Headwinds
Residential Real Estate:
New Normal is Negative Growth?
DYI: There
are four major macroeconomic reasons for residential real estate
underperforming inflation over the next two decades.
1.) Simply put home prices have outpaced incomes for years pushing the
average age higher and higher for first time homebuyers to the age 40! This has created a buyers strike with
increasing numbers of young people giving up on purchasing their first
home. Fewer buyers than sellers will equal
declining prices.
2.) Boomer’s dying off with adult children selling the property to pay off
their debts. This is a Silver Hair Tsunami
is now just started moving through this generation for the next 20 years and
peaking 10 years from now. Constant
selling will have a depressant effect upon prices.
3.) Out of control Federal spending by past and present Congress’ and
Presidents has pushed up Debt to GDP to 122% forcing our central bank to
monetize ever increasing amounts of debt thus increasing inflation that pushes
up long term interest rates including mortgages. Even if Congress and President by an act of
God are bestowed with “That old time religion” for balanced budgets working off
the debt to GDP ratio to an acceptable level is at the very least a 20 year
affair.
4.) Many States, counties and municipalities are in poor financial condition same as
their Federal cousins, however they don’t have the ability to print their way
out of debt. Cut backs are already
happening across the nation with homeowners leaving thus selling their property
at near fire sale prices. California is
the poster child for out of control spending, regulations, fraud, and taxation.
Bottom Line: The old adage of location, location, location will become the needle that will be required to thread. Coming out ahead of inflation upon sale of a home will be tough sledding as the vast majority will lose to inflation. Individuals and families who save and most importantly invest the difference as renters compared to buyers will be the financial winners over the next 20 years.
Disclaimer
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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