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The Coming Economic Crash – Part 1 – Real Estate — 56 Comments

    • He means in the bank, relatively liquid and accessible. But it doesn’t hurt to have $1,000 laying around the house, in general.

      • I mean both really. Not time to drain the savings yet though. I also mean crypto, I also mean PMs, I mean anything liquid that won’t tank when Wall Street accepts the future. I consider 1K a minimum hard cash stash.

        • Before vacation you said you were in about 60% (iirc) cash position for investments. Has that changed?

        • Still at 60%. There is money to be made but tread carefully. Not everyone has a really great money manager if you get what I am saying.

        • What part of minimum is confusing you?

          Also do you really expect that I might even infer the exact amount of cash I have on hand?

          Last you do realize that some people are lucky to have 500 bucks by the end of the month in all forms of savings combined. Everyone must begin at some level = minimum.

  1. I saw an ETF over the weekend on one of those sites that runs ETFs where they made one about working from home, and cited some statistical made up number of people are more productive working from home.

    It’s going to be great for some, but not most.

  2. Great article Jack – 100% agree.  I do wonder, though, where investors will look to put their money as RE begins to become less attractive from an ROI standpoint.  Surely as the economy tanks the stock market will begin to deflate as well.  I wonder if there will be more attn paid to stable, relatively recession resistant, industries (dental, veterinary, etc.) as investors seek out decent returns while rates are pegged at zero.  Look forward to the next installment.

    • Real estate will in time become a gold mine, “everything is a cycle”. First you cash out, then you let the fools get hurt, then you buy.

      • Absolutely! That’s my long-term strategy for a good chunk of our PM and crypto holdings. As one or both of those really start appreciating, our strategy is to move some into additional real estate. Right now we only own property overseas (and not a huge amount), and at some point it will make sense to re-allocate wealth from highly-appreciated assets to undervalued ones.

        I just wonder if the real bargains in real estate will be in the US or overseas? Long term I see a lot of competitive advantages for the US (said advantages being overshadowed for a time by bad decisions and bloated bureaucratic systems that you’ve covered in detail), yet I think much of the world’s future growth and economic activity will continue shifting towards Asia in the next couple decades. Probably best to be involved in both areas I suppose, if one can.

  3. So if someone was considering selling their home and moving to a new place in the next few years, would you put a rush on that plan? I’m thinking it might be best to sell and then find a place to rent, take our time to find the new place and hopefully get a great deal.

    • @shasta, that depends on a lot.  Where they live, what they can get now if they sell, what options they have after they sell, how much equity they have, where they want to go, how much money they have.  What losses they can absorb.

      Now if you live in a major city I say move now, especially a major city that is going to get hit hard, places like Fort Worth or say Atlanta will get hit but places like LA, NYC, Portland OR, etc, are going to get murdered.

  4. Greetings from PEI Jack.   That was a good read.  I’d post it for my FB friends but they would have trouble swallowing that Red Pill.  Up here, our tourism was decimated.  Of a population of 155k, we are going to post a deficit of 173 million, which is proportionally high.  Federally, our socialist PM has blew 345 or so billion at this, with no end in sight.   Personally, I’ve been preparing since 2008.  So I sit pretty good relative to others.  I’ve been working at home since March 18th and with the exception of crappy rural internet, it’s been ok.  I doubled down on the garden this year and we’ve had a hotter summer than normal, so things are doing well.  I am well stocked on all items so I stayed the feck away from the stores.  My 2008 Rav4 only has  96,000 miles on it and I only put ninety on it now a month.  We were doing well with Covid cases until this week when one of our residents went to Nova Scotia and had contact with someone from the U.S and now we have a small outbreak.  I don’t know how the U.S citizen made it to Canada with the borders closed, unless they were deemed essential services, but now we are in a position where they are strongly recommending we wear masks.  I’m on the fence with that.  I think this winter will be brutal up here financially for most.  We have a program called CERB, which pays 2k a month for those without work.  It’s gonna be a mess when they take the punch bowl away.  Dark times.  I’m hunkering down for the winter, with increased wood supply since I will be working from home, if I don’t get laid off first.  Looking forward to the series..

