Moratoriums ending this month

[Daniel Villanueva]

Hi everyone,

With eviction moratoriums all ending (roughly) this month, how long until we see effects on MF home sales? I take it this will vary state to state depending on evictions laws... As you can probably tell, I’m a noob. Currently excited to buy my first deal in Chicago suburbs or Phoenix metro area but I don’t want to do it right before there’s a wave of new housing in the market. Thank you all for taking the time to read this!

-Danny

[Aaron Caddel]

I'm struggling to find SOMEONE who isn't talking about low inventory and how strong the market is. Blogs and family gatherings are brimming over with real estate market predictions and let me first make this clear: no one knows what’s going to happen. But isn't it a LITTLE strange that:

• An historic pandemic has put the world on hold for months now. Yet the stock market is continuing to climb and real estate has gone up 10%.

Remember the phrase, “You’re just taking money from Peter to pay Paul?” The reason our current gov't response is unsustainable is because the government does not HAVE trillions of dollars to provide stimulus to all people/businesses/industries as it's currently doing. Making matters worse, we’re actively loaning the economy money we do not have for no profit (ie. low interest rates).

Some believe we’re already living in atop a house of cards, while others believe we can bury more bodies before anyone starts to care. Let’s toss out scenarios so you can begin to perform your own internal game theory and then I’ll wrap up with my own take on what’s to come (fwiw):

• What reaction will the real estate market have if the Dow Jones plunges from 28,000 to 10,000 in January? And what if that 10,000 is the new norm for the next 5 years?
• What correlation will an increase in interest rates have with property demand?
• When the federal eviction + foreclosure moratorium is lifted, will the increase in [insert market you're interested in] inventory be moderate or massive?
• Many private lenders and loan servicing companies are in a tight bind right now. If any of the larger names collapse, will the government response prevent large impacts on the real estate market?
• If inflation results from all our printing of money and debt creation, how much is the USD going to be worth anyway?

My 2 Cents

Will 2008 repeat itself? Not exactly; we have much better loans than before. And those loans aren’t misrepresented in financial markets through various mortgage-backed securities.

You’re going to see a large wave of foreclosures and short sales. It will not be anything close to 2008, but that increase in inventory and eventual interest rates will produce a sudden drop in home prices when the gov't cannot continue propping up the economy. As long as private lenders and REIs are liquid and excited to invest still out there, (which they will be, presuming interest rates aren’t monstrous and the stock market doesn’t entirely crash over the next 12 months) then the real estate market will be just fine.

However, if inflation takes off, all bets are off and every simulation out there needs to be thrown in the trash.

Alternatively, if the world economy allows us to get away with keeping interest rates low and printing cash for as long as possible, it could be enough to prevent a real tailspin.

Today, everyone’s happy, more stimuli to come and real estate markets are skyrocketing while the world is in the midst of a pandemic.

Whatever happens, I'm sure we can all agree that this situation is a little bit fishy and we don't all really believe that our homes are going to maintain this appreciation rate for much longer.