During a recent grad event in Atlanta, I was once again confronted with questions surrounding the prospects of yet another real estate bubble. Could it really be 2008 all over again?
Fueled by the mainstream media who likes to paint such sophisticated topics as real estate with a roller rather than a fine tipped brush, I feel compelled to share details from the inner circles of the real estate investment community.
Are We Headed for Another Real Estate Bubble?
First, we must acknowledge that housing is and will always be a core human necessity, along with food and water. This is true whether we are sheltering people, businesses or stuff.
We must also acknowledge that all markets are not the same. One must follow the jobs. One must follow the population.
Where markets like Cleveland and Detroit have experienced a significant reduction in population, Atlanta is experiencing unrivaled growth at the hands of 63 corporations that have committed to moving their headquarters to the new Capital of the south within the next 5 years. Recent companies that now call Atlanta home include Mercedes, State Farm, Porsche and, the nation’s largest homebuilder, Pulte. The resulting effect is a population explosion from less than 2 million residents following the 1996 Olympics, to eclipsing 7 million in 2018 with projections of surpassing 10 million within the next decade. Markets like Charlotte, Nashville, Austin and Denver, just to name a few, are experiencing proportional levels of unprecedented growth and offer tremendous opportunity for the properly positioned investor.
What Is Fueling the Growth in Real Estate?
Today’s buyer frenzy, witnessed in many of America’s top markets, is NOT being fueled by the major contributing cause of the 2008 real estate collapse.
The Subprime Mortgage environment of 2008 was caused by millions of people flooding the market wishing to participate in the American Dream of home ownership before their finances were in order. They were able to do so at the hands of these creative mortgage products, causing prices nationwide to rise to historic levels at the hands of unprecedented demand.
In contrast, the growth in real estate we are experiencing now can be attributed to population migration (where we used to live and where we are moving to) and the impact of institutional buyers like Blackstone who have amassed more than $100 Billion in assets following the collapse.
Case in point: following the collapse and the decade that has ensued, more than 13 million homes were lost to foreclosure, short sale, and bankruptcy. This influx of inventory at significant reductions in pricing served as catalyst for the institutional buyers to enter the market.
As for a Real Estate Bubble as we experienced in 2008, we don’t see the same contributing causes in the market in the near future. Of course, there will be shifts in the market which will be caused by the normal flux of household formation and, perhaps, interest rates.
Look for our next article where we will look at where and how the real estate market is making a paradigm shift.