      • Still around, I just dropped off the radar.  After mom died in 2016 I was dealing with my brother over the estate for better part of a year.  That took a lot out of me.   Work also has kept me busy, demographics have hit our area hard with retirements, and  I’ve been upgrading the log home for retirement and various sundry things.   I’ve tried to keep up with the podcasts, but the older I get the faster the time goes and *poof* years go by.   Lately I’ve been binge watching Youtube videos.  “My Self Reliance”, “Boss of the swamp” and “Joe Robinet”.   I found once I turned 50, I’ve had to look and adjust my lifestyle a bit and it’s going well, it just takes time.  I will be 57 in September, so as you say “Tick Tock”.  I like to leave the day with more done than I started!.  The star of the garden this year is 200 garlic, two more weeks and harvest.  Also trying Red Chinese Noodle beans.  Russian plum tomatoes for my salsa.  I’m now looking into a Water Distiller so I don’t have to buy any for my Surette Batteries.  I go though about eight litres a year.  One set is older and goes through more than my other solar installation.  And Walmart was down to about 10 bottles left, so I grabbed them and said, I’m making my own. Plus it could serve other uses 😉

         

    • This afternoon arrived at the cottage in North Rustico, PEI. We come here every year for a week or so  from  our home in the Annapolis Valley Nova Scotia to enjoy the warm sea bathing, and beautiful surroundings.I love to see the fertile and neatly maintained farmland that covers most of PEI. This is one of the places where people should be able to live  a worthwhile life regardless of economic conditions elsewhere. Another attraction of this place is that for the moment at least it has been spared the massive influx of immigrants that have “enriched” other regions of Canada.

      At this time there are very few cases  anywhere in the four Atlantic provinces, and no community spread so there is a travel bubble in place between these provinces with no need to self quarantine on arrival. New Potatoes are on sale , we picked up a couple of bags of Irish Cobblers and cooked up a potful for supper . Absolutely delicious with salt pepper  and  generous butter. I have four large beds of these cobblers growing at home , but they are still a couple of weeks away from harvest.  this year I dug up  a good chunk of my back yard and planted vegetables. Took great care this year to prepare and fertilize the beds well  & most are doing good. Over the years I planted fruit trees ,berry bushes ( blueberry , Haskap blackberry etc..) , walnuts . Pretty well any thing that others in the region are growing successfully. Almost every fruit and nut tree has some pest or disease  which can prevent you getting a good crop . Stone fruit like cherries plum and peaches have the “Brown Rot” that can spoil even cherry on the tree before they are fully ripe . The peaches can get leaf curl which can kill the tree, the apples get apple scab on the fruit, and the fruit are also attacked by the Apple maggot . All these problems can be overcome , but you have to spray if only with the relatively non toxic borden copper spray or lime sulphur to have a good chance of a good crop. The walnuts are picked clean by grey squirrels shortly after they are ripe. So you have to deal with the squirrels. However gardening is fun and after a while you will get everything right and will to enjoy the fruits of your labour

       

  5. Hey Jack, been listening since the final in-car episode before moving to Hot Springs. I value your viewpoint very highly, but I think you’re missing a key aspect of this which is that in mid-March The Federal Reserve showed their hand and they are willing, I believe, to print every last dollar needed to reserve the entirety of the USD debt outstanding in the world if need be in order to prevent the deflationary collapse you’re describing here.

    The $1200 “stimulus” checks was just a tic-tac before even getting to the restaurant for the appetizer and main course. They will print money and mail it to you, pay off your car, pay your mortgage, whatever it takes to make those debts whole because every 99%ers liability is some 1%er’s asset. It’s called a “front lawn dump” (Google the term + FOFOA) where they make sure every dollar of debt is nominally good even if they have to dump a pile of worthless cash in your front lawn.

