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

Chris Gawlik · 2020-08-09T13:20:53-07:00

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

Rob Massopust

Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes

6y

Real estate is like the weather - different in all areas.

2008-2010 - what crashed the market [besides the scapegoat of subprime borrower mortgages] and besides the over extended of credit is the very same but opposite side of credit. There was a extreme liquidity crisis - there was no funding, once there was no more equity on the table most borrowers had to or decided to let the property go. Unemployment was only 10-15% in most areas. So that means alot of people still had jobs, just no one could qualify in a "dont catch a falling knife" scenario lack of liquidity for most borrowers.

The big greedy corporate hogs jumped in and mopped up alot of those - because they had the liquidity.

From 2012 on the market took off because low interest rates. And those that could afford it got a house those that could not had to rent at ultra high prices.

Cheap money makes it hard for asset prices to stay low. Couple that with the extreme need for yield from investors and flippers pushes higher the price and reduces inventory.

Housing should function as what it was designed for - a place for people to live and raise their kinds, go to work, or start a business. Real Estate as an asset class might get demoted though higher property taxes and more borrowers can afford as prices soften and interest rates go done. But that has not happened. And it might not....

Yesterday a major lender just released the 1.99% 30 APR Loan - do you think others will follow - yes. Thereby putting pressure on prices to trend higher even more. Do you think the Fed/Gov/FHA etc wants to keep Liquidity in the market - yes. The reason they are offering forbearances is to stave off the bloodshed of 2008-2012 - That is not good for a society - unless the goal is for a massive transfer of wealth from the first rung of homebuyers to the 1%. Its never fair for the little guy.

Evictions are not going to happen in a grand scale[despite the news- most tenants are paying rent]. Maybe in some areas and where tenants are gaming the system. But any property that has a GSE backed loan that owner can get a forbearance.

Do we have alot of uncertainity in the market - of course. We all want and think the floor is going to fall out but as long as there is cheap money, a modicum of jobs and such an unprecedented demand for housing this might not transpire the way we think. And if prices do drop - those same investors will mop up the good deals.

Case in point - there are still so many properties going over asking with multiple offers. Not even from investors but owner occupied. When you can buy a house for cheaper than rent that metric will keep the market solvent in most cases. Everyday all I see is properties going on the market 2-5% of last sold even from just 2 weeks ago. Question is what does this look like in 6 months to a year.

So dont speculate, buy something that makes sense fundamentally and look long term. When else could of got financing so cheap.

0 Reply

Kimberly Carver

Member since 2020 · 119 posts · 56 votes

6y

@James Hamling agreeeeeeeed !! Kudos for having saying it all!

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Mark Totino

Realtor · Tampa · Member since 2020 · 5 posts · 2 votes

6y

I agree with Jason's post . I do not remember a time in my history on this great earth that there has been a steady decline in home prices and property values over a 10 year period. Now is the time to look for the deals and hidden potential properties that will give us that long term ROI that we can get for a good price.

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Mark Totino

Realtor · Tampa · Member since 2020 · 5 posts · 2 votes

6y

Cant really read that @Walter H. I see that is a report from Tokyo ? I guess I was referring to the USA . I was referring to my time on this great earth , not the entire world.

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James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

6y

Originally posted by @Account Closed:

Originally posted by @Mark Totino:

I agree with Jason's post . I do not remember a time in my history on this great earth that there has been a steady decline in home prices and property values over a 10 year period. Now is the time to look for the deals and hidden potential properties that will give us that long term ROI that we can get for a good price.

Is this your idea of a joke Walter? A valid point was made or no knowledge of property value declines over 10 years and you reply with TOKYO METRO AREA real estate numbers!?!?!?!?! What, did you not have the #'s for Nigeria handy, how about using the Syrian real estate values for past 10 years, ignore the little, uhm what's it called, WAR that's been going on, let's use that data. Hey, how about Iraq, yeah, that's a good comparison to the US housing market...... "ugh!".

Look, I actually have a clue on the international level and everyone who also does knows all the rules and numbers change at the border ESPECIALLY crossing international regions such as comparing a western nation with an Asian one, wtf man.

Japan is, well JAPAN, virtually everything s different and I can tell you know near to nothing about Japan because nobody with an iota of a clue would ever compare Japans real estate market to the US. People are, for short summary, stacked like cord-wood in Japan, the prevailing real estate in Japan is condo's which are on average the size of a garage in the US.

And I missed that part where you answered to how many deals you have done int he past 12-24 months and your skin in the game?

