All Forum Posts by: Eric L.

Kam Wiese out of Gretna handles a good portion of the real estate investors in town. 

https://medium.com/@nathanwaters/driverless-hotel-rooms-the-end-of-uber-airbnb-and-human-landlords-e39f92cf16e1

Interesting article about the second order effects of the biggest business opportunity since the Internet, driverless cars.

Now that Waymo is driving around Phoenix with no one in the driver seat and they have $20B to deploy their robo taxi and logistics service, driverless cars that transport people around a city are here. The second largest expense of Americans, transportation, will go from 17% to less than 5% of average income.

This will make the #1 expense, housing, at 33% seem much more expensive. We know that parking lots will be freed up in cities for building and that cities will expand to the exurbs as anything within 100 miles of the city will be within the daily commute.

In the 1910's, my city was 30 blocks long, just past the end of the street car lines. It might have been possible to predict that the automobile would expand the city to 200 blocks, but few would have predicted second order affects like the shopping mall, everyone leaving the of the inner city only to return 60 years later, Walmart, and Amazon. 

It's interesting to think about the other second order affects of how housing changes and gets less expensive.

GM's investor presentation today:
https://www.gm.com/content/dam/gm/ev...set-11-30-2017

"Based on our current rate of change, we expect commercial launch at SCALE in dense urban environments in 2019."

"The biggest business opportunity since the invention of the Internet."

This should take the average American spending on transportation from 17% to less than 5% over the next few years. I can't remember savings like that that quickly before. The tractor did it, but it took 50 years.

Real estate is location, location, location. This will quickly change what location means.

Waymo announced this morning that they are removing the safety driver from their driverless cars in Chandler. The taxi service will first be in Chandler and will expand to cover all of Phoenix once they get their full order of 600 cars from Chrysler. 

https://medium.com/waymo/with-waymo-in-the-drivers...

One driverless taxi replaces ten cars and Waymo has $10B set aside to expand this service, including semis. 

The majority of the economy is personal spending. The average American spends half of their income on two things: 17% on transportation and 33% on housing. Dropping the transportation expense to 5% will free up more than 10% of income. This will obviously have large impacts to our economy before we even get into the cost of transporting goods or the doubling of available land in most cities.

Just as cars turned out to be more than not needing to own horses, driverless cars will be about more than not needing to own vehicles. Few predicted the suburbs or the shopping mall when the car was first introduced.

This change will likely be bigger than the Internet. We live in exciting times.

Market Watch Story

Hi Juan,

You missed a few things that are impossible to replicate.

1) Violent crime nationwide has dropped 70% since 1995, creating more demand for urban areas.

2) The nearby areas, San Francisco/Silicon Valley have had an influx of millions of jobs. With that job growth, the local government has approved a rate of 5 office spaces for just one apartment unit/house permit. There's no where else for people to live.

3) Interest rates have dropped to negative real rates.

4) The Federal Reserve has bought $60b/month in mortgage backed securities.

5) China has clamped down on government bribes and owning multiple homes in China. Billions have left the county. Chinese cash buyers account for 25% of all home sales in the area.

One of these things might be reproducible in the future. I think if you are were to bet on all five happening again, you may as well go to the blackjack table. 

I live in a small (not that tiny, 500 sq/ft house) I bought for $19k in the Midwest in summer and I travel around in van style RV during winter. 

The appeal to tiny houses is that there is way of living without being in debt. There's a mind shift change with today's youth that's important to understand.

Most of the boomer's first experience with debt was probably a car payment. The car gave them freedom. They could get in the car every day and go to work. They enjoyed their car and in a few short years the car was paid off.

Today's youth first experience with debt is a house payment in the form of a student loan. When they are out of college for a year, they can't touch it, but they can see the funds leaving their account and they can feel the burden. The burden for them lasts 20+ years.

When the youth do get a job, it is more likely to be a temporary contracting position that may have good pay, but no security.

The tiny house offers freedom from more debt and the freedom to survive between jobs that only last a year or two.  

 The article that Greg posted was pretty good. My parents are boomers and they retired over the last couple months. They aren't moving and will likely stay with the house until the end. They have an old school pension and won't need to sell. I believe the majority of boomers will stay in their homes as well. Many will stay in the same city for family and many don't want to sell for tax reasons. 

The neighborhood that I live in is 75% 60+ and will likely stay that way for 50 years. How is that possible? Lifespans for humans, (especially those who aren't obese) is increasing.

I honestly believe that the first person to live to 200 is walking around right now. This sounds crazy, but I know a bit about Google X and Google's Calico. If you look at their nano bot project and Ray Kurzweil's predictions, you will see that we are roughly 10 years away from curing cancer/old age with nano bots.

Overall, I believe that the boomers are already causing a shortage of supply which is already a large driver in the market. I don't see this trend changing, but most boomers will soon leave the workforce. They will slow their spending even more. This means more deflation and that leaves a workforce with decreasing wages left to set the price for the homes that are for sale.

Take my advice with a grain of salt. My crystal ball is just as foggy as anyone else's. We're in an environment now where for five years everyone has been screaming about how hyper inflation is coming. 

The Fed did everything it could to create Inflation, yet it wasn't able to. The Fed gave the money to the banks, but the banks couldn't loan it. The Fed even bought mortgage backed securities to try to prop up the market. Now it is trying to lower lending standards again.

The bottom line is, no matter what the government tries, there simply is not enough demand for debt by people with credit. Some are scared by the Great Recession, some are already drowning in government student loan debt, some are simply too old to want to move. If something is coming that will reverse those trends, I haven't seen it yet.

This tells me that deflation is probably more likely in the future than inflation. I believe that the trend of low inflation/deflation and decreasing wages will continue.  5-10 years from now I see advances in automation that will increase deflation even more.

Most people on this site will tell you to shoot for at least $100 door in cashflow and the deal will work. Many will point to increased values over time and increased rents over time. Inflation both in increased values and rents certainly made many people rich in the 80's and 90's. I think you now need to consider decreased rents over time and decreased value over time in your calculations. 

http://www.latimes.com/business/la-fi-fannie-mae-freddie-mac-mortgage-downpayment-20141208-story.html

3% down government loans will be back for first time home buyers. This should increase the cost of American's #1 expense.

We're seeing the housing bubble that led to the Great Depression play out all over again. This time we already have the highest housing to GDP ratio with the exception of the run up before the previous crash.