    IMO that means that you want to be holding hard assets, NOT cash because your cash is going to rapidly become worthless. Now that’s not to say tomorrow or next week or even in a year, but they’ve crossed the rubicon and this is where we are headed. Hopefully they don’t go full Weimar and you still need to be nimble and as unconstrained as possible, but holding a modest mortgage isn’t the worst thing to have because your home’s paper value could skyrocket (depending your locale) while that fixed rate debt gets inflated away.

    Now periods like this is the past (1920s-30s) are extremely volatile, so I think you’ll want to be heavy cash, all in assets and stocks, back to cash, back to assets, as they try to ride this dragon, but IMO betting on a real estate collapse is fighting the last war. In 1999 they had a stock bubble and kicked the can to the banks in a housing bubble and then kicked the can to a sovereign debt bubble and the only release valve left is the currency. To have any chance of making $100-200T of boomer entitlements nominally good, they have to print the dollar to oblivion. Your scenario here is a potential outcome if they lose control or decide to step aside, but if that’s the case who cares about remote work or demographics, you’re going to want guns, ammo, MREs, and nothing else because it’s Mad Max for a good while.

    Just my $0.02 Interested to hear your thoughts. Cheers Jack!

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    • You make some good points about the money printing. Makes PMs, Real estate, guns, ammo, tools, any hard asset worth or cost a lot more “dollars” down the road. Real estate could take a major hit depending on where you live. Most other assets seem safe.

      Tricky turning my 401k/IRA into hard assets. Cash position may prevent taking a bath if the market tanks but if high to hyper inflation hits there are other problems.

      • The key with real estate are there are two ways it drops.

        1. There is simply less demand, either due to simple lack or the inability to buy due to lack of money and or credit. This hits everyone. It sucks and it is mostly something we must deal with in the coming years.

        2. The real estate value was excessively inflated by factors that are wholly subjective (ie I live in San Francisco near cool places). When #1 hits, those living in properties effected by #2 get the hammer. Sure if you live on the beach with an amazing view your house is actually worth more. But two people living in very similar neighborhoods one in Nebraska and one in Los Angeles and the LA house is a 3/2/2 for 800,000 and a house that is pretty much the same in Nebraska is 150,000, come on.

        This is exactly what happened in 08-10, it will be a lot worse this time. Those in homes that are more honestly priced will do fine especially as long as they can cover the payment and don’t want to move.

        My upshot at the end of this series is it will be good for us long term if we adapt to it and learn. This is flux that needs to happen. My fear is last time it happened we were talked into jumping into a World War and we lost a ton of our freedoms along the way.

        • Totally agree with everything there, Jack. As always, location, location, location is paramount. The hammer has already fallen on AirBnb hosts who way overpaid for previously mediocre properties based on the inflated returns of renting by-the-night vs. monthly or yearly. When revenue went to zero indefinitely, these guys are going to turn in the keys. We’re already seeing it in cities like London where AirBnb was like half the damn rental market or something crazy. As you’ve said, COVID kills the dying so plenty of real estate business models that made no sense but for a bubble of some sort are going to die a brutal death, but I think cash flow real estate and modestly/fairly priced single family homes in non-gateway city ex-urbs closer to your urban/rural fringe will do fine. There is demand for these homes among household-forming millennials and right now supply is badly constrained.

  6. So Jack, before you went on vacation you stated that it would “depend on their responses” over the next several months, that would make the difference between “recession becomes bad recession” or “depression”.

    Are you calling “depression” with this article?

    thx

    mike

     

    • Not yet, we are half way into that and things could be worse. We are not in my view guaranteed a long protracted depression. We are getting mixed signals on what they are doing and going to do. To early to tell how bad yet, but very bad is a minimum now.