I have been in REI since 2009, and in the real estate and housing game since '92', professionally. When I talk about the 08/09 collapse I am talking from 1st hand perspective of a person active in real estate at that time and through it, not from books or movies, in the trenches reality. When I talk about market cycles the past 20+ years, I was there, I lived it, worked it. I would like to know a reference point for your opinions, I believe that is a fair question and I have provided mine.

0 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

6y

Ok folks here we go, I am gonna swing for the fences and see if I can't wrap up Keynesian Economics and the housing industry (in the US of A) in a manner we can all understand.

Anyone seen "The Big Short", it's a movie and a damn good one. The interesting side is it's more documentary because it all actually happened, the big actors like Brad Pitt are playing real actual people who really did those things. For those not in the know they identified and called out the 08/09 collapse wayyyyy before it ever happened, AND put their $ on it, tens of hundreds of millions.

Did they have a crystal ball you ask, can they tell me the next lotto #'s you say. No, there was 0 prediction involved, it was simply reading the math, that's it, just math.

The 08/09 collapse was a certainty. To put in terms, say you have 4 credit cards each with a $1K credit line. Say you have $1k charged on just 1 of those cards, nothing on the rest. Now your going to ONLY pay on that balance using the other cards, every time the balance is due you will pay with another card, and use a different one to pay for that one. Here is the question, predict for me what is going to happen...... Did you maybe say the balances will grow and grow until their is no credit left and the whole mechanism will come to a screeching hault all at once and the whole things will go bust? Are you psychic? Did the tea leaves tell you, maybe bust out a ouija board? No, it was the simple math of it right, inevitable.

Well, that's basically what happened in the 08/09 collapse, but on top of that there were bet's made on each card paying, and bet's on those bets, all done with hundreds of millions each, imagine doing this with credit cards that have a $1 trillion credit line and you started by bouncing $700 billion.

At the same time the prevailing mortgages were ARM's, that had all but 0 qualifying and started with a "teaser" rate, which is a significantly reduced mortgage payment from what the ordinary payment would be, to the sum of as much a 1/3 of the regular payment. But we all know how responsible people are and when the "teaser" rate gives a $1k mortgage payment and regular rate of $3k OF COURSE people made sure they could afford the $3k and not $1k right...... Yeah not so much.

So we got Uncle Sams's crazy drunk brother Mort handing out mortgages like there peez starting them at a fractional payment from what it will reset at, and we got the wack-o cousin Fred who's a coke head flipping card balances like it's Monte Carlo, what could go wrong people, only Nastradamus could predict the calamity to come right.

Now when you have mortgage approvals raining down you also get building on epic scale, it was like "Opera hour" "you get a house, you get a house, WE ALL GET A HOUSE!". Everyone became a builder and built at the speed of mortgages.

Investors jumped in too buying pre-built to then sell at market for a quick $20k once built, and it worked, but the price was the builders are getting insane demand and like good little builders we said "ok" and holly cow did we build.

So to recap:

We got Bob the Builders making something like a new home every 30 seconds, Uncle Sam standing in the corner with a big Alzheimer smile still trying to figure out where he is and why he's there, crazy loveable Mort handing out mortgage like syphilis at woodstock, and coked out Fred taking bets on the shell game of capital but all that's on his mind is "yeah, midget darts, that's gotta be a real thing".

So all the mortgage bombs start going off and the 90% of people who accepted them can only afford the teaser rate, not the real reset rate, it's twice what they can afford. The debt flipping game starts unraveling because it was built on BS to begin with, and there is no more moving the $ around, the music stops, it all stops, at once. All those bets, loose, at the same time, all of them, trillions upon trillions in bets. Lending stops, at once, so buying stops, at once, so building stops, at once, so tools buying and material buying stops, and like a tsunami of stopping travels so does the world come to an abrupt halt. The very mechanism by which $ comes from lenders into peoples hands, STOPS, the ATM broke.

THIS is what actually happened in 08/09, this is why Dodd Frank, this is why all the rules had to change. And it was all 100% predictable and mathematical, and completely ignored.

The point:

Exactly how is today and covid-world the "same"? It's not, not in any way shape or form other than it is an economic slow down. YES a slow down NOT a stop, 08/09 was a full stop and if you don't believe me ask someone who tried to get a mortgage at that time of the implosion, the $ stopped. Covid is a slow-down, a big one in some sectors but all of the economy is running it's just being held back, it's not a flat tire we have it's a damn booted tire.

