The State of the US Economy and Housing Market and Tips for Future Real Estate Investments


A Revealing Look at our “Booming Economy”

So our economy is booming, Mr. Bush? I’m not sure what picture you’re looking at, but things are starting to look pretty bleak from where I’m sitting. The Sub-Prime Mortgage Mess has led to the Housing Bubble & Burst, which has led to the Credit Crunch, which looks to potentially lead to either a US recessions or possibly a global one. Both US and Global markets have been in a downward spiral of late. The S&P 500 is now in the red for the year, while the Dow is now down for the 5th day in a row, 8% off its all-time high set only last month (Note: a stock market “correction” is defined as a 10% drop from the market’s high). Global markets were down overnight on fears from the continuing US credit crunch, and both European and Asian Central Banks have been infusing cash into their banking systems in an attempt to assuage their local markets.3

For example, “the Bank of Japan announced Thursday (Today) an injection of 400 billion yen (3.4 billion dollars) into the banking system amid renewed turmoil in global financial markets. It was the first time in three days that the BoJ had pumped emergency funds into the financial system as part of a concerted action by global central banks to try to avert a credit squeeze caused by problems in US mortgages.”4

On top of it all, national foreclosure rates are up, with “the total number of properties either entering or moving through some stage of the foreclosure process was 131,574 or one foreclosure for every 879 households in the U.S.”1 The Nation’s largest mortgage lender, Countrywide, today “borrowed $11.5 billion from a group of 40 banks to fund loans, in a move that shows just how deep the lending crisis has become.”2 The stock is now down 15% year to date and Moody’s Investors Service “downgraded Countrywide’s senior debt rating to “Baa3” from “A3,” citing Countrywide’s funding problems.”2

Doubters may say that we’re close to full employment, interest rates are low, and everything else is rosey, but they are ignoring the mass of debt we’ve had to incur to “keep the economy rolling.” In addition, the true cost of almost all goods has risen dramatically, including gasoline, food, and other staples. The economy has been great for the rich, but the middle class and nation’s poor have continued to struggle.

Have you wondered why there is so much talk about China on the news lately? It is likely because they own us. Really! China owns so much US debt that we have lost most of our negotiating leverage with them. On top of all of that, they now manufacture 75% of our toys, and much of everything else we buy. The trade imbalance between our countries is astounding, as we import most of our goods from them and they don’t really need what we’ve got to sell, which these days isn’t very much other than weapons and military goods.

What Does All This Mean To You?

For starters, borrowing has become much harder – not only for individuals, but also for corporations. If you’ve got bad credit or nothing to put down on a property, you’re going to have a difficult time finding someone to lend to you. Sellers must be realistic about their pricing strategies, or they may be stuck losing out. If you’re looking to sell, be aggressive with your pricing. It is a buyer’s market, so the buyer is going to be at an advantage in most negotiations.

Tip: In a shaky market, invest in cash-flow positive properties and forget about appreciation!

Keep in mind that regardless of the economy, investing in real estate is always a smart move. The key is in buying a property that cash-flows. I’d avoid at all costs an investment property that “promises to appreciate”. Especially in this market, you’re just asking for trouble. You want to buy properties at a discount that have enough cash flow to bring in a profit. It is extremely important that you understand the basic tenets of cash flow investing, as most real estate agents and the average investor simply does not. We’ll certainly cover this topic in the future, but if you’re looking for a great book that takes a no-nonsense look at cash flow investing, I recommend Mike Wood’s (he’s one of our favorite forum contributors here on BiggerPockets) book, 1 Minute to Rental Property Riches.

What do you think of the current state of the US economy?

Sources Cited:
1 Building Online – One New Foreclosure Filing for Every 879 U.S. Households
2 Houston Chronicle – Countrywide borrows $11.5B from 40 banks
3 Orange County Register – Today’s editorial: No government cure for housing pain
4 The Raw Story – BoJ to inject 400 billion yen into banking system

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


  1. “Tip: In a shaky market, invest in cash-flow positive properties and forget about appreciation!”

    What? Forget about appreciation? What? Shaky market? You blasphemy!

    Sarcasm aside, I agree with you completely.

  2. Great post!

    I think cash flow is what sets real estate aside from other types of investments. People will always need a roof over their head. The key is ensuring that you can make cash flow before you buy a property and not after. Buy property that fills a service–now is a good time since people are looking to rent more than own as they struggle to get out of home purchases that were beyond their means.

