The Perfect Real Estate Storm

Dated: April 11 2021

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The Perfect Real Estate Storm

Years ago, I wrote an article I called The Snow Flake that Started the Avalanche.  It was about the factors that caused the real estate bubble to burst on August 15, 2005. (read that article here).  Back then it was difficult to point to that “one thing” that was the root cause; just as now we cannot name one major factor in today’s real estate expanding bubble.  But will it be a bubble that will burst, or are we just establishing a highwater mark that will be tomorrow’s bottom? In the 2007 article linked to above, I had the benefit of hindsight. Today I have to look around as things are rushing by me. In 2007 I identified the hurricanes as a catalyst to the crash, Today Covid-19 is our most visible catalyst. But there are many factors at play in today’s real estate market. There is pressure on all sides of the bubble.

I do not think we will have a crash in prices as we did in 2005/6. But lets me first look back at 2007 factors I talked about:

Hurricanes
The war in Iraq
Gasoline Prices
Interest Rates
Property taxes
Insurance rates
Raw material and labor costs increases
China’s emergence as a huge consumer of construction goods.
Inexperienced real estate investors
Developer’s reaction times
Too much inventory

Today my list of factors looks like this

Covid-19

Trade Issues

Gasoline Prices

Interest Rates

Inflation and faith in the dollar falling

Urban Flight

Work anywhere syndrome

Material Prices

Aging of America

Experienced Real Estate Investors (Funds)

Political Turmoil

Crypto Currency

 

You might find it interesting to compare the two lists. There are similarities, for sure.  But if I have to make a short summary of the real estate boom, which, by the way is not limited to Florida or other “Flee to States” , it is this:

 

The current demand on real estate is fueled by Americans fleeing lock down states and/or poor government, their awareness that they can work anywhere (this is accentuated by the ubiquitous internet, virtual offices, and on line collaboration availability), as well as the need to own assets versus cash, and the baby boomers finally retiring.  The supply crunch is affected not only by these previous factors but also by institutional investors buying up inventory,  and the response time  needed  by developers to create supply.  Trade issues have affects supply of lumber  ( mostly Canada) and alteration of the Chinese supply chain.  Not only is demand increasing prices, the cost of raw material is having a great influence.  It is not unusual for prices to go up when demand goes up. But today we have a multiple “wammy” – prices of raw materials are going up for other than just supply issues. There are tariffs, quotas, and political influences as well.

 

Years ago I talked about the inexperienced investor. Today I want to point out that the EXPERIENCED investor (Funds and well as well-heeled individuals) are gobbling up inventory and putting these properties in rental pools).  Effectively the funds are competing with first time home buyers and CREATING their own market for renters by locking them out of the home buying arena.

 

In today’s rapid inflation, more printing of money is adding gasoline to the fire.  Americans need to own hard assets that are not inflationary and real estate is the easiest to understand.   The increase of two home families is evidence of this understanding among home-owners.  Crypto currency as an asset class is quickly being adopted by the mainstream and this asset class now exceeds 2 Trillion Dollars!

 

My actions now (and I really hesitate to make a conclusion, but here is what I am doing) are to add both real estate and Crypto (Bitcoin and Ether)  assets  to my portfolio and I am already invested in both. 

 

In the world of renters and landlords, I rather be a landlord.  My “build to rent” plan  (building homes designed from the ground up to be a rental)- for both vacation rental and full time rentals is a sound one. 

 

If you own real estate now, improve it – physically and financially – this is what I am doing.  If you are saving money, don’t keep it in cash. I’m dollar cost averaging into Crytpo and well managed funds.

 

As always, if you would like to chat about how I may be able to help you with your real estate buying, selling, or investing. Drop me a line.

 

Its only called work if you would rather be doing something else.

 

Gregg

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Gregg Fous

Real estate has been my passion since I took my first Al Lowery class on real estate investing in the 1970’s. I vowed during that class that I would buy one property a year. Over the next five ....

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