  7. You’re absolutely correct with this, Jack. Our company went remote in mid-March, and the company closed its office permanently a month ago. I’m leaving my $2600/month one plus den in Toronto next month. I haven’t found a new place yet, but I can find something reasonable for $1000/month or less, in a much smaller community, that’s less likely to go bananas when things really fall apart. It’s like giving myself a massive raise.

    There are only two challenges: one is finding a place with a spot suitable for working at a computer all day. I enjoy sunlight, and most bedrooms have high windows. Being hunched over a laptop at the kitchen table all day is not feasible. The other is finding fast internet in rural areas, but this won’t be a problem for long with Starlink going into service later this year.

    • Japan at least has a homogenous culture without the problem

      of the inner city thug culture we deal with. Germany could have a more

      homogenous culture if they hadnt let in the great migration.

      Rural is the way to go here in the US. When real estate prices drop,

      the percentage drop might be equal but the amount in dollars will be less also.

      Take that 800k from the sale of the san fran property and buy 8 100k brick ranches

      in Arkansas.

  8. Interesting theory jack and there definitely is data to support it. But I’m not sure history or the current state in other highly technologically advanced countries supports that theory.  I’m thinking japan or Germany for example.  People continue to flock to big Japanese cities. So much that they literally can’t pay people to live in rural towns and you cant tell me that they lack broadband there.

    From your (and my) perspective, big cities are just as you described but to a very large subset of our population they are all they know and they like them. They grew up in that sort of “hustle and bustle” and even the suburbs seem boring let along small town America. They want to be able to walk to a bar or grocery store. They rave about all the entertainment options available (even if they spend most nights in front of the TV).  They love the opportunity to try that new restaurant that just opened up a couple blocks away. They dont want to have to get in a car and drive 15 minutes to do all of these things (even though in reality they spend just as much or more time walking or sitting on a stinky bus).  They think they live in the “good part” of town even if that means only a couple blocks from sketchy places.

    While we may lose many of the big “business districts” that are bustling with people in suits during the day but dead at night, I can’t see people not giving up the easy lifestyle of city living.  Perhaps continued riots will prove me wrong but our “big cities” have a long way to go before they are the mega cities in other countries.

    • First what people do in Germany and Japan = not relevant to this article this is about the US market. Germany and Japan don’t even have the space to offer the choice we have here. Well in some ways they do but it is not available space, especially in Japan. In both places it is MORE not less expensive to live in the country. I mean really price it and you will see what I mean.

      As to data supporting it, data already supports it. Data showed this coming in 2019 before there was a CoVid. One example https://www.cnbc.com/2019/12/04/harsh-housing-forecast-for-2020-especially-in-these-big-cities.html

      The migration pattern is set it was already set and it only gets worse from here. I also realize no matter how many times I say this, it will fail to be understood but here I go one more time.

      I am not saying LA and NYC will be ghost towns, that say 80% or even 25% will leave, I am saying they will have population net losses in the range of 3-8% and that economically those cities will be economic disasters with numbers that low.

      Every single one of these mega trends will cause cognitive dissonance and a pleading to authority fallacy. In this case the “authority” is history and data. Well data is not on your side man, the data is clear. As to history, the reason we are so often fooled by history is we think of cycles in human lifetimes, this is a mega cycle, the ending of an age, a total transformation. Such cycles are very easy to see if you step back far enough to see them. Most people are standing 1 inch from the screen though, you need to be about 50 feet back relatively speaking.

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      • “economically those cities will be economic disasters with numbers that low”

         

        the big draw of large cities is economic opportunity.  if they are economic disasters then what will keep people there?  entertainment and restaurants and good parts of town are irrelevant if you can’t pay for them.

      • “LA and NYC will be ghost towns”…true, and unfortunately many are moving to Austin near where I live. Tesla is building their plant here just outside Austin on former farm land, and the local real estate market will be booming further up. Inside the city limits, it’s said that almost 50% of houses sell within 2 days of being listed. I’ve rented for awhile and sought property outside the city for a homestead, but deals are hard to find. Would be interested to hear your thoughts on the Austin market.

