I think there is something else going on in real estate. This is the only asset class with significantly above average gains for decades. It does go down once in a while but it comes roaring back in relatively short time. Even when dropping, it rarely goes below 25% protecting most of the principal. This is about the only item that had massive inflation in past 7 years.
I think what is happening is real estate is becoming currency just like what gold was used to be. In economics, you can make anything a currency which cannot be manufactured easily and is available in quantity that is very hard to grow. Economists are puzzled why the tons of money poured in to system through QEs isn't producing any inflation. I think QEs are indeed producing massive inflation but it all goes in to real estate. Funds like Blackstone eventually ends up with significant chunk of QE money and guess what is their major investment activity these days? The easy "inexpensive" money is the best way to inflate real estate. It's a like you eat a lot but only your waist is accumulating all the fat and you wonder why your hands and feet remain so thin. I suspect this trend will continue because people are realizing real estate is more safer currency that can be relied upon as opposed to stocks or anything else. The safety is derived from the fact that, in worst case, it can be rented to generate better than interest returns or physically be used. This assumption can only be violated if interest rates grows a lot beyond rent income and thus in high inflation. However overall economic inflation cannot happen if all the surplus keeps landing in real estate. So it seems like virtuous self locked cycle.
I think what is happening is real estate is becoming currency just like what gold was used to be. In economics, you can make anything a currency which cannot be manufactured easily and is available in quantity that is very hard to grow. Economists are puzzled why the tons of money poured in to system through QEs isn't producing any inflation. I think QEs are indeed producing massive inflation but it all goes in to real estate. Funds like Blackstone eventually ends up with significant chunk of QE money and guess what is their major investment activity these days? The easy "inexpensive" money is the best way to inflate real estate. It's a like you eat a lot but only your waist is accumulating all the fat and you wonder why your hands and feet remain so thin. I suspect this trend will continue because people are realizing real estate is more safer currency that can be relied upon as opposed to stocks or anything else. The safety is derived from the fact that, in worst case, it can be rented to generate better than interest returns or physically be used. This assumption can only be violated if interest rates grows a lot beyond rent income and thus in high inflation. However overall economic inflation cannot happen if all the surplus keeps landing in real estate. So it seems like virtuous self locked cycle.