Here's a chart that I saw today from a reliable source. It shows the total debt of households, businesses and the government. There are two things that are quite clear from the chart:

1. Total debt has increased each year even during this new "era of austerity" because we have merely transferred debt from individual families and businesses to the government, in effect making some people's problem into everybody's problem.

2. Even more striking is how little household debt has declined relative to its historical norms. I think this means that we are going to witness perhaps an entire generation of financial stress as households try to reduce expenses and increase savings.

The thing that concerns me, as an RE investor, is how this will affect various investment strategies. If people are going to be strapped for cash for decades to come, doesn't that mean that their ability to pay rent will be diminished and any evaluation of rental properties should assume declining rents instead of stable or growing rents?

And what about investors who buy SFRs thinking that the lower rent yield will be offset by asset appreciation? How will home prices appreciate when the entire economy slowly shrinks to fit a more sustainable level of debt?

Although I have been doing short-term flips until now, my long-term goal is to be a buy-and-hold investor. But the chart below is making me reconsider my plans.

I would appreciate the thoughts of other BP members on this subject.