It’s been almost 10 years since the 2008 market crash. Many believe that real estate was the reason why the economy crashed. I respectfully DISAGREE… I have firm evidence that it was a lending market crash, not a real estate market crash. The lending institutions were issuing loans to people who SHOULD NOT have been borrowing. Products such as stated-income loans or even artificial demands created by the ease of access to funds were one of the many reasons why our market crashed. Real Estate did not cause the crash. It was a faulty lending practice across the nation. So will we ever go back to the pre-2007 era? It’s known historically that the real estate market appreciates with an overall average of 8%. So yes, with inflation in mind, the prices will go up. The real question is that ‘will demand go up as well?’. Well, as long as the global human population increases, the demand will always be there. Here are couple things I can say about 2017 that may seem promising and things we need to watch out for.
President Donald Trump has, at one time, expressed the fact that he may repeal or alter the 2010 Dodd-Frank Act that came into place. This legislation was put in place to protect consumers and provide transparency but it ruined it for educated & trained investors that relied on some of these financial products without the tightened standards and procedures. Almost like that one kid in class that caused trouble and took away the fun for everyone in the class? If Trump does indeed make actions to alter or repeal this law altogether, there may be a fluctuation of demand simply by removing the “obstacles” to financial products. This CAN happen this year so it’s safe to keep an eye on what’s going to happen with the Dodd-Frank Act.
This is, perhaps, my biggest prediction yet. Though I’m not the biggest fan of the Federal Reserves, I do believe that they will once again raise the interest rate up. At this moment, January 23rd 2017, the average interest rate on a mortgage is about 4.25%. I do see a potential of the interest rate on a mortgage going back up to 5.5% or even 6% this year. This could be a response to the hypothetical situation of the Dodd-Frank Act being repealed. If the Dodd-Frank Act gets repealed, I do see the Feds responding with a higher interest rate to discourage the demand from spiking. However, I don’t think it’ll take a major impact on real estate investors IF they are making investment decisions on cash flow, not accumulation. Either way, if the interest rate does go up without the Dodd-Frank Act getting repealed, the average prices of real estate will also drop. Not significantly but a noticeable drop. This will be a good time to purchase a rental property.
The only potential downside that I see in 2017 and carrying over to 2018 is the student loan bubble… I think it can burst at any moment this year. Interestingly enough, this is a similar pattern that we saw in 2005 and 2006 that led to the 2008 crash. It’s all back to lending practices. The barrier to obtaining student loans is almost non-existent. Today, high school graduates can apply for FAFSA and can often easily qualify for a government-subsidized loan. There is no qualification process as to how the student will be able to pay it back after he or she graduates. It’s simply a loan that is issued just because the student wants to attend college. This is a VERY dangerous lending practice, the similar situation that led to the 2008 crash. For real estate investors, this is a double edge source. If the bubble does “burst” from the student loans, there will almost immediately be a huge decline in students wanting to attend college but an incline of rental demands which could lead to a rise in the rent prices. However, the burst will take a toll against the financial institutions. That will also mean that many college campuses may close due to the withdrawal of government-backed loan products which also may lead to a huge negative impact on student housing. If the student loan bubble burst, it will present both tragedies and opportunities to many real estate investors.
Overall, 2017 is VERY promising and I see more pros than cons in the real estate investing world. I am firmly optimistic about the growth in the real estate investment market. With a President in the White House that has been in the real estate industry for almost all of his life, we can definitely see policies that protect the interest of the real estate professionals across the nation.