“Investment success doesn’t come from ‘buying good things,’ but rather from ‘buying things well.’” – Howard Marks
Single family housing is going to crash in 2022.
It’s really important to prepare yourself.
History doesn’t repeat itself, but it does rhyme.
Today, I’m going to talk about three reasons why this is going to happen.
1. Inflation and Interest Rates
Let’s talk about inflation.
Inflation obviously makes prices go up.
It comes from the Federal Reserve’s zero interest rate policy.
We also have 40% of the currency that exists in the US being printed in the last 18 months.
You might be thinking these factors are inflationary.
Why would I say we’re going to have a crash when a crash is deflationary?
When it comes to interest rates, we see a different story.
In the 70s and 80s, we had Paul Volcker.
Back then, the interest rate got close to 20%.
He increased interest rates as high as necessary.
This caused a lot of pain with the public but it was necessary to bring things under control
Today, we don’t have anyone willing to go to those lengths Volcker did.
But that needs to happen soon!
In 2022, I believe interest rates need to start rising.
When they start rising, it’s going to change the landscape.
It’s going to cause single family to crash.
I believe there is one way this doesn’t happen.
President Biden should replace Jerome Powell in February with someone more dovish who will not raise rates.
The reason why there’s a crash comes down to affordability.
When rates start rising, people afford less of a house.
If the interest rate goes from 3% to 5%, that’s much more owed per month.
People start making choices when these things happen.
In the housing market, there are fewer buyers but the same number of sellers.
Instead of buying a house, people buy a townhome or a condo.
All of these factors lead to a reduction in demand for single family.
2. The Pendulum
This theory comes from a guy named Howard Marks.
Marks is the billionaire CEO of Oaktree Capital.
He puts out some amazing memos.
I definitely suggest you check out his stuff!
The pendulum comes from a book called Mastering the Market Cycle.
In normal market cycles, things swing back and forth.
We’re seeing that now with easy credit, low rates, and asset prices going up.
Now what Marks says is the further things go one direction, the further they have to go back.
It might take a little longer or go a little further, but it is going to come back.
So when they keep rates low for so long, when they print so much money…
It’s pushing the pendulum further and further and further to one side.
What’s going to happen next?
The pendulum is going to swing back just as far.
What does that look like?
That can look like higher interest rates, less or no credit, and lower asset prices.
If you are able to get loans, it’s going to be at higher rates.
Marks really knows what he’s talking about.
This is a guy who has been studying market cycles for over 40 years.
Right now, the Federal Reserve has used almost all their tools.
What can they do besides continue to print more money?
We’re at a place of stagflation.
With high unemployment rates, we produce less as a country.
We have less goods and services out there, and they’re printing more money.
That sounds like an inflation spiral, right?
Because you have less goods, you have more money, and the answer to that is even more money.
The only other option to calm things down is hyperinflation.
Nobody wants hyperinflation.
That means we print money into oblivion.
We’ve seen that historically all over the world.
As the pendulum starts swinging back the other way, we also see mortgages shift.
Recently, there was an 18-month forbearance by the government in Spring 2020.
This act expired in Fall 2021.
Once people stop paying, it can be difficult to start back up again for various reasons.
That’s the pendulum at work.
3. How to Position Yourself
The last thing I want to talk about is how to position yourself for the 2022 single family crash.
You can do this in three easy ways.
Get Into Long-Term Debt
Let’s start out by saying something a little controversial:
Holding onto the debt on your house is not a bad investment.
I know, I know!
Didn’t I just say single family was going to crash?
Shouldn’t we sell everything?
My friend George Gammon would say the asset is actually the debt.
The low interest rate you have on this piece of property is actually the asset.
You’re paying 3% or just over that for the long term on inflation, even temporarily.
Those figures will continue to rise.
Then you can use what you would have spent to pay that down.
You can use that to invest in other types of products with higher returns.
You can also use it to get into more debt.
For example: I had a personal line of credit for $100,000.
I got it at 2.25% fixed for 10 years, which is a crazy deal, especially during inflation!
The more debt you can have for the long term, the better.
Inflation Protected Assets
Single family is not my first choice as far as inflation protection assets because it’s volatile.
It’s very subject Marks’ pendulum.
Income properties, such as multi-family real estate, is our business.
Another thing that you can do is precious metals.
Precious metals have been in monetary use for 5,000 years.
The last thing is to have some cash available.
In 2008- 2010, there was a need for people to have cash.
There wasn’t a lot of financing available.
There were a lot of deals out there, but there wasn’t a lot of cash out there to buy those deals.
In general, I’m not super big on single family investing.
I don’t think it works.
It won’t get you closer to financial freedom.
And that’s all I want!
I want to help you get financial freedom and live the life that you deserve.
I want to finish this blog with a quote from the great Ron Paul:
“From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial ‘boom’ followed by a recession or depression when the Fed-created bubble bursts.”
That’s some powerful stuff.
He really believes the Federal Reserve causes a lot of these booms and swings the pendulum.
I’d love to know your thoughts on that!
Also: What do you think about 2022?
Do you believe single family is going to crash?
If so, why?
If not, why?
Leave a comment down below and let’s start a conversation!
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.