The US Economy Will Recover Quickly ??? Think Again !!!

106 Replies

I keep hearing many investors speak of the housing market and stock market as if we are in a normal situation. Everything is great and the stimulus has solved all of the problems that a global pandemic has created. Take advantage of the situation and buy as many deals as you can before its to late. There are great deals in stocks that you should be pouncing on to ride the market to the new highs of 2021 and 2022. Trump looking good to get reelected will take us to places we have never been before with the US economy. Its really confusing and hard to believe that more people aren't sounding the alarm bells and getting ready for whats to come. Run while you can. This is just my opinion and everybody has there own way. I am not trying to offend anyone, and people must do what they feel is the right with there investment plans and strategies. Let me explain why are some of the reasons I think that the US economy is not ok, and we are up for some major pain to come.
 
Forbearance - Most inventors think that most banks are going to wrap your missed payments to the back end of your loan and you will not have to pay this until the end of your loan. So no big deal just 6 more payments and the loan will get paid off, but that is not the entire story. There are many private lenders who do not have to keep up good appearances in the public eye like the big banks do. They are going to require that the missed payments be paid all at once. With the majority of Americans living paycheck to paycheck this is just not going to be possible for them, and they will end up defaulting which will lead to a huge influx of foreclosures.

Brick and Mortar Jobs - Consumer confidence is at an all time low for going into buildings and doing business. This includes so many types of business' its very hard to name them all. All types of retail, hotels, restaurants, home goods, and small local business', to name a few. Many states have opened then shut down again and will not make the same mistake twice. This shut down will be much worse than the first because politicians will not want to look foolish if they reopen again and the numbers start to climb like they did the first time. With consumers not going out, how many people that are currently unemployed will get there jobs back. How could people think that this will have no effect at all on the US economy and that things will return to normal very soon. As soon as we get a vaccine or the numbers start trending lower everything will get right back to the way it was and business will be booming again in the US. This is a complicated process that will take years to come back from and In my opinion it has change the face of the way we do business forever.  

Inventory - With the above mentioned forbearance we are going to see huge amount of defaults. This is going to create a huge amount of inventory and the market will have no choice but to correct. Right now things look GREAT because of low inventory. This is causing a huge demand for housing because people are not selling like they were before covid, but when a flood of foreclosures hit the market things will shift. The banks are already preparing for this and have set aside billions to prepare for the coming flood of defaults and foreclosures.

Stimulus - Its going to dry up eventually, do you think they can keep pumping money into the market forever. When the bonus unemployment runs out and the bail outs stop there is going to be some pain. This is inevitable and the cheering bulls will soon start to change there tune and be heading for the hills.

RMBS and CMBS - this is a long complicated subject in itself, to long to list here and I am no expert, but all of these topics above are connected to mortgage backed securities. The government is not stepping in and helping the private lenders the way there helping Fanny and Freddie and once the banks start to sound the alarm bells the truth will come out and the market will correct.

Thanks for listening to my warning and rant. In my opinion if you can hold off or pass on some maybe marginal deals for the next few moths you should start to see more of the truth of the pain to come. Don't follow the masses. They are running straight off of a cliff and to me the signs are so obvious its hard not to see them. After all we are still in a global pandemic. Even though many people are trying to act like nothing is different, there going to have to face reality sooner or later, things have change and will take years to get back to the way they were before. Thanks Chris Gawlik

@Chris Gawlik

Let’s cut through the noise and discuss what your thoughts are about the pandemic!

The pandemic bought us into to crisis and if you think it lingers and gets worse and human kind cannot fight it and overcome, we are in for a lot of pain.

But what if the pandemic dissipates, a vaccine is found and therapeutics and drugs are created to cure! To me the only data that matters is Covid-19 cases ==> Hospitalizations ===> Fatality rates.

Is that going up or down. That’s it.

