Ruth Malkin Brookline Real Estate Expert

What’s The Biggest Asset Class In The World?

I just read a very interesting article about the biggest asset class in the world. I share my comments on what I see happening and how it may impact you. Click to watch:

Prefer to read? Here’s the transcript:

Hi. It’s Ruth. I’m in my Brookline, Massachusetts office, and Boston weather seems to be saying “goodbye summer and hello fall.” I hope it’s nice where you are. I wanted to first of all thank everybody for all the comments, e-mails, and phone calls after the last video. I love hearing from you. Keep them coming. I’m always glad to hear from you.

Today I wanted to discuss the largest asset class in the world. Do you know what it is? The very, very biggest market in the world? It is the United States residential real estate market. It is a $26 trillion market right now. That is the value of residential housing in the United States. It is bigger than the stock market. The United States Stock Market in its entirety is worth currently approximately $25 trillion. Of the $26 trillion in housing, about $15 trillion is in equity, which is the good stuff. That’s the good news. That means $11 trillion is in mortgages.

I’ve had a conversation with a couple of people recently about the 2008 financial crisis, and what has changed since and how lending has changed since. There was also a timely article a couple of weeks ago in the Economist that I enjoyed, and I want to share some of the ideas and some of the thoughts I’ve had. In 2008 I know the basic way to look at the crisis it started out from risky bad lending. Some of it was even fraudulent. I remember in 2006 having a conversation with one of my mortgage brokers who said, “Really, all you need to get a loan is a pulse.” I’ll never forget that. I don’t know if I was more scared or humored by that comment, but probably scared would’ve been the right reaction.

That is no longer true. Right now, it is much harder to get a loan, and, as some of my most qualified buyers in the past couple of years have found out, that even with 20% down and excellent credit, they’re still going through the wringer to secure the loan for their home. That has changed dramatically. Another thing that has changed dramatically is the health of the banks. The banks, what they were doing in the 2k’s leveraging lending and making many risky loans, but at the same time they have very low reserves in the bank, which has been a reoccurring problem in financial crises. I won’t get into the history of finance, but right now most of the banks we’re looking at about double the cash reserves of 2008 or the pre-crisis time.

One thing that hasn’t changed since the 2008 financial crisis is the fact that the United States government is backing up the overwhelming majority of mortgages. What does that mean? Well, the United States government backing up anything means it’s the United States taxpayer who ultimately has to pay for a bailout, which is what we did in 2008 and we will do again if and when the next mortgage crisis happens. Whether or not that’s a good or bad thing that the United States is backing up loans, that’s a conversation that I’m not going to have here, but I’m happy to discuss with you in person.

Don’t get me wrong, I do not believe that the next financial crisis is right around the corner. I really do not. I think we’re looking at a very robust market in the next few years. Maybe less price increases, flattening out of prices, which is probably a good thing. If you have any questions about this topic, you want to argue with me, discuss with me, or just check in, I would absolutely love to hear you. You know where to find me. Call, text, e-mail. Talk to you soon.