I have a lot of discussions with people about different asset classes. One of the most interesting to me is real estate. It has been long known that truly wealthy families have passed on generational wealth with gold, art and real estate.
The defining characteristic of each is that they are REAL. They are nobody else’s debt (assuming no mortgage on the real estate).
Personally, I believe that art is in a bubble and that real estate is currently in a bubble in some places while the bubble has already popped in major metropolitan areas and in retail and commercial real estate. I also don’t believe that we have seen the end of falling prices. I believe that will pick up substantially when the forbearance and rent abatement programs end which they ultimately must do because the rights of landlords are being trampled upon.
I believe that this was done on purpose also- just like closing small businesses and running them out of business to clear the way for the mega-corporations to take things over. Large entities like the Fed and their cronies can withstand this type of business interruption and it is also being reported that many hedge funds are raising capital to go out and buy distressed assets- mainly grossly discounted real estate.
To me, this is theft on an industrial scale and hardly anyone has a clue that our wealth is being dissipated right before our eyes.
Many people will argue that since the dollar appears to be toast (meaning the value will plummet) the price of all things- including real estate will go up immeasurably. While this could be true I would like to offer another point of view.
Many who have known me for a long time know that I have been bearish on real estate for some time. It’s not that I thought that prices would not rise but that after the rise, which we are seeing now in my opinion, there typically is a major drop in prices and an excellent opportunity to pick up bargains for those who are so inclined.
There are many reasons that I believe we will see a substantial reduction in real estate prices and soon.
Many who are in suburban and rural areas probably think I am crazy to suggest falling prices when homes are listed on Monday and most don’t stay on the market past Tuesday in many places. In addition, many houses are listed and people are paying more than the listed price to get the deal. It just happened to my son in Florida. After missing out on a few homes he put in a higher bid and finally got one.
I believe that this is why the prices in the cities and urban areas are collapsing because of a major exodus out and why there is tremendous demand and rising prices elsewhere. The cities have become noticeably more dangerous and FAR less attractive as the appeal of the cities (mainly art, culture, sports, careers and entertainment) cease to exist in most places.
This phenomenon will likely last a bit longer BUT- and this is a big but- there are 40 MILLION people who are at risk of becoming homeless as the mortgage forbearance and rent relief programs expire. While I am no real estate expert by any stretch of the imagination there are many experts in this area who have pointed this out. Basically, a large amount of new properties are likely to come into the market, buyers could dwindle because those able to leave the cities have already left and many who would like to relocate may find that they don’t qualify for a mortgage because of reduced incomes, reduced property values- or both. Neither of these scenarios address the rising of interest rates which on its own could lead to a substantial correction if rates were to rise to anywhere near a historical norm.
So why, if the US dollar loses most of its value would real estate not go parabolic? It may be one of the most important things for humanity after water and food. The reason is simple. The price of real estate is artificially high because of artificially low interest rates. This is great for the homeowner who sees his equity going up but this boom for the haves is a bust for the have-nots. Most of our younger generations have given up on owning a home because they can’t save enough for the downpayment and even though wages are stagnant (and many have no wages to speak of at this time) the prices have been rising relentlessly since 2009.
I have heard many say “I know I am overpaying but I have to buy now before I get priced out of the market”. Many have been conditioned that “real estate only goes up”. Nothing could be further from the truth (as with any asset) but many have not seen a real correction because of central bank interference.
Once prices start to fall, I would expect lending standards to get tougher leading to fewer and fewer people who can actually qualify for a loan. This will lead to reduced demand while inventory will likely be spiking. This scenario is why I believe major hedge funds are raising capital right now- to buy assets at a greatly reduced cost.
Most people cannot buy a home or a condo with cash UNLESS they have sold another property. If they can’t sell the other property they own they won’t be in the market for another one most likely.
In the event of the dollar’s value collapsing most people will be spending the bulk of their earnings on food, water, utilities and energy. This will likely lead to far fewer people having the ability to spend on luxuries like travel, etc. What will that do to the people who are counting on renters (air bnb, etc.) to pay their bills? More than likely many of these properties will be foreclosed upon. With fewer people in any type of position to be buying luxury properties or any properties for that matter it is more likely that the price would collapse rather than skyrocket.
Many people will say that “if I wait rates may go up so even if the price goes down I may be better off buying now”. While that is a rational thought I believe they may be underestimating just how far these prices could fall- leaving your “great rate mortgage” deeply underwater and the buyer wishing they would have waited.
In the meantime, for those looking to sell- you may never have a better time than now to get a good price and likely fairly quickly if you are in a desirable place.
This is, in my opinion, one of those circumstances where those with purchasing power may be able to generate generational wealth if they have purchasing power when the opportunity presents itself.
My what-if scenario:
What if … because the major banks and central banks are suppressing the price of gold and silver to protect the US dollar and bonds we are able to buy real assets like gold, silver and other hard assets at a steep discount today and cash them in at a later date when the scheme ends and gold rises parabolically to catch up with all of the money “printing” taking place?
What if … the “printers” go too far and destroy the value of our currency so that no matter how much that “print” it either has No effect or possibly even the opposite of the intended effect?
What if … because of this a loaf of bread is over $100.00 and a happy meal is $100.00? That may actually look cheap when these clowns are done.
What if … real estate prices collapse rather than correct and a whole lot of opportunity presents itself but because of wages not keeping up with inflation most people can’t take advantage of it and prices fall even further?
Many times I have written about being able to buy assets that you can’t imagine owning today- if you are positioned correctly.
Personally, I believe gold is possibly worth 10X more than it is trading for today. It should likely be near $25,000.00 per ounce as I write this. For anyone who thinks this is crazy explain to me why Rhodium is trading at $25,000.00 per ounce right now and is FAR less precious than gold. CLUE: There is no paper trading “market” to suppress the price like with gold, silver platinum and palladium. According to the Fed there are over 35,000 dollars for every ounce of gold in the world and they are projecting that there will be over 88,500 dollars for each ounce of gold by 2025. This is likely a gross underestimation in my opinion.
What if … a million dollar home falls in price to $400,000.00?
What if … gold goes to $25,000.00 per ounce?
That means that with 16 ounces of gold you can own that home with no encumbrance. Get the picture?
If anyone thinks this is crazy look at Venezuela where they just printed up the first 1 million bolivar notes. They have a value of 50 cents. So for around 5 million bolivars you can get a cup of coffee while an ounce of silver feeds a family of 4 for a month. An ounce of gold, based upon the current prices (65:1) 65 ounces of silver buys one ounce of gold- gold would feed that family for 5 YEARS!
While this is a situation where hyperinflation is taking place we are taking the same actions that led them to the state they find themselves in today. It doesn’t appear that the central banks will stop until we are all Venezuela- because if they did the system we have today would cease to exist in a matter of days if not hours.
Your future prosperity is likely on the line with decisions you make in the next few days, weeks and months. I am not sure that we have years left- although you never know.
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
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