Waiting for the Next Housing Bubble? Don’t Hold Your Breath

As a formally-trained financial professional, few statements irk me more than than the following—which I’ve had the misfortune of hearing quite a few times over the last year or so: “Buy a house? Not yet; they’re way too expensive. I’m going to wait for the next housing bubble!”

This comment fires me up as much as Bitcoin did during the height of the cryptocurrency craze. I can tell you with some certainty: you’re holding your breath for nothing.

As with all things financial, your best guarantee of success is to form a solid awareness of the subject matter at hand, and act accordingly. Placing your bets on some whimsical hope that may or may not ever be realized is definitely not what any trained financial expert would advise.

Here’s Why the Next Housing Bubble is Not a Thing

The value of homeownership is one of the first things financial students are taught; traditional economic wisdom holds that real estate will consistently keep pace with inflation and that homeowners can expect to see about 3-4% of appreciation per year, on average.

But hey, don’t forget that the financial crisis of 2008 did happen, after all. During this time housing prices fell 31.8 percent, and led to the Great Recession.

So before we get ahead of ourselves, let’s look at some updated numbers and put this into perspective. As always, understanding your options is key. You don’t want to live with your head in a bubble while you wait for the next housing bubble. You could be stuck like that for a very long time…

Historical Precedent

Before the real estate market decline began in 2007, national housing prices from 1968 – 2006 never saw a negative year in housing appreciation, per the National Association of Realtors. Never. Not once! During this period, you could have safely assumed an average rate of inflation over 5%, year over year.

So if you’re waiting for the next housing bubble, I hope you’ve got two decades to spare. And that’s if history repeats itself at all. As the saying goes, “Time waits for no man.” And your financial growth opportunities won’t, either.

Interest Rates

Another thing that people don’t take into consideration, is that by the time the housing market is affordable enough for you, where do you think interest rates will be?

We are currently scheduled to see one or two more Federal Reserve rate hikes in 2018. So even if you happen to be right about the bubble, you’d still be waiting for a perfect storm; you’d need interest rates to be flat or decreasing to see any real mortgage payment benefits from depressed housing prices.

The Health of the Economy

I hate to rub it in, but… let’s imagine that you were right. You waited it out, and housing prices are down 20%. Rates are reeling, and the Feds are trying to stabilize our spiraling economy.

That’s right—if your perfect-storm scenario is actually happening, chances are that we are in a recession, and you may have much more serious financial problems than over paying a few thousand dollars on a new home. (Like maintaining gainful employment.)

Don’t Wait for the Next Housing Bubble… But Do Buy Smart

As you can see, trying to time your housing purchase with the next housing bubble is ill-advised at best. But there is some solid advice to follow if you’re in the market.

As a CERTIFIED FINANCIAL PLANNER™, I’m happy to answer any of your financially-related real estate questions. But for now, I’ll leave you with some time-proven wisdom—which, yes, you’ve probably heard before: location, location, location.

The timeless importance of location will likely never lose impact—because it’s true. Property located in the most in demand neighborhoods really do gain value faster. Oh, and having a total mortgage payment under 28% of your net income wouldn’t hurt, either!

Don’t Speculate to Accumulate

Don’t base your real estate investment choices on the fear of bubbles. Instead, do your due diligence and make carefully researched and considered choices before making any major real estate decisions. Shop with facts, not fear or fantasy.

No investment should be made in haste, but don’t wait for some elusive opportunity that may never happen, or will take so long before it does that you’ll spend years missing out. This time could have been used instead to work successfully through your wealth accumulation phase, and prepare you for retirement—and beyond. Your financial legacy, when planned correctly, could go on to support your family for generations.

If you would like to discuss your real estate planning options then we invite you to contact us. We’ll be happy to chat with you about your non-bubble related options!

Malik S. Lee, CFP®, CAP®, APMA®
Malik Lee is the Managing Principal of Felton & Peel Wealth Management. A CERTIFIED FINANCIAL PLANNER™ with more than 15 years of financial services experience, he is a Guest Lecturer at Morehouse College, serves on the CFP Board Council of Examinations, and is a Board Member for the FPA of GA.
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