No other data matters. Not foreclosures, not GDP, not stock market. The Fed has pumped a lot of cash to keep it all afloat for a bit.

Defeat Covid, we all win. If not all the side economic side effects that you mention could ring true.

In one of the recent BP articles, it predicts that people will "double-up" in U.S. housing, in the next few years, as means to be able to pay for shelter-housing, in a more difficult-predicted U.S. economy in gaining incomes. And this being the case. Landlords might be well to know of something called BOCA, (Building Officials & Code Administrators), which could be recited from, with tenants who insist in crowding too many of them into Rentals, & blithely see nothing wrong with doing so. (Due to how Common Law, the law system of the U.S., regards who are tenants in a Rental; even those who are in a Rental, invited in by signed tenants; they are also signed tenants, so far as the law is concerned. And it behooves Landlords to keep track of who is living in Rentals, to keep this "this invited-in" problem, for turning into a real big problem.) Hence, the U.S. in the next few years, might have an excess of housing, due to many do not have the means to either buy houses or to pay rents, to be able to live in a Rental. (This suggests that the homeless problem, in U.S. cities, will increase in numbers, in the next few years, as some find ways to live, without having to find conventional shelter to live in.) And in this likely Recession-induced economic atmosphere; finding acceptable tenants will be likely, more difficult for Landlords.

I’m

It sure why the author is yelling the title, we've all seen so many discussion forums on this, there's nothing new in anything he says but I don't know why he thinks no others are thinking the same.

Just play this smart.  Cash “may” be king in the future, 80% of the US is still working, if you try and guess the bottom you will lose that game, 8.5% of mortgages are in forbearance and I don’t know ANYONE that didn’t check to see if it simply extended the loan vs. accumulated to end of period.

Where’d you get the crystaL ball, friend? 

@Mark H. Porter I am not trying to start any kind of argument here and you probably have much more experience than I do, but just giving my opinion. Deff do not have a crystal ball either, but I do see many posts about buying there first rental property and getting into flipping and investing for the first time. Or comments like Don't wait to buy RE buy RE and wait. Um yea I deff think there are people on the other side of the coin that think the market is going to climb out of this hole quickly. A couple of the above post just make it sound so simple and easy. comments like just be smart about it or its as simple as if covid gets better the economy gets better. How is that going to help anyone new or warn someone to wait to buy there first home. and yes there are people who don't know that forbearance can be called due all at once. I was just talking with someone just recently who did not know that.  

 If I am right and I may be able to get some information out there to help someone new or on the fence about waiting or buying then I did my job. This is just my opinion take it or leave it.   

I think many people, rightfully so, are hoping & thinking that a vaccine being approved will be the end of all of this. I'm no medical professional but I do understand that there needs to be enough supply manufactured, reach the full population, have vaccine tracking capabilities, etc. An available vaccine also doesn't mean it is fully effective. If this will be developed and approved within ~12 months, in early 2021, I am not too optimistic that it will be as effective as other vaccines we have available today that have been refined for years and we definitely won't know the long term side effects or how often we'll have to keep taking (seasonal?) it since it may wear off. I'm buckling in for the long haul (another 12-24 months) of virus related risk, but absolutely hoping the first vaccine comes out ASAP, has near full efficacy, and little/no side effects so we can save countless lives and get back living. 

I think much of the impact to the economy will of course be based on the virus, but as this virus drags on, there are a lot of other side effects and long term consequences of the actions being taken today. 

Everyone has their own risk tolerance, but I just hope everyone does a thorough analysis of the market and understands the many factors that are at play when they invest today...it's not the same as a simple real estate investment anymore but also many complex economic, political, medical, etc. factors that are going on, which frankly are over most people's heads (including mine!).

Don't under estimate the value of time in an investment. For example, let's say I can wait three years and save 10% from current prices. I lost three years. Three years of cash flow, three years of tax benefits and three years of principal pay down. The other risk is some people are "always waiting". The market is too hot, so they don't invest. Then people wait for a downturn. Then they wait, because they fear the downturn will get worse. Before you know it, twenty years passed and you never invested.

