This Economist Says NOW is the Time to Buy Real Estate!

[Brad Noe]

Like any other prudent real estate investor, I am constantly monitoring and forecasting as best I can the health of the economy. I have to admit, my heart drops a little every time I see a blog or social media post touting a doomsday scenario the impending crash. 

This past week, I attended the National Building Material Distributors Association annual conference in Colorado Springs. A couple thousand buyers, manufacturers, and distributors of building materials gathered here to network and educate themselves on various topics related to the industry. One of the speakers that addressed the crowd was an Economist named Alan Beaulieu. I found his presentation fascinating, entertaining, and jam-packed with great information and tons of statistical analysis to back his forecasts. I took a lot of notes, and thought I would share those that were most relevant to real estate investing and the housing market.

- No reason for him to believe another recession like the Great Recession from 2008-2009 will occur for at least another 10 years. A repeal of Dodd-Frank is the largest threat to this positive outlook.

- He does predict a slowdown or "bump in the road" as he called it around late 2018 or early 2019.

- We all know interest rates will have to rise at some point soon. Now is the time to invest/borrow money to buy wealth-building assets. He was VERY adamant about this. And remember, this was NOT a real estate conference he was speaking at.

- Residential loan delinquency rate is well below the 10-year average and still declining, signaling a strong and healthy housing market.

- One trend going on now and continuing in the future of housing he pointed out was demand for rentals in urban areas.

- Apartment vacancies are growing in many markets. Large multi-family is starting to look overbuilt.

- California, West Virginia, and Illinois have declining populations.

- Southeastern US, namely the coastal states, are showing strong population growth.

- Toronto, Vancouver, and Seattle are bubbles that will eventually burst and could cause temporary volatility in their respective regions.

- US housing prices projected to continue upward trend overall until 2029. (Again, a repeal of Dodd-Frank would jeopardize this trend). 

- I wish I would have written down his reasons for it, because he had plenty of slides and stats to back it up, but his boldest prediction which he was very adamant about was that the next legitimate Recession or even possibly Depression will hit sometime around the late 2020's to the early 2030's.

Cheers!

[Chris Mason]

Everyone is looking for "history to repeat itself." Which, sayings aside, it rarely does. Recall that the full saying is "those who ignore history are doomed to repeat it." OK, great. No one is ignoring history, everyone is constantly on the lookout for a repeat of 2007, and looking for data to support that notion. Absent such data, the common conclusion is that 2007 will not happen again.

I agree with that conclusion, simply because no one is "ignoring history" and all these non-ignorers are coming up short on data to support that 2007 will happen again.

What I wonder about is student loans. I feel like I decline a loan a day due to six figure student loan balances appearing on credit reports that are not compensated for by income (to any 18-21 year old reading this, please ignore your parents when they tell you to take out a bunch of student loan debt and "study what you find interesting," unless what you find interesting is STEM -- college was dirt cheap when mom/dad went to school, they do not understand your reality, and are living in lala land). Interestingly these folks can still find rentals without issue since landlords look at housing-to-income ratio ("income should be 3x rent = 33% HTI") instead of the debt-to-income ratio that I look at. So these households, on one end of the spectrum, continue to be renters.

And then on the other end are the millennials that are so convinced that 2007 will happen again that they're afraid to buy a home. It doesn't matter that there's not really any data to support the "history will repeat itself" thesis, they just say things like "when will the next great recession happen?" without asking the "if." So these households, on the other end of the spectrum, continue to be renters. They might even continue "waiting for the next crash" for another two decades, while writing rent checks to landlords.

In the middle there are of course a bunch in between those two above - young FTHB families buying homes because they want a place to live with no landlord (we rarely see the "buying a home to live in is an investment with guaranteed returns!" attitude, but preferences are still a thing), move-up buyers, empty nesters, etc.

I wonder if there might soon be a market for landlords that over-charge on rent in exchange for overlooking FICO scores associated with perpetually delinquent student loan debt, for folks with no other lates. I know that some landlords did well over-charging on rent for folks just out of foreclosure, but with no other lates, during the recession.

No big predictions about the future from me. Just observations about a possible elephant that it might be worth not ignoring.