"No one can see a bubble. That what makes it a bubble" -The Big Short, the movie
Are we in for the Big Short II? The cyclical nature of markets spells an eventual collapse of the real estate prices in the U.S. following the next global stock market meltdown and global recession which will be drastically different the next time around. For one, the coming collapse is about to start a secular declining trend in property values. Secondly, after the collapse, the prices of properties won't be able to recover like they did after the previous "property market corrections".
Why? I hope we all may agree that oil, for example, will never recover to all-time highs. Similar premises hold true for the existing home values. There are multiple major socio-economic structural changes on the horizon contributing to this permanent decline which is in the cards right now. Also, many conventional linear projections won't even apply anymore.
THE NEXT "CYCLICAL" GLOBAL RECESSION - the world's stock markets are the best indication of things to come in the economic milieu. The next financially engineered global recession may be the last effort by the capital-controlling elite of Wall Street to keep political and economic control over the global population and maintain the faltering capitalist system as long as possible;
DEFLATION - in the rising interest rate environment, and due to the U.S. relative competitiveness, investment and headquartering attractiveness, the US dollar may remain relatively strong putting deflationary pressure on housing prices;
HYPERCONNECTIVITY - improved communications will ensure more homogeneous geographical distribution of real estate values. Basically, you may be anywhere with all necessary access to information and communication (and even experience via VR, on that later);
CONSTRUCTION TECH - advanced engineering techniques, artificial intelligence solutions, extreme automation and new cheaper materials will bring down significantly the cost and time of buildng most structures. 3-D printing, robotics and nanotechnology will further help revolutionize the construction industry. In China, they now build a 6-story building in 24 hours!
SMART HOMES - newly designed apartment buildings or houses packed with electronics and "in-home intelligence" may initially cost considerably more but ultimately they will devalue the existing home properties. The notion of the million dollar views will gradually fade away as any imaginable landscape can be recreated by using digital wallpaper;
NEW SMART CITIES - by the time we should expect a recovery in existing home values, new cities may be built rather quickly outside of, or adjacent to the current metro areas with advanced infrastructure, mega projects, tall buildings, and smart homes which will make existing homes in old cities look like dog houses;
VIRTUAL REALITY vs. REALTY - Many conventional economic notions, such as primary locations and differential rent, may gradually become irrelevant under new effective topologies of the social space and ever more predominant use of virtual environments. It may sound improbable at the moment, but VR will change the travel and hospitality industries at first, and then will have more direct impact on the property market. By 2020 full adoption of VR is almost guaranteed. As analysts at Goldman Sachs predict, VR will be bigger than TV within 10 years. GS: VR is bigger than TV in 10 years
NATURE OF WORK - as more companies shift to part-time work week, tele-commuting and virtual work space-time, some converting to 100% "virtual entities", and as we'll also see an increasing number of emerging virtual corporations, commercial properties in major US cities, especially in downtowns, will be under pressure. In 10-15 years, we may see many downtown, office buildings converting to hotels and residential properties;
TECHNOLOGY DISPLACEMENT - many people may be displaced by technology automation and may only rely on Universal Basic Income (when implemented) for support. That would effectively take them out of the pool of available buyers of the higher end real estate;
TRANSPORTATION - just as improved communications, improved transportation such as hyperloop system making it possible to "commute" from Los Angeles to San Francisco in 30 minutes, self-driving cars and later flying cars, the Internet of Things alleviating traffic conditions to "connected" vehicles, would mean you don't necessarily want to buy a home in "prime" location;
GENERATIONAL ATTITUDES - Millennials avoid investing in the big ticket items such as real estate for good reason, they understand better than the older generations that the entire new digital economy is about to undergo monumental paradigm shifts at accelerating rates whereas anything of physical value today will gradually lose its value and importance;
SHORTER ECONOMIC CYCLES - by the time we should under normal circumstances anticipate a recovery in property values a new "unexpected black swan" event or crisis may strike the outdated capitalist system.
Conclusion. If we are to extrapolate the current economic trends, we may see the parallels between the oil market and property market as they both fall in the familiar supply and demand framework influenced by the prominent, socio-economic and technology-driven, structural changes.
If you're an owner of the second home, vacation home or something of the sort, you may consider putting it on sale immediately while the market is topping and very close to the bubble burst.
Renting as opposed to committing to a multi-year mortgage in these rapidly changing economic conditions seems to be more economically justifiable.
One housing analyst, Marc Hanson, thinks the property market is now overvalued in the range of 25 to 60%. Fortune Magazine: Real Estate Bubble
-by Alex Vikoulov, founder and creative director of Ecstadelic Media, San Francisco, CA
Tags: real estate, property market, property valuations, real estate market, real estate bubble, global recession, property collapse, deflation, deflationary pressure, virtual reality, virtual corporation, technology unemployment, technology displacement, basic income, universal basic income, mega city, shorter economic cycles
* Image Ctedit: Shutterstock, Envato Studio, Fotolia
** Video Credit: Broad Sustainable Building