I agree we are headed for darker economic times, but there is always opportunity to be found. Buy in a good location and I don't think you can go wrong.

@Joe Splitrock I am betting all on this down turn. I have sold my primary and taken out all the equity and my other real estate investments are currently on the market. We are saving every penny we have and believe it or not will be saving 100k in cash in 2020. I am not rich. My wife and I both work 9-5's. I am a regular middle class guy, but I am trying to change that and become financially free. I believe that this can be done in the next 10 years and this downturn will give us an amazing start. Why would you want to buy a deal now when you can get the same deal for 50% less 2021. Yes timing the market is impossible and you can never buy at the dead bottom, but this is just my opinion. We are at the top of the cycle right now and covid is going to correct the stock market and the real estate market in the next year. Every one has there own opinion, but 10% does not even scratch the surface of whats about to happen. If Im wrong then Im wrong Im going to wait it out and see what happens for the next 6 months or so. If the economic data or more stimulus changes things, then I will have to readjust my plans and move forward.

Account Closed You said that much better than I ever could. Some people are on the fence about this, but I totally agree. The time is coming to make a ton of cash. I am not only talking about this I took action and am gathering as much cash as I can to buy great RE deals and great stock market deals when the markets start to correct. The only problem with that is theirs going to be so much pain we have to go through, and so many people sick dead and broke its pretty depressing at the same time. On a side note my CPA just got covid. He exercised regularly and was a bit on the older side at 51, but in perfect health. He survived the disease, but for a few days there said he felt like he was going to die. It took him a month to fight it off and a couple trips to the ER. Worse than the flu. Be careful. You don't know if you are one of the unlucky people that could have severe side effects. Stay safe.

Ok step back from the edge of the building, pull the toaster away from the bathtub, hold on a minute before going full "Mad Max" end of the world, it's time for a little reality check.  

Say a total housing collapse happens, by whatever unicorn riding leprechaun spreading depression pixi-dust, to make mass foreclosure on level for a 50% price reduction as stated. That requires at minimum about 20% of households going into foreclosure, about 20 million properties nationally. Please riddle for me what happens to 20 million families? Did they follow the leprechaun back into the unicorn cave? It's spoken about as if these 20 million families just "POOF" into thin air, disappear. How does foreclosure = never needing a roof over their head again?

20 million families loosing their homes = 20 million families RENTING, which would be the single largest flood of persons needing housing since WWII. 

Now correct me if I am wrong (trick question, I'm not wrong) but 20 million NEW families needing rental units would spur a mass need for..... wait for it..... PROPERTIES would it not? And need = demand, demand = purchasing and purchasing = value support. 

Market adjustments absolutely, economic strain you betchya, mass foreclosures.... really, really. This is NOT 08/09, literally 0% of same things happening, ZERO. 

Originally posted by @Chris Gawlik :

@Joe Splitrock I am betting all on this down turn. I have sold my primary and taken out all the equity and my other real estate investments are currently on the market. We are saving every penny we have and believe it or not will be saving 100k in cash in 2020. I am not rich. My wife and I both work 9-5's. I am a regular middle class guy, but I am trying to change that and become financially free. I believe that this can be done in the next 10 years and this downturn will give us an amazing start. Why would you want to buy a deal now when you can get the same deal for 50% less 2021. Yes timing the market is impossible and you can never buy at the dead bottom, but this is just my opinion. We are at the top of the cycle right now and covid is going to correct the stock market and the real estate market in the next year. Every one has there own opinion, but 10% does not even scratch the surface of whats about to happen. If Im wrong then Im wrong Im going to wait it out and see what happens for the next 6 months or so. If the economic data or more stimulus changes things, then I will have to readjust my plans and move forward.

let me add some perspective on distressed real estate assets a space I have worked in virtually my entire 45 years in the industry. And or my personal opinion for the FWIW file.