  9. Thanks for the interesting article. Time will tell what the long term trends will be, but I completely believe that you are 100% right.

    I’m a long time real estate broker in rural NW Mohave county in Arizona, we’re seeing a tremendous migration from southern California to our area. (We’re only 5 hours from greater LA.)

    Prices have returned to the bubblicious days of 2005-2007 and most residential sales are within a day or two, many are in multiple offers on the very first day. So for us for now, we are seeing price increases and a red hot market.

    I primarily focus on rural land, and after 2008 that market had pretty much died until the last year. This year there is a desperation to buy something that we haven’t seen for a long time.  People are definitely nervous about living in the big cities.

    For now, with low interest rates we are still seeing sales everywhere, but I believe that all of that built in home equity will be sacrificed when the panic begins in earnest. If you paid $125,000 for that Riverside County (east of LA) home in the late 1990’s, it’s better to drop the price $100,000 and get the heck out rather than be trapped in a high expense/high tax area. When the market starts to turn, it will be fast & devastating with homeowners competing to get out at any cost. As you say, it only need be a few percentage points to move and the whole market will be affected.

     

    • “As you say, it only need be a few percentage points to move and the whole market will be affected.”

      It amazes me at how hard that is for people to understand.

  10. I agree totally with the premise of the article…however one factor not considered is the fact that any company can have people work remotely from home anywhere in the world, so why hire an engineer, accountant, etc. etc. in the US when you can here someone in a third world country for a fraction of the cost?

    no bueno

    • Well,

      1. It is not over looked, I mean look how long it is, I can’t force everything into it.

      2. This trend will likely reduce outsourcing. Native English speakers are best for most of these jobs and it won’t be long until the jobs pay less as well. Many already do, sure Bob you can go to Iowa to live, but your salary is going down, this is a thing, in most big companies it is actually formalized.

      Bob still gets a hell of a raise due to living costs but Bob costs less at the same time. Heard from at least a dozen listeners (unsolicited) taking that kind of a deal in the last month.

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      • sure… appreciate your reply…

        Absolutely agree that someone working in a corn field could work for less than someone in a glass tower in NYC, however  I do disagree about the concern about “native speakers”, as we are already conditioned to first speak to a machine (the cheapest labor), then we get to speak with either India, Indonesia, India, and God knows where else..(average hourly wage in Vietnam is .39 cents an hour)… Bob in Iowa will be better off than Bob in SFO but no as good as Babau in India, and their English skills are getting better by the day.

        Automation and Globalization are unstoppable, however your point is well taken until we cross that Rubicon where we are no longer competing with fellow citizens for employment but the entire world.

        Two men are in the forest and happen upon a bear who starts to chase them, as the men are running one man stops to take off his boots, at which point is companion tells him that he still will not outrun the bear even with bare feet, and the first man says “I don’t need to outrun the bear I just need to outrun you”

        sad but true

        • I have always found that story stupid the bear one. Not the point but the story itself. Why the fuck would you be able to run faster bare foot than in boots in the woods? It makes zero sense.

        • CSR type jobs are fucked 100%. AI will vanquish 95% in a year or three. I am talking technical work. Trust me try ONE time to manage a development project with Indian/Russian/Chinese/Etc programmers and you will understand.

          FWIW Automation is one of the 8 mega trends, a special guest author is writing that article. Should not be hard to guess who it is.

  11. In ’81, we bought a 3/2 house in OKC for $81,000.  In ’82, the oil market dropped as did the economy of OK.  By early ’85, our house was appraised at $49,000 and was falling precipitously.  My job took me to TN and the market was considerably better here.

    The same thing is about to happen, but it will be widespread throughout the country.  There may not be any place left to run to.

