Projective: Project-Program Manager merging Consulting, Integration, Risk & Change Mgnt for maximum business case realization II PositionLT: Research & Advisory to position for the long-term (health, wealth, disruption)
Are We in the Late Innings of a Real Estate Bubble in North America, Europe & Parts of Asia (ie, China)? In today’s WeeklyLT, we continue to explore assets that may be in their later innings. What inning of the game are we in? Is the perceived future wealth too heavily concentrated on one side of the boat? The following explains why I believe we may be in the very late innings of this real estate cycle: https://lnkd.in/gKJQQ2s3 Real estate is inherently a long-term asset, and protecting its future over the coming years and decades requires answering some fundamental questions: 1. Who will I eventually be able to sell my asset to? Consider the possibility we could be moving toward a world where a significant portion of the local population demands less immigration and more controls on foreign property purchases like we are beginning to see. 2. Will the future cohorts want this asset, and will they be able to afford it? Focusing on the next generation of local buyers is crucial. A recent poll done for CIBC in Cananda concluded 76% of Canadians who don’t own a property feel that entering the housing market is out of reach. Similar figures have been reported in many of the cities highlighted in the Visual Capitalist graphic. If the next generation of buyers also aren’t having kids or not wanting to own vehicles as much, this will also drastically change the DEMAND SIDE OF THE EQUATION. 3. Will future buyers be able to borrow money as easily and affordably as the prior ~40 years? From the early 1980s to 2020, declining interest rates in many Western economies made it easier for people to enter the housing market, provided they could meet the down payment requirements. However, as discussed in prior posts, we may be entering a new era defined by rising inflation, protectionism, conflict and fiscal spending dominance to name a few. 4. MOST IMPORTANTLY, WILL THERE BE MORE BUYERS THAN SELLERS? Demographic trends do not paint a rosy picture for the future, especially in China. With fewer children being born compared to previous generations, demand for large homes is likely to decline. The overarching rule of SUPPLY VS DEMAND and FUTURE DEMOGRAPHICS PROJECTIONS are what I believe to be the safest way to project the LONG-TERM REAL ESTATE MARKET. Additionally, we should consider the potential impact of technology & future government response. For example, smaller, more affordable homes on more land coupled with increased rent controls, capital gains taxes, etc.. could prompt a wave of sales from current real estate investors, potentially flooding the market. I believe we are close which is why I remain bearish on the long-term prospects of real estate – unless in a place where demographics and government response are more favorable.