There will not be a 50% reduction in home prices in any national or state average, not gonna happen. And yes, rapid recovery is not only possible or probable but certain. Oh you doubt this because Tin-foil Tommy said so and he knows, he told you all about buying MRE's and getting a bunker to survive this..... Ok, here is the proof, stop eating 50% of what you eat, and do that for 5 days, and day 6 turn off the rules and let me know what happens. Better yet do it with your kids, or anyone just don't get your hands too close to their mouth. It is a fact of economic history and sociology, when groups are restricted from something such as the economy, especially for a duration, and then those restrictions remove the don't just go back to what they were doing, they BINGE. Remove all covid rules or even relax them and watch restaurants get slammed not just busy, those things that have been most off limits are those that will be most swarmed. It will be an economic boom unlike ever seen BECAUSE nothing was ever wrong or broke in the economy in the first place, it was throttled by outside forces. NO economic stop has been of such ever before, everyone previously had something to wash out of the system, something to revamp, redesign, repair, and stoke back to life. All they gotta do is take the damn boot off the car!

0 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

6y

Originally posted by @Account Closed:

Originally posted by @James Hamling:

Originally posted by @Account Closed:

Originally posted by @Mark Totino:

I agree with Jason's post . I do not remember a time in my history on this great earth that there has been a steady decline in home prices and property values over a 10 year period. Now is the time to look for the deals and hidden potential properties that will give us that long term ROI that we can get for a good price.

Is this your idea of a joke Walter? A valid point was made or no knowledge of property value declines over 10 years and you reply with TOKYO METRO AREA real estate numbers!?!?!?!?! What, did you not have the #'s for Nigeria handy, how about using the Syrian real estate values for past 10 years, ignore the little, uhm what's it called, WAR that's been going on, let's use that data. Hey, how about Iraq, yeah, that's a good comparison to the US housing market...... "ugh!".

Look, I actually have a clue on the international level and everyone who also does knows all the rules and numbers change at the border ESPECIALLY crossing international regions such as comparing a western nation with an Asian one, wtf man.

Japan is, well JAPAN, virtually everything s different and I can tell you know near to nothing about Japan because nobody with an iota of a clue would ever compare Japans real estate market to the US. People are, for short summary, stacked like cord-wood in Japan, the prevailing real estate in Japan is condo's which are on average the size of a garage in the US.

And I missed that part where you answered to how many deals you have done int he past 12-24 months and your skin in the game?

I have been in REI since 2009, and in the real estate and housing game since '92', professionally. When I talk about the 08/09 collapse I am talking from 1st hand perspective of a person active in real estate at that time and through it, not from books or movies, in the trenches reality. When I talk about market cycles the past 20+ years, I was there, I lived it, worked it. I would like to know a reference point for your opinions, I believe that is a fair question and I have provided mine.

Not sure what your problem is but I’m not really interested in further exchange with you. You seem like the kind of guy who gets smashed at the bar and picks a fight, maybe not realizing who he’s talking to.

Cheers.

I did 5 paragraphs describing my problem, which part did you need better clarity on?

I assume by "smashed" you are saying drunk? I do not drink to inebriation, ever, so no not so much, or actually ever. Although one time I was somewhere around 1st ave Mpls and there was the tallest women I had ever seen dressed to the 9's, like a 7' Marilyn Monroe, and I asked here if she knew where the address I was looking for was. She turned out to be a he, as the response was with a James Earl Jones tone of voice, so yeah, I had no idea who I was talking to I suppose, it can happen.

1 Reply

Chris Gawlik

OP

Investor · Yucaipa, CA · Member since 2011 · 162 posts · 232 votes

6y

@James Hamling I understand you and Walter are battling it out here, and you guys have way more experience with the economic stuff, but you act like covid is a total hoax. Its still really bad illness. Its killing people, and even if you live through it, many people will have long term health problems from this illness. A 30 year old friend of mine just went down for a liver biopsy. He had covid and it damaged his liver. He was in perfect health. Not overweight exercised and eats healthy. He could not move for 3 days and pissed himself a few times to put it bluntly. Its not a good idea to give people a false sense of security about this illness. You don't know if you are one of unlucky ones that suffer some really serious symptoms. BE CAREFUL.

I talked about this in a previous post. Why is it when I take my nightly walks, people will cross the street to keep there distance. I will do the same. Because there scarred. Some are not, but I would say the 7 out of 10 even younger people are keeping there distance. This is just a simple common sense example, but what do you think that means for local brick and mortar businesses and even the big box stores. 7 out of 10 people are not going into the ice cream shop right now to get a scoop. There not going to get a burger or burrito. There not clothes shopping like they were. How can this have no effect at all. In 2006-2007 there were permabulls also. I read many articles back then and many of my friends bought there first homes. They all lost them and it took them years to recover. So answer this James. Will it ever happen? Will the housing market go up forever? What do you think could make the housing market correct? The way you talk the markets will never correct. It doesn't make sense, there has to be a downturn at some point in the future if not now then what and when in your mind? Hyper inflation, A world war, a terrorist attack. what?

