Historical data from the late 1990s show a financial crisis is often followed with a steep increase in housing prices. If real estate grows in a similar manner as the 2000s, safe haven assets like gold and potentially Bitcoin may follow.
The housing market is projected to see a steep sell-off in the second half of 2020. The U.S., Japan, South Korea, Singapore, and other hot markets are struggling with declining demand.
Highly-populated markets like Makati, Philippines, which saw housing prices spike to record high levels in recent years, are also expected to see a 15% to 20% drop in value by the year’s end.
The medium-term trend of the housing market remains gloomy. But, a study shows that the next correction will mark the start of a strong housing market recovery.
A research paper published by the University of Granada and Federal Reserve Bank of Chicago read:
“During the late 1990s and up to 2007 several countries experienced sharp increases in house prices. These episodes are usually mentioned among the causes of the recent world’s economic and financial turmoil. The dramatic growth in bank lending during this period has been broadly held responsible for these market dynamics.”
The housing market tends to see an extended surge after a financial crash for two main reasons.
One, interest rates remain low for a relatively long period of time. It alleviates pressure from potential buyers in a cheap market.
Second, various forms of stimulus and government support are rolled out to lead economic recovery. Such efforts typically lead to increased appetite for real estate purchases over time.
Over the next six months, the Federal Reserve does not intend to hold back in stimulating the economy.
Fed chair Jerome Powell predicts the unemployment rate in the U.S. to reach 25%, a level unseen since the Great Depression in the 1930s.
Amidst highly pessimistic economic projections, economists are putting on the pressure on the U.S. government.
Nobel laureate Joseph Stiglitz said earlier this week in an interview with Bloomberg that the lacking government support can become worrisome.
“What worries me is that there won’t be enough government support, people will say we spent so much money to save the airlines, we don’t have enough money to shape the economy that we should have going forward.”
The pressure that is being imposed by both economists and the general population for more stimulus will push the Fed to provide the economy with enough liquidity.
Following arguably the biggest financial crisis in over a decade, the Fed’s aggressive stance will likely result in high levels of bank lending. That will stimulate the housing market entering 2021, setting it up for a strong decade ahead.
The well-documented correlation between gold and housing market, and the growing perception of Bitcoin as a store of value among institutional investors may indicate that housing, gold, and Bitcoin will perform strongly altogether over the long-term.