Real Estate Or Stocks In 2021?
Both stocks and real estate markets have been on a tear in 2021, recovering from pre-pandemic levels and then some. The news is so good it’s as though COVID-19 never happened. Practically anyone who owns assets right now is doing well.
But are things going to stay this way? That’s where things get a little uncertain. The prices of both real estate and stocks are both at record levels. And many commentators wonder just how much higher they can both go, given the troubles in the underlying economy.
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Inflation
Nobody wants to talk about it at the moment, but inflation remains a real threat. The US government, for instance, has spent nearly $10 trillion since the start of the pandemic, handing out relief aid to families and businesses all over the country. All this extra currency seems like a good thing – and it was for a while. But now, we could potentially have a perfect storm on our hands.
Goods production is down from where it was before the pandemic, according to GDP figures. But there’s an extra $10 trillion sitting in various bank accounts around the country, waiting for families to spend it. So fewer goods and more currency in circulation means rising prices.
The Effects On Investing
The good news is that both real estate and stocks are likely to thrive in this market. Companies are often the first to raise their prices, so the nominal value of shares will go up. And as more credit becomes available, it will lead to a rise in housing prices too. So people will have more money on their hands to pay for it, bidding up existing prices.
The losers are likely to be anyone who holds cash – especially those owned by governments issuing large quantities of debt. Bitcoin and other cryptocurrencies will likely be okay.
Therefore, whether you should choose to invest in real estate or stocks isn’t really the question. However, holding either is likely to yield large increases in net worth and transfers in your favor against lenders and holders of cash.
Those using a real estate data API and fixed-rate mortgages are likely to see the benefits accrue even faster. It’s going to become cheaper to pay down debts. And with new software, making decisions about which properties to buy is getting easier.
Real estate or stocks: What About Lenders?
The real threat to the economy is on the lending side. Bank’s primary business is the mortgage market – lending homeowners vast sums of money to pay for their houses. But if inflation strikes, borrowers will be paying them back in dollars that are worth less than they were before. So financial institutions will have to deal with negative real interest rates on the loans they payout.
Negative real interest rates effectively mean that banks are paying customers to take out loans. And that means that they are losing money. The real issue this time around, therefore, is another banking crisis. If inflation does pick up substantially, we could see the banks trying to raise interest rates – something that could prove too burdensome for homeowners.
