Real estate in my little
corner of Flyover Country is "on a hot streak." In Baton Rouge,
housing sales rose 12 percent last year, and prices shot up by 7 percent.
Everywhere, Baton Rouge builders
are scrambling to meet the demand for new houses, new condos, new
apartments. Thousands of apartment buildings are under construction in
the Mississippi River floodplain, where land is relatively cheap; and new
subdivisions of starter homes are springing up like dandelions.
Everyone is jumping into the
housing market. And why not? Interest rates on a 30-year loan are below 3
percent! You'd be crazy not to buy a new home or snap up some rental housing as
an investment.
But wait a minute. Louisiana
actually lost population last year. So who is going to buy the
new starter homes down by the River levee? Who is going to rent all those new
apartments?
And when we take a closer look
at the real estate boom in my hometown, it begins to look a little less rosy.
In the zip codes that border the Mississippi River, home prices actually went
down.
If we take a deep breath and
search for reality, we see that real estate across the U.S. is in a
bubble--very much like the bubble that led to the home-mortgage crisis in
2008-2009. Artificially low interest rates have juiced home sales in some
parts of the country, but real estate languishes in the nation's urban centers.
Houston, for example, has a
magnificent skyline, but a lot of skyscrapers have empty space. Houston's
office-vacancy rate was 24 percent last year. According to Bloomberg, business
tenants vacated a net 3.2 million square
feet of Houston properties in 2020. Meanwhile, 3.1 million square feet of
"new top-tier space [is] set to be completed over the next 18
months."
Downtown Houston has thousands
of townhomes and condominiums occupied by people who work in Houston's office
towers. But people are working at home these days. Many businesses have
concluded that they don't need to cram their employees into skyscrapers.
Folks can work from home.
And if you work from home, you
don't need to live in a crowded city. You don't need to pay sky-high property
taxes. You don't need to send your kids to crummy schools. Suddenly, the
suburbs are looking better and better. Maybe it wouldn't be so bad living next door to Ozzie and Harriet.
Housing prices are up because interest
rates are at a historic low. But interest rates won't remain low forever. Builders are constructing cookie-cutter housing projects at a dizzying pace, but it is not clear who will live
in these new homes.
Now is not the time to
speculate in real estate. Now is a good time to stop thinking of your
home as an investment and begin thinking about it as shelter for your
family.
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