  3. Jimmy Rockasta on

    This is a good post. This is the stuff I was actually looking for.

    I have a question though – Frequent number of times I have got a warning as “spam” when I try bookmarking on sites like or

    I don’t have any spam pages or websites.

    Any idea why do I meet with all these?


  4. The economy might be under strain but I think that globally the economy is in a better, stronger position than it was during the dot com crash. Lets hope with a bit of monetary tightening we can ride this period out.

  5. Great article – and spot on assessment. Positive cash flowing properties, that you can buy with “built in” equity are the tickets nowadays. Its a great time to buy – if you know what to buy in the first place.

  6. I think people want to much to view the economy in extremes. In many ways the economy is strong (even in your point about the stock market you say a decline from the all-time high). Mortgage default rates are a big negative. The credit crunch is a negative given how quickly and significantly it has shifted – however the ridiculous easy money policies were bad too (though no-one much talked about them at the time).

    The unemployment rate is low. Inflation is low – especially considering how much oil prices have increased. Interest rates are low. Many things are good. The huge burden or government and personal debt are serious problems but not significantly different than they were 3 years ago – when you look at the entire economy. The oversupply of current housing for sale is a problem in some areas (and the risks of adding more forced mortgage default sales is a concern) but the decline in median prices nationwide in the last year is 1.5% hardly what the headlines discussing crash suggest to many that don’t know that prices are hardly declining nationwide (of course some locations are declining significantly and many are actually increasing).

    Basically the economy is pretty strong with some areas of weakness (short term housing sector problems) and long term problems: way to much long term government and personal debt and a health system that costs way too much and is increasing each year – now 16% of the economy – about double the cost anywhere else.

  7. Austin Real Estate Guy on

    I have to agree with much of what you posted. I also want to point out that what you don’t see in the press is how healthy certain markets, like Austin, are.

  8. Yes, I agree that the US economy is headed from probelms. The volatile stock markets are a worrying sign as before crashes stock market volatility often increases markidly.

    On the plus side, should the economy start to faulter and head for a recession then the FED will cut interest rates which should easy the pressure on homeowners.

    Nice blog Josh, keep up the good work!

  9. I really can’t agree with your assessment that this economy is turning bad. Sorry, the math doesn’t add up that way. The subprime market and the unintended consquences of bad loans cannot make that big of a ripple through the overall economy. It’s just not a big enough portion. I am very weary of the doomsayers out here that speak in terms of the economy being as bad as you make it out to be and it doesn’t take into account the consequences further down the line which are beneficial due to the free market economy. Remember this – when something (like subprime) goes bad, something else will take it’s place in a free market. Real estate is cyclical. This is nothing more than part of a cycle. Will some people be hurt? Absolutley. Others will gain from it.

    You say borrowing money has become much harder. Good. It was too easy. These lenders play a game called risk management and now subprime is dead so they will find something else.

    Do you know what would happen to China if they stopped buyimg our debt? This game works both ways.

  10. Austin Real Estate Guy on

    Austin, which has a very healthy real estate market, saw a decline of 2% on home sales in July. However, I don’t see that as any kind of warning sign. I see it as a drop because fewer low priced homes sold and that was because thos buyers couldn’t get loans. The country is still in for a bit of a rough road, but we’ll make it through OK.

  11. Arn Cenedella on

    Based on your own stats 1 property for every 879 households are in forecloure, that means 0.11% – that’s about 1/10th of 1% – not much when you really think about it. Despite the current credit crunch and I submit things look much different today on 8/26 than they did when the article was written 8/16. The economy is fine.
    Basically, a bunch of Wall Street types have been speculating in the mortgage market by lending people with marginal credit and marginal incomes money at 10%, 12%, 13%. And NOW – BIG SUPRISE – some (actually a fairly small percentage) of those people now have trouble making their payments. These Wall Street types are getting what they deserve – after a few years of making lots of money with this scam now they are losing some money – BIG DEAL. Of course, the media which loves to dump on real estate helps create a panic and the stock market (note the STOCK market collapses).


  12. Pingback: Fed Chairman Ben Bernanke to Abandon Lenders and Investors | Real Estate Investing for Real Blog

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