Originally posted by @Christian Buechel:
@Babek Sandhar
Appreciate your thoughts on this. I've posted in other threads, but I'm about to go through my first REI purchase and got to admit I've been strongly considering backing out. If I were in the market I live in (DFW), I'd be running away without question as housing as been ridiculous lately and I have to imagine this is going to impact more heavily in larger markets such as this.
But since our investment property is in a near(ish) college town, my wife and I have ultimately decided to move forward. The numbers make sense even with a slump in rent prices and barring a catastrophic occurrence like no college classes in the Fall, we think demand for a well-priced rental isn't going to dip enough in our target market.
Would love to get your thoughts, even if you disagree.
Hey,
Sorry for late response, but first off congrats to you and your wife on your new house. I think this is a great buy for the long term.
I don't think you can ever go wrong with housing in a college town. Simply put, as long as we continue giving out student loans with loose loaning regulations, I expect college tuitions to continue to rise. The more loans they issue the more justification for colleges to continue to raise prices because it's essentially free money. Here's a detailed study explaining the correlation between credit access for student loans and college tuition. I'll quickly post a summary to give you the jist of the research.
"Consistent with the model, we find that even when universities price-discriminate, a credit expansion will raise tuition paid by all students and not only by those at the federal loan caps because of pecuniary demand externalities. Such pricing externalities are often conjectured in the context of the effects of expanded subprime borrowing on housing prices leading up to the financial crisis, and our study can be seen as complementary evidence in the student loan market."
As for my opinion, personally, I think the Covid-19 Virus effects will last at minimum few months (hopefully not into fall quarter)! China (I don't know how much credible anything out of China is) said that after a strict quarantine for 2 months they finally saw a peak in number of cases. Two things I find disturbing about this:
A. Either they are lying and even with strict quarantine cases are still rising exponentially showing the severity of Covid or
B. If cases have peaked after 2 months, this was under a VERY strict communist/authoritarian rule. But I don't think enforcement has been even close to strict enough here (and Trump is even talking about getting everyone working again).
So the pandemic worries may cool off over next few weeks with stimulus agreements between the blues and reds, but we are definitely months away from this concluding and seeing the worst of it. I really enjoyed listening to this Joe Rogan podcast with Michael Osterholm, who specializes in infectious diseases (seems to be extremely knowledgeable in the subject matter).
As for my opinion on the housing market. If we are experiencing a deflationary episode which in effect is exposing the cracks in our financial system (why in the world do we need trillion dollar bailouts to keep banks stable). I think this, in combination with our economy essentially coming to a halt, Covid-19 worries, we should see;
1. Job losses (unemployment already the highest in history)
2. Foreclosures
3. Contracted credit
4. heavy deflation in the stock and real estate market (before stocks were selling off, I was estimating at least a 50-80% decline in stocks [from peak] with real estate correcting 30-60% [lagging the stock market])
5. Huge declines in GDP which is a recession indicator
Personally, I think metropolitan areas (more money in these areas and Covid-19 does the most damage in small congested areas i.e. all of Italy) will get hit much harder than smaller RE markets (it really depends on how much business is lost domestically). If you can whether the storm and prepared for a few rocky months, I think you'll be perfectly fine & in the long run I agree with everyone in this post, property is the way to go.
This is especially true when we start hitting inflationary pressures in the US because our debt and low interest rates catch up to us. Land, property, and gold are the best performers vs inflation and I think our inflation should last a couple decades once rates start rising again. I just think rising interest rates and inflation are quite some time away thus my theory on prices falling due to deflationary pressures first. Central Banks have made it apparent (especially over the last month) that they will print our currency until they can't. I'm sure our next generation will be burdened with those consequences of the previous generation's actions.