1 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

6y

Originally posted by @Chris Gawlik:

@James Hamling I understand you and Walter are battling it out here, and you guys have way more experience with the economic stuff, but you act like covid is a total hoax. Its still really bad illness. Its killing people, and even if you live through it, many people will have long term health problems from this illness. A 30 year old friend of mine just went down for a liver biopsy. He had covid and it damaged his liver. He was in perfect health. Not overweight exercised and eats healthy. He could not move for 3 days and pissed himself a few times to put it bluntly. Its not a good idea to give people a false sense of security about this illness. You don't know if you are one of unlucky ones that suffer some really serious symptoms. BE CAREFUL.

I talked about this in a previous post. Why is it when I take my nightly walks, people will cross the street to keep there distance. I will do the same. Because there scarred. Some are not, but I would say the 7 out of 10 even younger people are keeping there distance. This is just a simple common sense example, but what do you think that means for local brick and mortar businesses and even the big box stores. 7 out of 10 people are not going into the ice cream shop right now to get a scoop. There not going to get a burger or burrito. There not clothes shopping like they were. How can this have no effect at all. In 2006-2007 there were permabulls also. I read many articles back then and many of my friends bought there first homes. They all lost them and it took them years to recover. So answer this James. Will it ever happen? Will the housing market go up forever? What do you think could make the housing market correct? The way you talk the markets will never correct. It doesn't make sense, there has to be a downturn at some point in the future if not now then what and when in your mind? Hyper inflation, A world war, a terrorist attack. what?

Your misunderstanding Chris, and your close exposure and experience, empathy, that makes it personal and your expressing that rationalization and I understand, I do, but your proposition is illogical and far more destructive and damaging than the disease that is killing as much as 2% who contract it. The disease, very real, the hyperbole of it and mental warfare being waged using it, complete hoax but I understand how psy-op's is hard for many to conceive or understand.

Some added info, I myself was sick back Feb/March and was in dire straights, all evidence says it was covid but testing was not allowed for covid at the time despite every other test coming back negative. I am lucky, I have a respiratory disorder and advanced experience with such and access to every and any med imaginable, and we threw a lot at it. As it turns out the regiment I and my Dr came up with is now being spoken of as the possible "silver bullet". I do not knock the disease, it can be savage, 1st to say. But exactly what will closing the country do? Will that stop it? Who says that, because the CDC, WHO and literally every virologist does NOT say that, they say this is permanent, it is here, most will eventually contract it. The shut-downs were to slow the contraction so hospitals won't be overwhelmed, and very wisely so, but why is there still this shutdown with hospitals all but empty?

VP Dick Cheney said it best "never let a good crisis go to waste". Regardless of anyone political feelings the facts are covid has been "weaponized" and is being abused, everyone from any and every side should be outraged over this for simple fact some things are never ok to use for such, ever. That firstly must stop and stop now, and with that fear will ease so we can focus on those 2-3%, and best allow the 97%+ to live. What is the alternative, shut everything down, all hide in their homes? For how long, 6 months, a year? How will crops be planted, harvested, transported, processed, packaged, delivered? How will your electricity keep operating? You don't seem to understand a long standing lock-down WILL kill people, fact, a lot of people. How was the Tp shortage? Imagine that with chicken, beef, or how about food in general? Think BLM riots are bad, imagine food riots, how hard will you fight to eat?

As for the Real Estate, yes, it does go up forever, perpetually, up and up and up for eternity, yes, that is how inflation works and as their is more people their will be inflation as their must be more $ into the system for the more persons interacting in the system, this is how the economics of it work.

Landlord is a term more than a thousand years old, that's how much data their is on this, look up the historical trend, it is up, their is no such thing as "correct", this is a statement of feeling as to what a price basis should be not one of the simple math of it. Properties are assets, they hold a quantifiable value and use, MONEY is not such a thing, it's value is based on the quantity of such int he system and therefore more of it created makes all in the system worth less BUT since a dollar bill can't change it's ink to read "sorry, now $0.97 bill... oh wait, $0.89 bill now" what happens is the assets of value GO UP. Their worth did not increase, the note of exchange medium (money/ dollars) went down in value.

So yes, real estate "value" will increase, perpetually, forever, in a inclining cyclical wave pattern.

2 Reply

Andrey Y.

Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes