – which means less demand in the future?)
    -Purchase of second homes (but, I think this is probably driving price growth in otherwise lower cost of living locations, maybe just serving as a catalyst to drive other people to buy.
    -Low supply due to COVID hesitancy. I think last year there were about 500K sales but normally we have 1M sales in the US? And the 1M has been pretty consistent for a while. That is not just people deciding to age in place, or not sell – that is people scared of selling a home during covid. But those sales are due to other life reasons. I think the supply all comes back (and more, anecdotally we’ve seen friends cashing out and leaving the Bay because the numbers are so enticing and no matter what, you can be an equity migrant and live almost anywhere else).

    The reasons I think we may see significant moderation in home price growth (maybe flat growth or some declines):
    -Last year 40 percent of homes were sold without someone seeing it in person. And, with Covid restrictions, how many people saw a home for 20 mins and then tried to buy it? Lots of buyer remorse? That may not change things, but what do they tell their friends. This FOMO turns into dodging a bullet.
    -Homes with 20 offers the norm: That means that a large number of people will NOT be able to buy a home. It’s the numbers. If 20 people want every home, 19 don’t get it, and there are not 19 more homes waiting. Some just give up. How many months do they keep looking? At some point they’ll have to sign another lease, etc etc – and that will delay everything and take demand off. Also, with covid restrictions, there is a lot of opacity on actual demand. You can’t go to an open house and see how busy it is – you just assume it is popular. How do we really know agents aren’t saying “I expect 15 offers” and someone is willing to massively overspend? What happens if it becomes clear that there isn’t THAT much demand (healthy demand but not huge demand). We’ve seen a decline in mortgage applications in 2021, I believe.
    -Cities reopening – if you were a 30 year old and wanted to get out of your apartment in the city, you may have bought a house. But, the people who didn’t will get to go back to the city, live their lives, etc etc. There have been articles about younger couples buying in very distant suburbs. Seems like a horrible idea – your post-Covid day will look a lot different.
    -Condo prices are down (often a precursor to a broader decline) and rents are down too. Yes – we are seeing some growth but still a ways to go before we are back to the pre-covid prices. To play this out a bit – for someone trying to buy a home, but not successful, how much more do you pay for the home than the condo? Or for rent? We have a 1200 sq ft condo and I really think a home of this size in our neighborhood is 2x (or more) the cost. That divergence won’t continue forever! Some demand will shift back to deals on condos or rents – especially in places like the Bay Area where rent control allows you to live well and save a lot for a future purchase.
    -Rising bond yields will drive rates up, but also will hit tech stocks (this might cause a stock market correction) – that may add some caution or some hesitancy which cools the market. While Sam I know you say that this will cause people to move into real estate, it’s no so simple! You just lost 20 percent on your Tesla stock, so you sell to protect some of your capital. You don’t just turn around and buy a home the next day! The illiquidity of real estate means that this type of rotation is not like moving from growth to value stocks. A bigger impact will be to people no longer having as much for their down payments.
    -Wealth transfer – need to dig in more, but I think that money could be going to things other than home down payments. There were a lot of new businesses formed in the past year. Are parents and grandparents funding entrepreneurship for their children? (note, this would be a bulk sum into a business, to operate, not a bulk sum to someone to buy a home).

    The herd mentality is what scares me the most. If everyone believes that homes will continue to go up, they’ll bid with no fear. But, what happens to their equity if prices even stall for a few years? With a cost of 6 percent to sell, you’ll lose money when selling even if you break even. And some people will sell because of life events, career changes, etc… If you look closely in the Bay Area, there are homes that sell 1-2 years later, at the same price or slightly less. Those are not people who have voluntarily sold their homes. The mental impact of buying a home at the peak and not knowing when prices appreciate more will also be impactful – again, others will look at this and mentally move from FOMO to dodging a bullet. Said another way, I don’t subscribe to the view that everyone else has unlimited money and will continue to just spending on homes because they can. A lot of people are rational, and markets tend to be craziest before they correct (Bay area I’ve been told home prices are going up 1-2 percent a week, but last year they didn’t accelerate that much in the highest price areas. There have been some academic papers and overall, prices in SF property are down a bit).

  31. Hi Sam,

    Another excellent article backed by data. There are two issues you have not addressed that can have a negative impact on the residential rental market. First, the CDC eviction moratorium that keeps getting extended thereby tenants are taking advantage of this situation while landlords still have costs. And the second, and possibly have the greatest impact is HUD’s Affirmatively Furthering Fair Housing that some call a war on the suburbs,


    Also, Senator Booker has stated his desire to end single family residential zoning,


    These two initiates, CDC eviction moratorium, which I believe will continually get extended, and the AFFH can have long term negative effects on the SFR market. Or, maybe these two issues could have unintended consequences and cause SFR homes to increase in value. Anyway, your thoughts on these two issues?

    Look forward to your next post.


    1. Are you kidding? If new SFM permitting gets banned, all existing ones will SKYROCKET in prices! (ps it will never happen – if they even try that forcing fannie/freddie – all those mortgages will just move elsewhere, and no way fed can force zoning on local / state gov)

  32. Great article, Sam. I keep expecting you to slow down, and then I see that you’ve actually edited a current post or written an entirely new, relevant piece. Thank you!!!
    I bought my 3 single family home rentals based on 2 concepts. 1. When I began to see that the replacement cost of the homes were double what I could pick them up for in 2010, I knew it was time to buy and hold for the long term. Second, I began to see the technology factor replacing jobs/careers and concluded that rental income could act as “insurance” for my own income. Jobs may be replaced, but shelter as a basic need, will never go away. As I studied more on home appreciation, tax benefits to owning property, and leveraging the banks and other peoples money to grow my real estate portfolio, it became very addicting and a no brainer.
    I agree with you that homes will continue to appreciate although I don’t really care as I have no plans to change my holdings and at this point, I’m just paying down mortgage debt (which is locked super low) at 2.5% principal residence and 3.25% on the remaining rental 30 year fixed.
    If opportunities do present themselves, I would not hesitate to go back into accumulation phase but frankly, I’m cool with just putting it on autopilot and collecting rents!

  33. To state the obvious – it’s great to be a home owner.

    The next good thing that needs to happen in due time is for real estate commissions to come down. For me, that would entice me to upgrade every X years. With property values way up and increasing, and demand likely to remain high with long term low rates, a realtor should not make six figures after representing both sides of a tranasction for a couple weeks of work. That’s absurd, should change, and I think will change with due time (come on technology!).

  34. Hard to see any crash in offing. There are not structural problems on financing/credit-risk side, interest-rate risk, economy in-general, govt funding/bond-buying/stimulus(es).

    If any COVID has only accelerated buying/upgrading demand for many folks.

    The better question to ask would be – would this phenomenon lead to moving out of downtown to suburbia ? (previously, crime drove that trend, now COVID is driving this suburbia trend — hence adding to aggressive price appreciation; in-addition to pent-up demand)

    There is one more psychological factor — not much discussed elsewhere on Blogoshphere. If you are going to possibly affected by COVID (worse yet possibly die) — which is hard to predict/control — we as humans feel somewhat helpless against it. We might as well put our monies to good use – by buying a home – before any possible ‘bad/COVID’ things could occur; might as well enjoy now. In-addition to the fact: a medium/large suburban home with yard would give ample “safe” indoor/outdoor space during this COVID.

    What else is the “purpose” of hard-earned monies we earn/strive/save/invest for ?

    Be safe out there !

  35. Vishal Sharma

    thanks, Sam, good article.

    crowdfunding project- do you plan to write an article to share your selection criteria on crowdstreet ? and public REITs?

  36. A. Loveless

    My contractor is flipping a SFH for me and he and his subs are charging very affordable rates. Must be the places you live as I live in the sticks of Northern New Hampshire. However the completed house price will be over $150,000 more than what I paid for it with just some insulation, electrical, and paint. My cost will be about $15,000. Couldn’t be happier.

  37. This is helpful info. I have a friend who thinks the market will crash when the COVID rent/mortgage relief measures eventually end. Do you anticipate a dip when that time comes?

    1. When the moratoriums end is one of the times I’ve highlighted to try and buy. However, my fear is that I along with everybody else will try and save up as much cash as possible to try and buy deals.

      Banks are hugely incentivized to foreclose and take the assets and resell since home prices have increased.

  38. Ms.Conviviality

    I really enjoy reading articles that are backed up by data. This article was the first time I saw the stats for homeowners’ debt to equity so it was comforting to know that most owners are not overleveraged. As a real estate investor who just purchased a property back in November, I had a slight fear of housing market declines even though we bought the property way below market as a fixer. Our all in costs are actually higher since a lot of money is going into the repairs. With backup plan C to sell if the first two plans didn’t work out, we had to accept the risk of a market decline but glad to read that it isn’t likely to happen.

    Another advantage of investing in real estate is income security. All the advancements in robotics and AI are going to put a lot of people out of jobs or force people to up skill. However, people will always need somewhere to live so rental income can replace wage income. Even as an internal auditor, I’m seeing a shift where every auditor needs an IT and data analytics background because almost all processes use IT and data nowadays. The number of auditors in the workforce will naturally decline as auditing becomes more efficient by using technology.

  39. John M Rumschlag

    Easily one of your very best.

    An unbelievable amount of VALUABLE INSIGHT/INFO and we get it for free. You could turn this into a class at a college and make $$.

    …or at least a magazine article.

