The 2020's seem to be delivering some similarities with the 1920's. We too started out with a pandemic in 2020, but the Spanish flu started 2 years before the 1920's in 1918. After a massive surge in spending and debt, then inflation, a pullback followed, inflation came down and the Roaring 20's ensued.

One of the main causes of the Wall Street crash of 1929 was an extended period of speculation in the markets that preceded it. Millions of people invested their savings or borrowed money to buy stocks, pushing prices to unsustainable levels. Between 1918-1921, a time when the world was in the midst of the Spanish Flu, US GDP per capita slipped by around 6%. Prices rose at an 18.5% annualized rate from December 1916 to June 1920, increasing more than 80% during that period. In 1920-1921, there was an 18 month recession that popped the bubble in rising prices and restored inflation to a more moderate pace. From 1920 (as the Spanish flu ended) to 1929, real GDP in the U.S. grew at a compound annual rate of 4.1%, a spectacular record considering that, during most of the past 70 years, real GDP grew at a compound rate of about 2.7%.

Today, might we be seeing too many large corporate speculators and investors buying individual homes? There is no question that in many areas of the US, the value of homes has been somewhat artificially inflated by this rather large swath of cash-rich institutional buyers. They were willing to pay up and outbid regular end-user-buyers, because borrowing costs were super-low, rents were rising in the double digits and they anticipated that to continue forever along with major demographic shifts happening all at once. Areas that allow short-term AIRbnb style rentals fueled enormous returns.

What will these institutional investors do when returns are no longer appealing, or the homes they bought require renovation, or their tenants can no longer afford the rising rents? What will individual investors? Now that most of these homes are far more expensive, they could easily cash out and deploy the capital elsewhere or shore up their balance sheets? Or take losses? Could this trigger price declines?

We will find out. One thing we know for certain is that too high a percentage of speculator and investor home buyers usually does not end well. Maybe this time it will be different as the housing inventory remains terribly under-supplied? Might investor housing liquidation be the ultimate solution to resolving housing shortages fast? And what might happen if governments step in to restrict their ownership thereby forcing sales?

Maybe a 'boring' 2.7% GDP growth rate is better than a 4%+ headline-making growth rate that does not end well?