The Supply - Demand Imbalance, Is This a Bubble, Again?
Are we currently in a housing bubble similar to that which burst in 2008? or is what is currently happening in the financial real estate world simply a a huge imbalance in the current housing supply and demand?
We believe it's the latter. What caused the financial crisis back in 08 was the $1.5 trillion in subprime mortgage debt. To put that into perspective, the first half of 2017 just $2.6 billion in subprime mortgage backed securities were issued in the $53.6 billion mortgage-backed securities market. Even if all the new subprime mortgage bonds failed most financial markets would hardly notice.
In 2005 we saw the opposite scenario compared to today's market, in the run up to the crisis, easy credit and a large supply of housing created an artificial demand that pushed prices up creating the bubble that ultimately burst. Today, millenials looking to become first time home buyers are flooding into the marketplace that has barely any supply. This is the best argument to say this isn't currently a bubble at all but simply a reflection of the massive imbalance of supply and demand.
Real estate will always be the bedrock of the US economy, so many institutions and industries depend heavily on home prices rising that there is intense institutional policy causing just that. This can come with its own set of negative consequences, like inflating home values at a time where affordable housing is almost non existent, the US economy is so intertwined with the real estate market that if anything happens to one, the other will inevitably go down with it.
If things continue as they are over the next few years, these forces may inflate another bubble, and that bubble may very well burst causing an economic downturn, however, the inverse could happen too. With changes to lending practices and mortgage securitization chain we don't believe the bubble would burst in the same way in which it did back in 2008.
Ettro Capital has been building affordable homes and developing underutilized land in the Portland metro area for over a decade, we believe our strategy can help alleviate the current housing shortage and affordable housing crisis whilst remaining profitable and lucrative for our investors. If you would like to learn more about our real estate investment fund and the benefits it creates to the portland real estate market please don't hesitate to contact us for more information.