1. Real estate is directly tied to jobs and income growth. Unemployment increased more in three months during Covid than in 2 years during the great recession. Now the government paints a rosy picture of people returning to work but the unemployment t reports are very understated. When the numbers are adjusted to reflect a more realistic scenario, the unemployment rate may be over 17%. If one in 5 people in a country are unemployed, this will obviously have a negative long term impact on real estate.
2. GDP is of the charts, and estimated to fall 32% in second quarter according to the Atlanta fed. That has been reduced from an over 50% estimate in June. GDP for those who don’t know is gross domestic product, or a monetary representation of all finished goods and services in the country over a specific time period. Does anyone think that the entire economy going down by 50% will have a positive effect on real Estate in the USA?
3. Covid is seeing a second spike.The US has some of the worst numbers in the world and continued social unrest isn’t helping things. We are artificially propping things up with record low interest rates, but there really is nowhere to go from here, and we are already in trouble.
4. Almost 10% of all Mortgages are in forbearance. 4.7 million mortgage holders reduced or delayed their monthly payments. You know how many people fit in a giant sports stadium? Around 50,000? Take about 100 of those stadiums and thats how many people are behind on mortgage payments. The rosy side of the story we are given is that about 90% of those homeowners have at least 10% equity, which protects them from foreclosure. But how much equity will they have when real estate markets drop 20% or more? Keep in mind, 1.4 million people were already behind in their mortgage payments before Covid.
5. Evictions, if not addressed, will be in the tens of millions. Where do people go when they are displaced from their homes? Into the public. During a pandemic. Which will undoubtedly increase transmission of the disease. A study from the Federal Reserve Bank of Cleveland found 44 US cities eviction filings by landlords have pretty much returned to their usual levels. More covid equals more tough times, equals more covid. It’s a vicious circle. So evictions are bad – but what if they do place another moratorium on evictions?
6. Moratorium on evictions. Many people dream of being a real estate investor and owning properties. What happens if the government adopts mass eviction moratoriums. While this is a good thing for society overall, if you are a new landlord who is reliant on rent to pay your bills, pay your mortgage, you will be in trouble. Combine that with the value of your rental properties dropping in price, real estate might begin to look a lot less appealing. That said, if you time things right, there could be a lot of bargains coming on the market, just like back in 2008. If yu don’t over leverage and buy at the peak in a bubble market real estate has been a good bet overall. IN a recent video we showed how rental properties outside the city can be found for $30,000 that yield $750 a month in rent. Those prices will never go down. Link to that video at the end. Another consideration is taxes. Somebody has to pay back the trillions the government is now printing. Will we see a significant increase in property taxes, specifically non owner occupied? We can only speculate but Toronto already suggesting an almost 50% increase in property taxes may be required.
7. People are leaving the cities. In a study of nearly 4000 wealthy investors 46% were reported to be leaving the city for less populated areas. Remote working is way up – people can live anywhere. We left the city a while ago, while I didnt expect a pandemic, we were overdue for an economic correction.
8. Printing money can’t last forever. Stimulus checks, corporate bailouts, trillions of dollars conjured up out of thin air, and added to the debt of the nations. So the money comes from nowhere, yet somebody has to pay it back in taxes. That somebody is you. We have a massive student loan debt crisis in the trillions, massively underfunded social security and pension plans, a looming trade war with China, and an unpayable debt in the trillions. All of these things do not point to a strong real estate market in the USA, particularly in cities.
https://youtu.be/ykC_nxzPA_o Stock Market Crash?
https://youtu.be/7RCwp2FCPM8 Why I left the City