All real estate is local, or so the saying goes.  But when you have nationwide lockdowns and a central bank that is creating money out of thin air like crazy, then there tends to be some uniformity with real estate prices.

Stocks aren’t the only thing booming these days.  The real estate market is hot in many areas across the country.  This is particularly true if you don’t count big cities in blue states.

For example, real estate is not booming in New York City.  Prices are likely to decline for a while in Manhattan, which was previously attractive for the cultural scene and for high-paying jobs.

Now the cultural scene has largely been shut down.  There are no Broadway plays to see, and it is difficult to find entertainment at a comedy club or even eating at a restaurant.  Meanwhile, millions of people now work at home who didn’t just over a year ago.  They are realizing that they don’t really need to go into an office. Why not make the same amount of money in a lower cost-of-living area with lower taxes?

I live in Florida, where real estate is booming.  This is good if you are a seller.  It is not so good if you are a buyer.  Anecdotally, I know of people moving here from the Northeast.

Florida has been open for business completely since September 2020.  There are still many people running around with masks on, but at least business is seemingly thriving.  I was in Orlando (in a very touristy area) just over a week ago and there were long waits at some restaurants.  I don’t know what it was like in this area before then.

It is no surprise that people want to move to Florida.  The state is open, and the governor said he has no plans of enacting any more restrictions related to the virus.  The weather is warm (or hot).  There is no income tax.  I just hope that the people moving here don’t bring bad politics with them.

While Florida may be booming more than other places, there is still a general rise in residential real estate prices happening across the country.  I believe this is largely due to Federal Reserve policy.  The Fed’s balance sheet has exploded since March 2020, and short-term interest rates have been pushed to near zero. While the 10-year yield has risen back up a bit in the last couple of months, mortgage rates are still near all-time lows.  This makes it cheaper to borrow money, which means that people can afford (or think they can afford) a higher price for a house.

It makes some sense why people are rushing into housing.  If the Fed continues to depreciate the currency, then it is better to have hard assets.  And what is more of a hard asset than real estate?  It’s better than having money sitting in a savings account earning .01% while losing 2% or more per year in purchasing power.

I was initially uncertain what would happen to housing prices when the virus hysteria began. The government has made it convenient for people renting to not pay their rent.  It has also been convenient for homeowners to not pay their mortgage.

(Unfortunately, you still have to pay your property taxes.  That includes business owners who were forced to shut down.)

I have several friends who own rental real estate.  As far as I know, every one of them has been receiving rent in full and on time. Their properties are in relatively nice, middle-class neighborhoods, which obviously helps.  It also helps that they are all in Florida, where the economy has not suffered to the same degree.

While I believe that the housing market is probably overheated and has largely been pushed higher by Fed policy, I don’t think it is a bubble in the same way that it was back in the mid 2000s.

In my own neighborhood, the housing prices are probably now just above where they peaked around 2006 or 2007.  But over the last 14 years, there has been massive Fed inflation.  So if we are in a bubble, it has to be less of a bubble than what happened previously.

I also don’t know that the Fed is going to take its foot off the monetary gas any time soon. The Fed says it wants price inflation to average 2%, which means it will go beyond 2% before thinking of slowing it down.  Somehow, I don’t think its price inflation metric is taking housing prices into much account, even though it is typically the biggest expense for most people outside of taxation.

If the Fed keeps pouring in $120 billion per month for a long time, then I see no reason why housing prices in most areas should go down in any significant way any time soon.

With that said, I don’t think it’s the best time to buy, whether for a primary residence or for rental real estate.  The best time to buy was in 2011.  And it was certainly better to buy in 2019 in most areas than it is today.

We also face the prospect of a severe recession or depression.  If there is a major spike in unemployment and reduced wages, then it may not matter if the Fed keeps digitally printing money.  People have to have money to pay for their mortgage.

Still, because of the extent of the Fed’s interventions and its likelihood to continue, I think any fall in housing prices will not be anywhere near as dramatic as what was seen after the bubble in the mid 2000s.

If you are considering buying or selling a house, then I think you should just use common sense right now and not try to time the market.  If you are buying, then you should only buy what you can afford and with the intent of not selling for a long time.

If you are thinking about selling, it is probably a good time to do so, assuming you don’t live in Manhattan.  Or maybe now is a good time to sell if you own in Manhattan if you expect prices to decline farther in the future.

It seems like many things are in a bubble right now, which includes real estate.  But if you are living in a house that you own and plan to stay there for a while, then it probably makes sense to stay and do nothing.  You can refinance your mortgage if you haven’t already taken advantage of it.

I believe we will ultimately see a major crash in stocks and crypto currencies.  I am not as confident that we will see a crash in housing.  Everyone needs a place to live, whether it is to own or rent.

Even if we hit a severe recession, the Fed will react with even more funny money.  If you have a low fixed-rate mortgage for 30 years, then your last payment may be the price of a nice lunch when the time comes.