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Inflation / CPI increased by 6.8% in November 2021 according to the Bureau of Labor Statistics. This was the highest reading since 1982 and means that US Consumers are paying significantly more for goods and services like energy, cars, and rent.
Many Home Buyers and Real Estate Investors believe that inflation will be beneficial to the US Housing Market like it was back in the 1970s inflation. However, the two most recent inflationary surges in America prior to this one corresponding with Housing Crashes. And I believe that there is a segment of cities that will get hit especially hard by an inflationary, and related interest rate surge, in 2022.
Los Angeles Housing Market: the typical home price is over $850k while the average worker earns barely over $60k. As mortgage rates increase with inflation (the Fed is already tapering QE and will likely hike interest rates several times in 2022), a market like Los Angeles will become even less affordable, crushing demand.
San Francisco Housing Market: the typical home price is over $1.3 million while the average wage is $80k. The resulting 16x Value / Earnings Ratio makes San Francisco the most expensive Housing Market in America. San Francisco Real Estate is at tremendous risk of rising rates.
Boise Housing Market: the largest Housing Bubble in America, where prices have more than doubled over the last 5 years, could be the most in the crosshairs of an inflation and mortgage rate rise. Boise’s market could already be in the stages of a crash, and price downside could be as much as 40%.
Salt Lake City Housing Market: SLC, and surrounding Provo and Ogden, could be right next to Boise in terms of the biggest Bubble. Home prices in these Utah metros have surged so far above local wages that families and first time buyers are priced out. Rising mortgage rates will make this situation worse.
Denver Housing Market: Denver and its surrounding metros like Fort Collins and Colorado Springs are in an epic Housing Bubble. Locals are priced out, and many people are starting to leave the state due to the lack of affordability. Mortgage rate hikes will be very problematic for this area.
Austin Housing Market: Austin builds more new homes and apartments than any other city in America and also has the biggest YoY increase in prices at plus-45%. Locals in Austin are already tremendously priced out. Inflation/higher mortgage costs would be devastating to this Housing Market.
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0:00 Inflation will FLIP the Housing Market
1:12 6.8% Increase in Inflation – 40-Year HIGH!
1:49 Another 1970s Inflation?
2:57 Component of Inflation: Energy Up 30%!
4:12 Why Do People Exclude Energy? Volatility!
5:17 Be Careful About Predicting Another 1970s Inflation
6:04 Home Prices at ALL TIME HIGH
6:54 But Say We Do Have Raging Inflation (Value / Earnings Ratio)
7:37 Interest Rates are Going Up, Folks!
8:12 Los Angeles, San Francisco, Boise, Salt Lake, Austin = in Trouble!
8:53 Here’s Why: High Rates = No Affordability
9:21 Low V/E Cities Will Probably Do Better
10:39 The 4 Main Points
11:48 Message from Reventure Consulting!
#Inflation2021 #HousingCrash #InterestRates