The Double-Dip… It’s Finally Here!

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Back in March of 2010 I wrote an article for BiggerPockets, Double-Dip Used To Be Fun and Exciting, discussing the prominent view that the housing market was eventually going to head back into declining values.  This new (for those who ever believed that things stabilized) property value decline has been affectionately referred to as a “double-dip”.

The focus of the article mentioned above was not to try to predict the timing of a double-dip, but to help you to understand that given the economic situation at the time, there was going to be a double-dip.

And… that seems to be exactly where we are today for most areas of the country.  Housing prices which for the most part had been bouncing around on the bottom… have renewed their downward path, taking billions in equity out of the system and further exacerbating the number of under water homeowners.

Over a year ago the overall economy seemed to be on the mend, at least that is the story line we were being feed.  But, as 2011 got started it has become obvious that the economy in doing very well and unemployment, the key to housing demand is headed back up.

Everyone needs a place to live… right!

I have been huge proponent of investors paying close attention to their local market, understanding what makes it tic… and then positioning your business to take advantage of the opportunity.

For instance, in many markets selling to homeowners may not be the best strategy.  Yet these same markets provide fantastic opportunities for buying and holding properties as rentals, and I would not expect that situation to change in the near future. 

OK… Now What?

In my opinion, there are just a few things an investor can do to ensure their profits in our current double-dip scenario.

The first one is make sure you are pursuing the right investment strategy for your market.  An example would be, don’t try to sell to homeowners if there aren’t any to sell to.  Seems so simple doesn’t it!

The second is this: DON’T OVER PAY!  Or put in terms you have heard before, You Profit When You Buy!

Now is not the time to get complacent or spooked by the market.  In fact, in most markets the opportunities are only getting better.  Your job is to conduct your research, make sure your business is positioned to profit based on that research and then… RUTHLESSLY execute.

Best of Luck!

About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.

9 Comments

  1. The old school “Rent vs Buy” decision still holds true, even if markets are in decline. If you can buy a home for lower net costs than renting, then consider it! Prices may continue to slide for a bit, but if you intend to hold for the long haul (> 10 years) you should be fine.

    Both rental prices and mortgage rates have nowhere to go, but up. Locking in ridiculously low (read: subsidized) fixed rate mortgage rates now is also a great hedge on future inflation; and with the brilliance of our central bank in printing trillions to fund perpetual budget deficits, it might be a good idea to consider protecting your wealth from the printing presses…

  2. I think we hit a lull in the real estate market over the last 9 months that brought in the usual late comers to the market that still want rock bottom prices. This didn’t help them in the stock market as those markets rebounded quite well from their lows. The current economic climate did however work perfectly for the “double dip” in housing prices to take place.

    The FED did not “print money” but rather facilitated an asset swap. However the Federal government is the monopoly supplier of the Dollar and in that position has to create money. The maximum capacity in the economy is determined by full employment and their guideline to regulate is inflation. QE was ineffective for the most part as it facilitated speculation not real growth leading toward full employment. These concepts are hard to understand as the federal government, contrary to popular belief operate very differently than currency users such as individuals, businesses or even state governments. All this said the economy should be on firmer ground in 6 months as the effects of QE2 are felt, digested, found not to fundamentally change much and moved forward. This does depend on congress raising the debt limit and not going forward with another round of QE.

    Especially as real estate investors, we can come to understand this reality. When we purchase a home for $100,000 and put $20,000 into and sell it for $200,000, we have have “created” money. The government doesn’t monetize debt but rather as a basic function monetize equity. Look at the gold reserve of the US government, even by todays high gold prices it is still less than $1 trillion. Our economy is around $14 trillion, our household wealth is roughly $60 trillion. Once we understand our monetary system we can better understand our place in it and how to use it to our advantage.

    Great post!!

  3. Kyle,
    Good points and review of monetary economics. My comment on “printing” wasn’t meant literally; rather, it referred to Fed balance sheet expansion and primarily via treasury purchases (debt monetization) and non-performing MBS. Creating dollars in exchange for these is not an asset swap b/c there is an engineered liability offset on the balance sheet.

    No matter how you spin it, the Fed is creating money and debasing the dollar.

  4. I completely understand your viewpoint and a year ago, I would have been saying the same exact thing. I recommend visiting pragcap.com. It is a very enlightening website, much like this one regarding real estate investing, on the topic of the economy with stress on the operations of currency with our system. Some of the operational potential in our current system is hampered by our outdated laws that are based on our previous monetary system, the gold standard. Thanks for the reply.

  5. Kyle,
    Thanks for the recommendation. Site looks good, but can’t find RSS URL, so I just e-mailed their marketing team.

    I’d be curious to hear your positions on the monetary system, outdated laws, and where you think it should go to gain value.

    Rob

  6. Rob/Kyle,

    What a great exchange regarding the monetary policy in existence today. This discussion should be a must read for every investor because IMHO knowing what is happening regarding our monetary policy is critical to understanding the impacts on our overall economy.

    Thanx for the debate.

    Pete

    • Thanks Peter. It is truly important and will continue to grow in importance as the world and global economy evolve and increase in complexity with each passing day. The biggest misconception is equating monetary policy at the federal level with personal finance, at least in my limited experience.

      Thanks for your continued contributions, every day is a new opportunity to learn something new.

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