On today’s show we’re talking about the driver for the value of real estate. Some people will tell you that location is the number one factor influencing the value of real estate. Size and features of the property might be another factor affecting the price of a new home. If we look back at the great financial crisis which started in 2008 and over a five year period decimated real estate, we can learn a number of lessons which would apply to today’s market conditions.
Last year there was the crowd that was arguing that inflation was going to be transitory. That’s been replaced with a variation on that theme. The inflation round of inflation which was caused by the emergence from the pandemic should peak around mid 2022 and then decline back to the 2% we have experienced over the past 25 years. The central bank playbook of the past 25 years appears to be the definition of normal. Whenever there is a problem, the central bank will step in, print some cash, buy some bonds, and all will be good. We just need to wait a bit more and interest rates will drop, the central bank will become stimulative again and we will enjoy another hit of the drug that the economy has become addicted to.
What if that thesis is incorrect? What if inflation was actually being held artificially low over the past 25 years by factors that no longer exist?
We need to understand why inflation was being held so low.
Host: Victor Menasce