I wont go into the tulles on this.. However the 07 08 to 2011 2012 real estate crash was the big one.. and many investors who started their investing were able to pick the low hanging fruit.. So they were right place right time.. But then as it relates at least to SFR small multi rentals what happened towards the end of that phase.. WALL ST. Big players.. Buffet coming out and saying he would buy 500k houses right now.. So a pretty decent amount of those great deals started getting scooped up by the big money.. I know I was buying court house steps in ATL in 2012. And once the hedge funds came in the opening bids got bid up 100% the screaming deals became no deals.. or small margins. And this continued through out the country in the major markets .. Now granted some of these hedge funds did a lot of C class or lower value assets most left that asset class as they too learned what many on BP find out those are tough to manage so they moved up in asset class then dominated.. You also have the current VC money creating these I buyer companies that are working on small margins or really just listing commissions IE buying their own listings..

So in my mind just like the average US investor is thinking about stock piling cash to get these great deals.. So is the big money.. And in quality assets I don't believe the competition for these assets will let the prices fall 50% in most markets.. In markets that have no Hedge funds or other large well capitalized investors maybe.. so that's one thought.. there will be a price point were big money just jumps in and takes the cream right off the top and will pay more money than the average investor just based simply on their cost of capital and their scale.

We are also starting to see the foreclosure rescue companies fire up again.. although highly regulated and illegal in many states the way they do business.. they will cream a lot of inventory before it gets out to the investors as well. think pre foreclosure transactions..

 

Originally posted by @Account Closed :
Originally posted by @James Hamling:

Ok step back from the edge of the building, pull the toaster away from the bathtub, hold on a minute before going full "Mad Max" end of the world, it's time for a little reality check.  

Say a total housing collapse happens, by whatever unicorn riding leprechaun spreading depression pixi-dust, to make mass foreclosure on level for a 50% price reduction as stated. That requires at minimum about 20% of households going into foreclosure, about 20 million properties nationally. Please riddle for me what happens to 20 million families? Did they follow the leprechaun back into the unicorn cave? It's spoken about as if these 20 million families just "POOF" into thin air, disappear. How does foreclosure = never needing a roof over their head again?

20 million families loosing their homes = 20 million families RENTING, which would be the single largest flood of persons needing housing since WWII. 

Now correct me if I am wrong (trick question, I'm not wrong) but 20 million NEW families needing rental units would spur a mass need for..... wait for it..... PROPERTIES would it not? And need = demand, demand = purchasing and purchasing = value support. 

Market adjustments absolutely, economic strain you betchya, mass foreclosures.... really, really. This is NOT 08/09, literally 0% of same things happening, ZERO. 

 That’s cute.

Riddle me this - what does the buying power look like for 20-40 million people who have lost a significant portion of their income and had a credit impact?  What is their capacity to pay current market prices for rent?  What does the housing market look like when they lose their unemployment/PPP and eviction protections?  And how quickly do you think any economy can add tens of millions of jobs?


There are no pleasant answers to these.  The obvious answers are either a 20-30% drop in prices or prolonged government support with all the strings attached.  I have yet to see any third option although the reason I bother even writing anything is i am looking for other answers.  So far though, nothing.

And one last question, not that I expect any well thought out response is: why is it your default assumption that high prices are a good thing? Price discovery is vital to capitalism. By artificially propping them up, it slows down every other facet of every other consumer expenditure; the ripple effect of huge mortgages and high rents is an overall impoverished economy. What good do you comes from people paying 40-60% of after tax income on housing? There are other things in life.

