Why is there so much Happy Talk???
Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes
Why is there so much Happy Talk???
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Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y"how there is such Happy Talk right now about the economy."
1) We had a great economy before COVID
2) Stock market is still rising
3) Rates are all-time lows
4) Pumping a ton of money into the economy
I agree with you, but there are factors beyond mere human comprehension. However, it's all based on what other people do, you need to decide what's best for you.
In 2009/2010, I spent all day telling people to buy apts. The prevailing wisdom was you're an idiot if you buy. The guys that bought are very happy (even the few I had to "nudge") and have doubled their price and in cases 10x their equity.
Today's advice - If you're going to sell in the next 5 years, do it now.
33 Replies
- Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes6y
@Dan DiFilippo I will check it out. Thank you
- Rental Property Investor · Member since 2019 · 304 posts · 462 votes6y
I am certainly not buying into the happy talk. The real estate market is holding up because of mortgage forbearance and the moratorium on foreclosures and evictions. Those policies are stabilising the market.....for now. Secondly, I am watching the beginning of the great migration from big leftist cities to smaller communities. With city governments capitulating to BLM and slashing their police budgets, that migration will only accelerate. Thirdly, it looks like there is a second lock down in the works. 25% of all businesses are already unlikely to re-open. A second lock down would only make matters worse. Yes, the Fed is pumping trillions into the market but that is unsustainable. The inflationary effects of all that money printing are going to be felt. Essential products and services will increase in price, while discretionary items will decline in price. Last but not least, we have the presidential elections coming up in 4 months and that will only add to the uncertainty. I am hard pressed to find any positive news in all this, with the exception of the increase in demand for housing in smaller communities. However, that will likely be a temporary event. I am certainly not suggesting that you do nothing, but I do believe a cautious and conservative investment strategy is highly warranted.
- Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes6y
2010 the cause was mortgage crisis. 2020 the cause is pandemic.
- Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes6y
It's a mixed bag. Housing supply is low, and mortgage underwriting has been more conservative in the past 10 years than last time around. This means that borrowers were, on average, a bit better positioned. Of course, with unemployment where it is, and multiple rounds of shutdowns, that is putting stress even on people who otherwise would not have issues. I also think we're going to see pretty much endless stimulus to keep things propped up, whoever is in office (though the bill comes due at some point).
I do think we'll see more foreclosure than there are now, and there will be downwards pressure on prices. That is an opportunity in many markets. However, a 2008 repeat does not seem likely.
- 6yDan DiFilippoBusiness MemberReal Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
@Shiva Bhaskar I don't think so. The US is in an all-around much worse position. Private sector debt is much higher (over 200% GDP), and consumers are stewing in their debt. We have more zombie companies than we ever have before and the risk free rate (US 10-Year) has only depressed lower and lower since the time of the financial crisis. All of this is chiefly indicative of an imbalance of productivity and consumption. And in the household, the consumer is more and more saddled with student debt, auto debt. Even in February, auto delinquencies were getting to record highs despite more auto loans being written out on 7 and 8 year amortizations. And despite all this, it's still been in the face of increased government spending (not even counting 2020 - that wouldn't be fair). Historically, when the bust comes, the preceeding boom had facilitated a certain storage of wealth somewhere within the economy that the government can draw down from to stimulate its way out. Going into COVID, though, we were in a weaker position than before, with Treasury yields astonishingly low *even though* foreign central banks have been unloading UST's in favor of dollars and gold over the last half decade or so. Essentially, the only use Treasury's still serve is bolstering banking system balance sheets. Those financial institutions are the last buyers willing to finance the US government. And they're happy to do it because they live in the middle of a massive web of debt that has ensnared the world. And UST's are the ultimate means to manage debt on a balance sheet.
And then on the other side of this, we have about 10,000 people turning 65 every day. Pretty soon we are going to be owing some $3T just in entitlements every single year. We current finance about $1T on the margin (excluding 2020), so the idea that we can easily square this circle without someone getting short-changed is an outright fantasy. - Member since 2020 · 201 posts · 118 votes6y
Originally posted by @Brent Zande:
In 2010 I had the rose colored glasses knocked off my face hard and I am trying to understand why and how there is such Happy Talk right now about the economy. I am trying to figure out if it is my pessimism based in the 2008-2010 experience or if I am completely missing something. Even Ivy Zelman is providing happy talk about the future of home building and I tend to find her team realists. I see so many businesses are struggling or have closed and though that is anecdotal I believe it is a harbinger of doom. I don't believe the propaganda that comes from the Home Builders Assoc. There and a great many very smart people on BP so please tell me what I am missing or if I am right to see the coming apocalypse.
Politicians have the duty to be optimistic no matter what. However, hearing Donald Trump say that the coronavirus would disappear "just like a miracle" was surreal.
Maybe people are not still noticing acute economic pain due to the short term reaction of central banks, together with government checks and the possibility of delaying mortgage payments. These are all short term patches to try to fix what could be a long term crisis.
In Europe, the EU has not been able to respond as fast as the US, but conversations about the "reconstruction fund" are making some unexpected topics arise, for instance, the tax breaks (or maybe tax evasion) some US technological companies (FAANG) are getting in the EU. And the future of 5G (Huawei?). And the relationship with countries outside the union, like the UK, the US or China.
In countries that depend on tourism this crisis is already worrying, and since the summer season is going to be over soon, there will be a long year ahead with a lagging economy to support (somehow), with rampant unemployment, empty comercial real estate, small business going bankrupt... not a great picture really.
- Investor · London · Member since 2017 · 160 posts · 82 votes6y
I haven't done a massive amount of research yet on this but it feels (anecdotally) like 2007 where the cracks were appearing, there were already some bank failures but the real storm was still a year or two off. With very few foreclosures happening though because of moratoriums it's a bit different to 07 where from memory Florida was already starting to crater. Recall in the film the Big Short that it took a while for the Short to unfold and many investors wanted to pull their money. Each crisis is unique but it doesn't feel like the full storm is here yet. I'm waiting to see what happens to all the debt that is exempt from moratoriums eg commercial. There is so much dry powder on the sidelines though. I have been trying to buy land thinking it would be the first to be hit but I'm getting no where so far. Regarding the debt inflation thesis what I can't figure out is why a country like Japan with an even higher government debt level than the US, at least at the federal level, has had few consequences so far. There were people in the market putting trades on in 2013 that would profit from a run on the Yen and I think several of those funds no longer exist. The older I get the more it feels like everything I learned in my Econ classes just doesn't work anymore. I just continue with frugality and caution but I know I should be more daring
- Contractor · Cornelius, NC · Member since 2011 · 123 posts · 89 votes6y
@Jennifer S.. Yes I keep playing that scene from the Big Short in my head about how long it took to unfold but how dramatic it was when it finally did. The corporate debt bubble is going to bring this crashing down sooner than later though, I believe. Just as in the Big Short, even the credit ratings were lies and I think that is true with many corps currently that the ratings don't match the balance sheet. Thanks for the input!
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