    Thank you professor Sam

  40. Fantastic article! Thank you for taking the time to research and write it. One of your best ones yet.

  41. Wow this is the most thorough post on housing I’ve ever seen. Thank you! You covered every question I could think of. I’m a homeowner myself and totally know what you mean about how much more valuable I feel my home is due to the pandemic. I feel so fortunate to have had it throughout the lockdowns and really think it helped tremendously in my mental health. We’ve all been through a crazy lifestyle and work adjustment over the last 13 months. And I’m so thankful to have a familiar roof over my head.

  42. As you know folks in bidding wars are paying 50-70+% over asking here in the Bay Area. Unless it was all cash buy, if prices just dip a bit and they need to relocate or move, they are never going to be able to sell enough to get out of that loan.

    Also per your comment about the funny money insta – millionaires. They catch the windfall, turn around an buy a home (likely overstretched due to inflated prices). Next years tax bill will be waiting for them and I don’t think most of the funny money folks recognize that Uncle Sam (and death) are the only two surefire things in life. And tax bills can hurt.


  43. Hi Sam
    I am not invested in real estate other than primary residence but looking for condo to increase my real estate exposure. I had a bad experience with the prior real estate platform that went belly up; so a little gun shy.
    This one of your better articles for real estate novices.

  44. My gut tells me we’re on the back end of the pandemic induced hysteria for SFH. Rates are low, but I believe they’ve already bottomed and will continue rising. Freddie Mac’s chief economist agrees.

    Recall that in Q2 2020 there wasn’t much, if any, movement in real estate. Lots of unknowns with people unsure if they’d be keeping their jobs. Real estate activity really started to pick up the 2nd half of 2020 when work from home was extended and extended again. I believe a lot of people are expecting WFH to be permanent and are in for a surprise when they’re required to come back to the office later this year. Company culture is very important for senior management, including tech companies.

    The material price jump is due to demand and supply chain issues. We’re seeing the same issues with new bikes. Once restrictions are lifted and society can return back to a newer normal, I anticipate demand to drop. Regarding materials, they will revert back to the mean in time. I work in the AEC industry and speaking with a few estimators they’re expecting some material pricing relief in Q4 of this year if not sooner. Rates moving up will absolutely put the brakes on those trading up homes and drawing HELOC’s.

    1. Yet rates moved down this week despite at better-than-expected retail sales number. A conundrum!

      Rates can surely rise from here. But I don’t think we’re going to see 3% on the 10-year for a long while.

      Let’s get to 2% first and reassess. The entire market is waiting.

  45. As long as our dear govt continues to expand the money supply by 50% every year, I find it hard to imagine nominal home prices will ever decrease.

  46. As long as the govt makes money printer go BRRRR, nominal home values will continue to increase- along with everything else. And Dementia Joe wants to outdo his predecessor in printed money (aka deficit spending)

      1. The national debt has risen by almost $7.8 trillion during Trump’s time in office …

        Guess that didn’t matter??

  47. We just got in contract on a duplex in San Francisco that we’re going to live in. It’s in a great location but kind of an odd property as it’s on a very small lot. Some people were likely put off by the fact it came with a tenant. This meant there were only 4 offers and it sold for less than the Redfin estimate and less than condos nearby. For us it was a great deal after bidding on other properties with 20 or more offers! Patience, and not getting caught up in a bidding war, is a key to buying in this market.

  48. I think you are overly optimistic. In Florida, there is barely any inventory of homes, bidding wars are ridiculous and lumber prices are sky high, this cannot continue. Banks are already seeing pre fore closures, so something has to give?

    1. When do you think the housing market will crash and by how much? We can revisit this post a year and 3 years from now and see what happens.

      Are you selling now as a result?

      I do think price growth will slow down into the upper single-digits.

      1. Crash, defaults will start by Q2 next year, we should revisit. I wanted to build homes for flipping in FL, but with lumber prices so high, builders are refusing to build, there is very little margin for profit.

        1. All the more reason prices will keep going up. Usually builders would effectively short into the market by building like crazy, but costs are going up faster to build than existing homes, so supply will stay strained for a long time. Why would prices drop? The only thing I can think of is the federal reserve slamming on the breaks and drastically raising interest rates, which they won’t do.

  49. Here’s another thing. The cost to build has skyrocketed, not just for lumber, but labor. Hard for things to drop when the cost to make the product keeps rising!

    1. Indeed. My contractor said labor cost is up 50-70% since his last job with me in 2015. And I believe him since I’ve been using one of his subs who keeps raising his prices. Too much hone remodeling demand!

      1. Ms.Conviviality

        My husband is a handyman. When he told me what he was charging for what seemed like a small job I was shocked but he said that the customer readily accepted. My husband has been working most weekends, for at least the last 6 months, to get his jobs done timely so there is certainly no shortage of work.

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