Get Rich Education 401: A Greater Depression Is Ahead with Doug Casey
The homeownership rate of 65% is poised to fall these next few years. People must live somewhere. This should make for more renters.
Mortgage delinquencies have fallen for seven straight quarters. The forbearance program kept people in their homes.
"The Great Reshuffling" describes the US housing market since 2020.
Inflation flips money upside-down. Focus on prudent borrowing, not saving.
International Man Doug Casey joins us. He calls for a "Greater Depression" ahead.
For consumers, the costs of energy, food, and housing have become crippling.
Doug thinks that the decline of world economies will continue. World cities have more people living on the streets.
He thinks that the Fed can't hike rates very high. It will result in too many debt defaults. Then how will inflation be curbed?
Doug thinks you should save, but don't save in dollars.
Are price controls coming? That's when the government tells companies that there's a ceiling on the price they can charge for their goods and services.
We discuss what you can do to prevent being wiped out in a crisis.
I discuss living well vs. austerity.
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Partial transcript:
Welcome to GRE! I'm your host, Keith Weinhold. While much of America & the world keeps getting crushed by inflation, you're profiting from it.
I provide you with a housing market update… then, as higher inflation reduces the quality of life for so many WORLD residents, today's guest gives both us a global and national perspective on the prospects for a DEpression, today on Get Rich Education.
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Welcome to GRE! From NYC's Brooklyn Bridge to Bainbridge Island, WA and across 188 nations worldwide, I'm Keith Weinhold. This is GRE!
And it's Episode 401. Now, no, it's definitely not episode 401(k). No life deferral plans here! Uh, oh excuse me… they'e called… uh, tax deferral plans. Though life-deferral plans would be a more apropos moniker.
I'm grateful that you're here for another wealth-building week.
Now… asking an angry spouse to calm down is not exactly a tactic that's... effective.
By now, Jerome Powell has been effective at raising interest rates to help America's housing market calm down.
Though mortgage rates have inched lower in recent weeks, they're still 2% higher now than they were a year ago today.
In fact, the rate rise from early March to early May was the swiftest that I've seen in my entire life.
Rates scaled a wall. Clearly, this impacts affordability.
The rate of property sales is a little lower now… off its peak.
It's getting more Darwinian out there. The NAR estimates that 15% of wannabe first-time homebuyers will be priced out of the market this year.
People have to live somewhere. If they can't own, they'll have to rent... or keep living in their parents' basement… that's an option for some people too.
Right now, the homeownership rate is 65%... and that is pretty close to the average of the past few American generations.
I'll tell you… that 65% homeownership rate is poised to fall faster than dogecoin.
Well, what this likely falling home ownership rate means is that the renter pool should swell, putting more upward pressure on rents.
That's what happens. If home ownership goes from 65% to 60%, then America's renter proportion basically goes from 35% up to 40%.
You know how I've talked about how home prices rise first, then rent increases lag behind? Well, this is it. This is the place and time where rents catch up.
With housing prices, are we set up for a recipe of "housing crash" or is it more like "housing calm"?
Looking at purchase applications, demand is probably past its peak. But housing demand still drastically exceeds supply.
Normal housing supply is about 1.5 million units. We've come up from a jaw-dropping paucity of 376,000 homes back in February. And it's still just 516,000 now (chart).
We're only up a tad from famine-like levels.
America still needs about 300% more inventory just to bring the market back into supply-demand balance.
Housing supply is inelastic; it cannot be increased quickly. It'll take several years to reach balance.
How else can we measure this balance? One way is with days on market (DOM).
Pre-pandemic it was 45 days. Now, despite higher interest rates, it's under 30 days & under 20 days in a lot of markets.
Mortgage delinquencies have fallen for seven straight quarters. The forbearance program worked. One can critique its morality. But it kept people from losing their homes.
As the market entropy - with wild bidding wars & a "free for all", couldn't last forever - nor was it good that that condition persist - it's still a strong housing market.
Expect a gradual return to a calmer, more normalized condition. Yes, "calmer" market conditions are poised to emerge here.
Hey, pretty soon, you might not have to offer more than the list price for a property.
Expect less competition from all-cash buyers. Sheesh, "all-cash buyers". What are those zero-leverage psychos doing anyway?
Hey, property inspections are coming back. Imagine that you can ask a seller to fix some things for you and not fear that they'll reject your offer.
So what is the bottom line with today's housing market?
Rents should keep rising faster than historic norms.
Supply is so low that housing price crash prospects are near zero, probably even through 2023.
20%+ annual price increases still exist in many markets. Nationally, this is calming now.
By the end of the year, home price appreciation should still be higher than the historic norm of 5%.
And you know…
Back on December 1st of last year, I published GRE's 2022 National Median Housing Price Forecast and I also announced it on this show at that time that I expected a 9% to 10% rate of home price appreciation this year.
We're nearly at mid-year here, and I still like how that forecast looks.