Riddle Answered: The buying power of 20-40 million people dosn't matter, it is the purchasing power of 150 fund level investors, or even just 10% of that number. On average a very small fund is around $20m in acquisition power, and most small funds are closer to $50m acquisition power, I know this because I have worked in this segment from the inside on acquisition teams so yes 1st hand experience. With that math in hand just call the median $35m, 100 small funds is in excess of $3B. Now we have large institutional buyers set and operational, that never existed 08/09. Their is so much $ sitting looking for good deployment at this very moment, hundreds of billions if not more in capital investment liquidity. 

As for these jobs, exactly where are you plucking these fictional numbers from, 20m jobs just gone, eviscerated never to return ever? But let's go with that for arguments sake. Just like as happened in 08/09 cycle the very actions of investor purchasing and various actions in the down running economy will create new employment potentials. Fact is right now there is a major labor SHORTAGE, business are TRYING to hire left right and center, issue is people are electing not to work, to rather use entitlements vs working, so call call bs on that lame duck argument, our #1 problem is persons not engaging in the workforce out of entitlement mindset, not unemployment. 

Honestly what would be best for this country is a complete cutoff of the entitlement benefits, the only way to end the entitlement mindset is to break it, get back to a work based mindset, get our workforce involvement rate back up. 

08/09 was a collapse of the very mechanisms and systems themselves that facilitated economic activity, with inflated inventory, that is simply not the case what so ever here, we have shortages and persons electing out of workforce by in large, saying they don't want to do xyz, not that their isnt jobs available just not the jobs they want to do. This is more a social crisis than an economic one. Again, their is mass hiring efforts happening now, today, all over, and people choosing not to do the work, ask any electrician, plumber, carpenter, home builder, medical clinic, dentist and so on and so fourth, the "trades" are struggling severely with labor shortages. So how quick can millions of jobs get "made", well they already exist so I say about 72hrs if entitlements to not work are cut and persons forced to engage into the workforce. Focus entitlements for those who legitimately CANT work not those who choose not to unless they can do what they want. 

 

@Chris Gawlik I started investing in general in 2016. I watched for 3 years as people said “market is to high”, “its to expensive”. This went on for YEARS.

Finally in February/March 2020 the market did fall dramatically. Expect this time the real estate didn’t, so I’d you have been calling for real estate to fall, you’re still wrong.

The coronavirus pandemic has a timetable to it. When a vaccine comes (sooner rather than later) the countdown to it ending starts.

Originally posted by @Account Closed :
Originally posted by @James Hamling:

Ok step back from the edge of the building, pull the toaster away from the bathtub, hold on a minute before going full "Mad Max" end of the world, it's time for a little reality check.  

Say a total housing collapse happens, by whatever unicorn riding leprechaun spreading depression pixi-dust, to make mass foreclosure on level for a 50% price reduction as stated. That requires at minimum about 20% of households going into foreclosure, about 20 million properties nationally. Please riddle for me what happens to 20 million families? Did they follow the leprechaun back into the unicorn cave? It's spoken about as if these 20 million families just "POOF" into thin air, disappear. How does foreclosure = never needing a roof over their head again?

20 million families loosing their homes = 20 million families RENTING, which would be the single largest flood of persons needing housing since WWII. 

Now correct me if I am wrong (trick question, I'm not wrong) but 20 million NEW families needing rental units would spur a mass need for..... wait for it..... PROPERTIES would it not? And need = demand, demand = purchasing and purchasing = value support. 

Market adjustments absolutely, economic strain you betchya, mass foreclosures.... really, really. This is NOT 08/09, literally 0% of same things happening, ZERO. 

 That’s cute.

Riddle me this - what does the buying power look like for 20-40 million people who have lost a significant portion of their income and had a credit impact?  What is their capacity to pay current market prices for rent?  What does the housing market look like when they lose their unemployment/PPP and eviction protections?  And how quickly do you think any economy can add tens of millions of jobs?


There are no pleasant answers to these.  The obvious answers are either a 20-30% drop in prices or prolonged government support with all the strings attached.  I have yet to see any third option although the reason I bother even writing anything is i am looking for other answers.  So far though, nothing.

