We’re in a Different Kind of Bubble

We’re not in a real estate bubble; we’re in a currency bubble.

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Are we in a real estate bubble?

First of all, don’t believe anyone who says that they know for sure whether we are or aren’t. There are too many factors to consider to say definitively one way or the other. I will say that I think we’re in a ‘kind of’ bubble. It’s not a mortgage bubble like we saw back in 2008. This is a different kind of bubble. It’s not a real estate bubble, specifically—it’s a bigger bubble.

During the last bubble, people were buying homes with NINJA loans (no income, job, or assets) or liar loans. Like I said, this isn’t a mortgage-driven bubble; it’s a currency bubble, and it’s much bigger. The solution to too much debt isn’t more debt. We have 10x more debt now than we had during the previous bubble that initiated the Great Recession.

If you recall, the bailout for 2008 was $800 billion. During the deflationary period of March 2020, a massive stimulus number was injected into the market right out of the gate to the tune of $2.3 trillion. This means the government is monetizing debt. They’re able to lend low interest to the economy in order to stimulate purchasing. These stimulus packages have continued to come, and interest rates have continued to stay low. Since bonds and interest rates run inversely to one another, this means the bond market has seen higher yields.

How long will this currency bubble last? I think certain states will see an increase in real estate purchasing, while others will see a decrease in real estate purchasing and an increase in sales. We’re seeing a lot of northern homeowners selling and moving down to Florida to escape high real estate taxes. I’ve talked about this subject ad nauseam, but real estate taxes are very low in Florida, and there’s no income tax in our state either. Therefore, as the stimulus packages keep coming and interest rates stay low, the Florida economy will keep increasing.

That is, of course, unless another Black Swan event (e.g., COVID) comes along. If that’s the case, all bets are off, but the Federal Reserve has stated that they intend to keep interest rates low all the way into 2023. In that time, homebuyers will keep getting cheap money, which will further stimulate buying. As I said, the Florida economy will increase, but that’s simply a matter of inflation. When you have an inflation of the money supply, the value of the same number of goods goes up. Since the U.S. still has the reserve currency, this currency bubble could last for a long time.

As always, if you have questions about this or any real estate topic, don’t hesitate to reach out to me. I’m happy to help.