In America, you've heard of the Great Resignation or the Great Migration but I think that the term that best encapsulates what's gone on in American housing since the start of this decade is "The Great Reshuffling".
Working from home was a significant driver of this "Great Reshuffling" and accounted for more than half of the steep increases in home prices seen during the pandemic. That's what new research has found by the Nat'l Bureau Of Economic Research.
By now, you've got more Americans that are shuffled into place. That found that long-term home with the realities of their new life.
That's the bottom line. There is a Great Reshuffling, and now people are settling into place so we're kind of seeing this welcome "calming" of the housing market as we move toward eventually settling into more normal conditions.
Well, hey. Thank you for the "Instant Reaction" from so many of you after last week's milestone Episode 400 where Hal Elrod & I discuss how to improve relationships and be a person of value.
Greg from the United States remarked: "Two of my favorite people were together in one episode. I've been following Keith since the beginning of his podcast and journey… and I love "The Miracle Morning" and practice it habitually.
Roxana from Romania said, This was just phenomenal! A terrific talk that I listened to three times already. Thank you for all the good that you do through GRE! Congratulations for 400 episodes."
I appreciate the remarks there, thanks.
You know, I want to hear from you, the listener.
If you've been following along here and you've acted by putting income property into your portfolio and you're now the beneficiary of inflation & you're profiting from this inflation… with the Inflation Triple Crown… from time-to-time, we like to have a listener on the show.
If that interests you, reach out to us through: GetRichEducation.com/Contact
There's no guarantee that we can get you on the show here. We have 50x as many requests to appear on the show as available slots.
But if you've had your life impacted, we want to hear from you. You don't need to be a big name.
In fact, if you're just sort of salary or wage-earning person that's had their life impacted by taking GRE principles and putting them into action, I want to hear from you.
Again, get started there at: GetRichEducation.com/Contact
Inflation flips money upside-down.
Though inflation isn't a new story, most experts believe that inflation is going to stay elevated for a longer period of time here.
I think that some people - everyday people - let themselves be coerced by inflation. So they cut back on grocery spending & complain about car gasoline prices & lament that their 401(k) is plummeting & live small and maybe even live miserable.
Then there's this increasingly popular narrative that seems to enforce that - you'll do with less & you'll be happy about it.
And you hear more about buzzy terms, like, well "Reducing your standard of living is what "sustainable" looks like. Don't you want to live sustainably?"
And people will try to conserve gasoline consumption by biking in the rain and having a muddy streak up their back.
Now, all things equal. I think that doing this for the environment can be good. That's fine.
Rather than sustainability, some try to mask the quality of life degradation (from inflation)... justifying it with… well, I'm practicing "minimalism".
Minimalism. Yeah, I don't need to go on vacations. Translation = I'm too fearful of my financial security to even get out and see the very world that I live in.
Whoever said that less is more never had more… and why have more when you can "have it all"? I kid a little bit here…
But… if you keep your quality of life because you invested in real assets with good debt… then go ahead and recycle some more consumable items in your household if you want to help the environment.
You don't get to recycle your life. You've only got one of those… at least here on this earth.
Today's guest believes that the prospect of a Greater Depression lies ahead. Let's explore this together, today.
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Yeah, it's good to get the bigger-picture perspective sometimes.
Doug feels that future RE price increases could be in question. Well, even if appreciation completely stopped in the future, today you can still lock in low mortgage interest rates & rent that property to others… with persistently high inflation debasing your debt all along.
I brought up price controls in our chat today, which is when the government steps in & says something like, no, gas station, you absolutely cannot charge more than $6 per gallon for gasoline, or no, leaf lettuce grower, you cannot charge more than $4 for a one pound bunch of leaf lettuce.
That ceiling - that price control - has often led to disastrous consequences for economies.
Prices often got high in the first place because there's a relative scarcity of those goods.
Then if you put a price control on, say, leaf lettuce, then producers are less incentivized to produce. They won't produce at a loss.
When producers stop producing, then there's even less reason for anyone to produce the item, making it more scarce, making your consumer choices more narrow & making your life worse.
Price controls can turn out to be a form of austerity.
Then there's more direct austerity - which is analogous to saying that you cannot run your air conditioner below 80 degrees in order to conserve electricity.
Well, that DIRECT austerity measure also reduces your quality of life… and it's politically unpopular. A President doesn't want to institute a direct austerity measure like electricity conservation.
So a price control has more political expediency than austerity but it can have the same drastic result - reducing your consumer choice and quality of life.
If you picked up on what Doug was saying, he said that you can save. But don't save in dollars. Saving in dollars guarantees a diminishment of your purchasing power.
My take is that saving in dollars guarantees a loss in you & your family's standard of living. So the best way to avoid a "Greater Depression" at home, is to be vigilant that…
Inflation flips money upside-down. Get out of dollars. Get into real assets & debt.
We've built a resource here to help you do exactly that. Get out of dollars, get into real assets & good debt at GREmarketplace.com
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Until next week, I'm your host, Keith Weinhold. DQYD!