And one last question, not that I expect any well thought out response is: why is it your default assumption that high prices are a good thing?  Price discovery is vital to capitalism.  By artificially propping them up, it slows down every other facet of every other consumer expenditure; the ripple effect of huge mortgages and high rents is an overall impoverished economy.  What good do you comes from people paying 40-60% of after tax income on housing?  There are other things in life.

In summary your stating the "silver bullet" to short and long term economic prosperity is deflation, correct? That is what you were describing, everything getting cheaper. 

Well, answer is inflation is like a knife in the side, it sucks and it hurts and too much will kill without doubt, and deflation is more like a sword to the side, it often makes one hell of a mess and kills more often then not.

For example, we exist in a world wide market, and the USD is still the global currency standard so deflation in the US is experienced by planet earth. Now there is China sitting on it's pile of US bonds and all of a sudden the US starts deflating it's currency, which means less Yuan per dollar and times that by billions upon billions upon trillions, yeah China not so happy. So China starts by deflating it's currency in return. Now Russia is like "hey, WTF" and starts devaluing it's currency. India says "oh no no no my friend, we will not stand for this" and starts devaluing it's currency and now everyone is off to the races devaluing their currency and so the deflation actions in the USD are net 0 or worse to an inflationary effect vs the deflationary effect of other world currencies. 

But why does this matter, we live in the US right, yeah not so much because most things you eat, wear, drive and use all have origins internationally and now the exchange value of that has been thrown into turmoil. Cost of goods start skyrocketing, and China says "ok, done, weve had it" and now China dumps say $750BILLION of their US bonds, and 3 days later another $200 Billion, and now the USD is collapsing because we are full out bankrupt and China ends our financial system and the confidence in US debt and currency. 

 Is that well thought out enough? 

Well, yeah, but as we approach the cataclysmic doom you prophecize, we're gonna need someplace to sleep like a nice apartment.

It'll be hard, but housing is the most insulated, I'd think.

Account Closed the only economics I know is that which I studied at University and have experienced with 2 decades+ in business. Well, the private chats with NAHB head economist would count as well right? 

It's clear your dead set on an apocalyptic forecast, talking about food strikes at 50% reduction to property values, mass unemployment of 35million and on and on. Do yourself a favor, put all this on paper and put your date on when all this will happen in big bold print and post it right at your front door for the rest of 2020. When those dates come and pass, and life still goes on, when homes sales are still plugging away, when the majority of rents are still going, when they sky has still not collapsed, keep that up and keep looking at it every day so you can recall just how damaging an emotional action can be. 

I have read and responded to these doom-preaching rants of "housing collapse" and "Mad Max" type predictions since Feb/March, and we are still here, none of those were correct and none came to be, and none have come on to offer a post stating they were wrong and over reacted and should have followed the data and math.

Your making a polarized argument negating any and all of the data points and economics that point out your assumption is flat wrong. It is not a you vs me argument, it is a you vs math, data, economics as a whole and the historical facts. I did well pre collapse as I did what worked then, I did even better during the collapse, and have grown post, all because I don't invent worlds in my head I simply follow the data and math which never lies. 

I truly feel sorry for those living in a mindset of impending doom and disaster, living with such anxiety and fear, it's no way to live. Opportunity exists in all things and all times, there is as much reason to be excited and positive at this very moment and more. People have died, yes, as they do every hour of every day and 97%+ of people are LIVING, what about the living? What about the people who ARE working? What about the innovation happening right now in remote working and the added potential that brings? There is so much GOOD out there that to focus on the bad..... As every racer knows, you never focus on the curve unless you want to end up in the wall, you focus on the exit from the curve and the car will follow, that's how you win. 

Lot of smart economists on this thread who can’t spell “you’re”, “your”, “there”, “their”, “they’re”, “then”, “than”, “to”, “too”. 

You lose all credibility when you can’t spell like a 3rd grader.