Dear Reader,
We love real estate. I've been buying rental property since I was 18 years old!
From flips to cash flow, the reason I've always personally been attracted to this asset class is the size of the numbers you are dealing with.
One of the most frequent questions we get is whether or not home prices have topped out and if we should expect a big crash.
As with the stock market, it doesn't matter what should happen or why a price correction is overdue. All that matters is the driving forces behind the 7-year boom in real estate appreciation.
First off, never underestimate the stupidity of government, power of the Federal Reserve, or the greed fromour largest corporations that are essentially one with the regulators and people in power.
Real estate is local, and if you're going to invest, you need to become very familiar with the area you plan to buy in. All markets are localized, with a unique set of challenges and opportunities.
In the U.S., there has only been one true national housing crash, and that was in 2008. Otherwise, it's a rare occurrence.
The common denominators, of course, are interest rates and lending standards.
Obviously, with rates so low, a housing bubble has formed, and we are already seeing many areas plateau in price.
Is a crash imminent? We don't think so.
Outside of interest rates spiking, which we don't see happening, a more likely scenario is that the U.S. goes the way of Japan and the United Kingdom.
We predict that by 2025, the 35-, 40-, 50-, and possibly even a 100-year mortgage will be the norm.
Prior to the Great Depression, mortgages required 50% down and had terms of 5 to 7 years.
This is essentially what a free, sustainable mortgage market looked like.
However, this all changed with President Roosevelt, who, under the guise of making homes more "affordable," introduced the only lender on Earth reckless enough to put people in 3-decade loans, and thus the birth of Fannie Mae, a government-backed mortgage buyer.
They've given a half century of ever-increasing home prices and turned the everyday home buyer into an indentured servant. Once the 3-decade loan exhausted itself, the government created new "affordability" policies, like the 3% down FHA mortgage.
The dream of home ownership was exchanged to appreciation speculators over time, with permanent interest payments going to the real owners of these homes – the banks.
Rarely does anyone pay off the first home they buy. Instead, they upgrade with their earnings and sign up for what equates to 50+ years of mortgage interest.
If you think a 50-year or 100-year mortgage sounds crazy, it's already happening in the U.K. and Japan.
In 2006, at the peak of the U.S. housing bubble, interest-only loans were becoming popular for second mortgages, like home equity lines of credit. By the way, the interest-only payment comes out to just under the 100-year mortgage monthly obligation.
Here is the longer-term mortgage vs. the 30-year for $250,000 at 4%.
30-Year monthly is $1,193.54; interest over 3 decades equals $179,673.77.
50-Year monthly is $964.27; interest over 5 decades equals $328,560.
100-Year monthly is $848.99; interest over 10 decades equals $768,784.
By lowering mortgage payments, the housing boom can get its second wind, lenders can rape debt slaves for generations, and politicians can run around saying how they are helping make homes more affordable.
If you think this is crazy, keep in mind the negative interest-rate world we all live in.
This is crazy, but batsh*t crazy is the norm these days.
If you're thinking about buying a rental property, flip, or home purchase, just make sure the terms are right for you, and don't worry about the lunatics whose job it is to pump it up to infinity.
What's next for real estate is a major transformation. Policy makers will address unaffordability for millennials by extending the current 3-decade government-backed loan to at least the 50-year mark.
Best Regards,
Daniel Ameduri
President, FutureMoneyTrends.com
