How the AI Bubble Could Save Real Estate

Seems like everyone is talking about AI these days, and this has a familiar ring to Joseph Kennedy, Sr.’s 1929 Wall Street story. If you’re unfamiliar, the father of future U.S. President John F. Kennedy was a wealthy wall street investor, and in 1929, he had the experience that a shoeshine boy was giving him stock tips – this became the “shoeshine boy” indicator, meaning that if essentially everybody was already in the market, there’s no more upward potential for the market, so the only possible direction it could go is down. I won’t be making a further case for what or how an AI bubble will come to be, that is not my area of expertise; however, what I do want to connect is how a potential downturn in the AI outlook could bring a more positive outlook into the housing market.   

Economically, the numbers are staggering. In a January 2026 Federal Reserve Study, they stated that 39% of GDP growth could be attributed to AI spending. They also found that approximately $412 billion was spent by technology companies towards AI objectives. If AI enthusiasm fades – there are three effects that could lead to direct relief to the Flagstaff homeowner. First is what investors call a “flight to safety.” Investors selling stocks may purchase treasury bonds in an attempt to protect their capital, which would have the effect of lowering yields. A secondary impact is that this could lead to slower economic growth and growth outlook, which would lead markets to anticipate lower interest rates. Third would be that with lower treasury yields and with a slower economic outlook, mortgage rates could finally start to come down more meaningfully.

History does help make this case as well. In the dot-com boom and bust in 2000, the GDP share of growth related to this technology investment category was 28%, year-over-year inflation sat at a hot 3.4% and 30-year mortgage rates at 8.1%. After that bubble burst, despite being at a time of higher inflation, mortgage rates were reduced by more than 2% in two to three years while the economy slowed and inflation slowed.

Just last month, when we received September’s hotter than anticipated inflation reports for the Consumer Price Index (CPI) and Producer Price Index (PPI) we were fully expecting mortgage rates to bump up in reaction but markets already started a small flight to safety based on market concerns regarding AI-related data center investments. This was a very real reminder that we have complex markets, and real estate isn’t going to be stuck in this locked up market forever – and it’s not just the FED and inflation lowering that could push us out. Some speculation is that some significant shake up on this front could occur as early as 2027, so keep a sharp eye out, as the only thing we know for sure in real estate is that change is the only constant! FBN

By Chris Hallows

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