We’re just two weeks removed from our incredible Future of Money and Wealth conference … an it was an EYE-OPENER.
(If you missed it, you’ll be glad to know we video-taped the ENTIRE event and it’s in postproduction right now. Click here to pre-order at a really great price.)
Meanwhile, now that we’re getting back to our normal routine, we noticed some real estate related news that looked interesting …
Home prices surge to a near four-year high, Case-Shiller shows
– MarketWatch, April 24, 2018
“Rather than moderating, as many economists expected, home prices are accelerating. The 6.8 percent annual gain … was the strongest since mid-2014.”
“ … finally broke above the peak it last touched in 2006.”
Hmmm …. is that good?
It kind of feels good. Then again …
Subprime mortgages make a comeback—with a new name and soaring demand
–CNBC, April 12, 2018
“The subprime mortgage industry vanished after the Great Recession but is now being reinvented as the nonprime market.”
A rose by any other name?
“allow … borrowers to have FICO credit scores as low as 500 … can take out loans of up to $1.5 million … can also do cash-out refinances … up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable.”
“ … will also securitize them for sale to investors.”
Uh oh. We’re having flashbacks …
“Big banks are also getting in the game, both investing in the securities and funding the lenders …”
Like “too big to jail fail” banks?
“It’s large financial institutions. A lot of people with private capital sitting on the sidelines …”
Okay. Let’s take a deep breath and try to figure out what’s really happening, and how it might impact all us lowly Main Street real estate investors …
First, does this mean another grandiose sub-prime implosion that drags the global economy into yet another Greater Recession?
Not sure we’d bet on that happening again. At least not the same way.
Peter Schiff tells us he thinks the real crash will be the dollar. He thinks when the debt markets implode, central banks will destroy the dollar in a vain attempt to reflate asset prices and save banks.
Wow. That’s pretty apocalyptic. But hey, it’s Peter Schiff.
James Rickards thinks the stage has been set to replace the dollar on the world stage with the IMF’s SDR. Not sure what that means? Read Currency Wars and The Death of Money.
But no one we’ve talked to think it’s all going to happen in a day. It’s a process. And if you’re paying attention, you can see it coming and take pre-emptive action.
Of course, that’s a big topic and too much to dissect in this missive. That’s why we hosted Future of Money and Wealth … and video-taped the whole thing.
Some of what we learned is that as the dollar begins to fail, dollar denominated bonds would fall out of favor. After all, who wants to loan “strong” dollars today and get paid back late with weaker dollars?
Foreigners buy fewer U.S. longer-dated Treasuries at auction
– Reuters, April 23, 2018
Well, THAT’S interesting.
Less bidders on bonds usually means interest rates rise …
Mortgages, other loans get pricier as 10-year Treasury rate tops 3%
– USA Today, April 24, 2018
Okay, that’s getting closer to home … literally.
But usually when the world isn’t buying bonds (and yields rise) … the money goes into stocks and stocks go UP. But they went DOWN.
Hmmmm…. it seems the paper players of the world aren’t wild about bonds or stocks.
Since stock investors aren’t piling into bonds for safety, where are they going?
Could be cash … for now. That would explain the aforementioned, “… a lot of people with private capital sitting on the sidelines.”
We can’t claim to be paper asset experts … far from it. But it seems to us if there’s cash on the sidelines, the issue isn’t liquidity as we’ve heard some say.
And if there’s plenty of cash … and plenty of stocks and bonds to buy … then maybe the issue isn’t liquidity or inventory, but quality.
Think about Detroit real estate at it’s worst. There was PLENTY of properties. And they were cheap.
You could buy a whole house for $2500.
But few did. In fact, they bull-dozed lots of properties because on one wanted them.
The problem wasn’t price or availability, it was quality … or lack thereof. No sale.
So MAYBE paper asset investors are a little afraid of stocks and bonds right now. Maybe they’re starting to look for more real alternatives.
That’s what happened at the turn of the century. Stock and bond investors poured into real estate and mortgages. From their perspective, they’re safe.
Real estate is like that loyal, sometimes boring best friend in high school. When things are free and easy, you hang out with your party pals … but when life gets hard, it’s that old faithful best buddy you lean on.
There’s a LOT of debt in the world right now. More than ever before. Much of it created in the last 10 years … providing the jet fuel for some pretty powerful paper pricing runs.
Of course, some of the cheap money has also made its way into real estate. So real estate’s been good too.
But it’s quite possible the party is coming to an end. Rising rates and declining stock prices could be warning signs.
And yes, a slowdown will probably impact real estate PRICES … especially for homes, which get overbid in good times.
However, incomes and rents are often less affected by downturns, making income producing properties much more stable in slowdowns.
And if you’re smart enough to lock in low cost long term financing, you’ve got a real competitive edge in a rising interest rate environment.
Meanwhile, if history is any indicator, when the paper party ends … it usually means an increased interest in real assets … especially real estate.
At least for now, it seems to us the volatility caused by rising interest rates is a MUCH bigger deal to the paper crowd than for real estate investors.
BUT … even Main Street investors should be paying attention to Treasuries, interest rates, the dollar, gold, and energy. They’ll provide early warnings for bigger concerns real estate investors should be aware of.
Until next time … good investing!
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