Inflation Could Turn Us into a Rent-That-House Society
As the real estate market starts to settle out, and as inflation starts to enter into the picture, it is very likely that America will see a period in real estate very similar to what we experienced in the 70s and early 80s. Fewer people will own their own home and more people will write.
The equation has not changed in that there are still many many people looking for places to live. The population across United States is expected to increase by 100 million people over the next 15 to 20 years. Those people have to live somewhere in those places do not exist today.
Some people would point to the Federal Reserve and state that the Federal Reserve is lowering interest rates and that mortgage rates should follow soon. The problem is that inflation has entered into the equation. The Federal Reserve cannot control inflation especially when the United States has a massive debt that is building on a regular basis. That inflation essentially adds percentage points to the real mortgage rates banks can offer. Let’s say that the Federal Reserve sets rates at 3%, and inflation is running at 3%, and banks need to make a profit of 1 1/2 percent to keep operations going in to lure in investors to buy securitized mortgages. That would mean that the real interest rate for a person with excellent credit would start off at 7 1/2 percent. If that person has less than stellar credit the interest rate is going to be even higher.
If inflation increases, then interest rates in total will also go up no matter what the Federal Reserve does. Now as those interest rates go up that points towards the need for many people looking for a home to live in to consider renting. It also means that people that are sitting on homes today with low interest rates are likely to become landlords very soon. If they are locked into an interest rate is lower than what can be had on the market, they may not make their money back in equity in the house but they could make it back in rent. In doing that we are going to see a nation change from being a flip that house nation into a rent that house, sublet the apartment, where sublet that room.
For a similar example, you can look at what is going on in city centers around the US or even in the United Kingdom or Europe. We all face the same inflation and the same rising population centers. All those baby Emily crib sets have to go somewhere.