  12. You are dead right in what you wrote. I jumped here from TBP link to have a read. After the 2008 mess, I bought 40 acres in a TX county with population of 25,000. It’s not yet paid for, but the note is 35% less than my last car. We were going to sell our suburban house, but we owe less than 30% of current comps in the neighborhood – we can sell and not take a loss.

    This was NOT accidental, as we went through the 1984 oilfield collapse and lost our butts selling the house into a dying market. I saw the remote working thing becoming a viable option for my overseas clients, and pushed it. It worked even with the primitive software crap we had 5 years ago, and saved tons of money over any intl trip. I haven’t had an office in almost 7 years, and my employees all switched to “consultants” and 1099s for more pay. So my overhead for my little engineering outfit is a computer, fast internet and some software. “Boomer Engineer Embraces Gig Economy” might be headline.

    On the other side of the coin, land prices near my farm have shot up. We built a house (son and I) and now the value has doubled in 6 years. I bought for $2k/acre and now it’s running almost $3k/acre for raw land. This county has almost zero development, yet prices are climbing and old fixer uppers in the nearest town are disappearing. I have had 3 or 4 calls from friends looking for affordable land to bail out of Houston, and it isn’t there going south or west. The prices they shared with me are up about 45% from when I was shopping 6 years ago.

    I think you are dead nuts on with your thinking – and it isn’t looking very deeply ahead, because things are swirling faster than people realize.

    • How things happen that are this big. First very slowly, then over night.

      The slow is there for all to see, 95% don’t or refuse to see it.

      What you did was move on the mega trend way early, good on you.

  13. Wow. Great article and interesting comments. I would love to hear what you guys think about this.

    I’m looking to buy a 4 br new build double wide in a small subdivision about 10 min outside of collinsville TX on 1.5 acres for 150k on a va loan. Oldest kid turns school this year (most likely home schhol) thanks to Jack. We are currently renting and my wife wants something more stable.

    I’m not sure if it’s a good decision right now and I would love to hear what you guys think.

     

  14. Great article and comments.I posted this previously from my phone but I think something went wrong because it didn’t show up. Hope this doesn’t end up being a double post.

    We are looking to buy a 4 br double wide on 1.5 acres in a small subdivision for 150k on a VA loan 10 min outside of Collinsville TX.

    Background: We are currently renting in Nashville where I moved for work. My wife is from Texas and wants to go back. She’s unhappy here. Our oldest child is old enough to start school this year (however we are looking into homeschooling based on the info from Jack)

    My wife wants to “settle down” and have a garden, chickens, a pony for my daughter and other things along those lines which we are unable to do with a rental. This property should allow us to do most of that.

    I anticipate the house payment to be around the same as we are paying in rent so we will not be living above our means. My concern is with the coming changes that it may be a bad decision.

    Would love to hear your thoughts.

  15. Is there something you have to do to post here?

    I’ve posted twice asking for peoples opinions on purchasing some real estate based on the on the article and comments here but it either didn’t post or was deleted.

    • No just use the same email in the form and once you get approved unless you trip a filter they will go though instantly from now on. All first time commenters are moderated until known.

  16. Thanks for the great article! I’d been mulling these things around in my head for quite some time now as a top Realtor in my area which is a distant suburb of DFW (Denton, Tx). I knew the office space market would be crumbling and I’m hoping that many of the businesses/developers will repurpose for executive suites or housing communities but I think that’s wishful thinking and there may not even be a demand for that. Then I read an article that said that 55% of people in NYC, Chicago and LA would leave if they were allowed to work from home permanently. This will be devastating to those cities.

    My thought is, if people are leaving the cities, wouldn’t rural (I’ve been seeing this) and suburban sprawl prices go up because of the increased demand? I’m hoping that will insulate the non big cities a bit since these people have to move somewhere…y’alls thoughts?

    Been listening since 2011, it’s the one podcast I’ve stuck with over the years, thanks for all the great info!

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