30
June
2021

A Gloomy Real Estate future!

After adjusting for inflation, the future of the Real Estate dream seems rather gloomy

For many, homeownership is completely out of reach, with sky-high rents and falling real income making it impossible to save for a down payment.

home for sale

Whether it's a house with a white picket fence in the suburbs or a high-rise apartment in the heart of a vibrant city, owning property is considered part of the “Big Dream” by the vast majority of families. However, for many, that dream has become a nightmare because of ever-increasing home prices and stagnant wages.

After adjusting for inflation, the future of the Real Estate dream seems rather gloomy: Median home prices increased 121% nationwide since 1960, but median household income only increased 29%. Homebuyers aren’t the only ones struggling. Median gross rent increased by 72% since the 1960s, more than twice the growth seen by adjusted incomes, making renting costlier than ever and saving for a future home difficult, and killing demand.

In 1960, two years of average income bought a house...In 2021, ten to twenty years of average income is required to buy an average house. Also, today's average house is half as big as the 1960 house. In other words: you get half so much house for your money, or the REAL COST of a house has also gone up.

A healthy price-to-income ratio is 2.6 (i.e. it would take 2.6 years of median household income to purchase the median home), but the nationwide price-to-income ratio hasn't been healthy since the late 1990s. In the 1960s, the price-to-income ratio was 2, meaning that two years of household income was enough to purchase a house.

Not only do we have an aging population but there are fewer REAL SAVINGS to buy a house. Even with ZERO interest rates, today's generation can no longer afford a home.

"Rising rents, lower real income, and increasing home prices make it harder than ever to save for a down payment and afford monthly mortgage payments."

1975 cost of living

Artificially low-interest rates and, the availability of mortgages encouraged people to buy overpriced homes they couldn't afford.

"Today people are encouraged to buy overpriced homes with money printed by the Central Banks."

In Argentina, because of the local hyperinflationary depression, mortgages are no longer available...and this continues to push real estate prices down. The Mortgage market collapsed because of the crisis and the Real Estate Market followed in sequence. Only, the visibility of the real estate crash was somewhat hidden by the hyperinflation.

Same story in Zimbabwe, and Venezuela where only the FIAT-CURRENCY-PRICE of Real Estate continues to raise when expressed in Currency but CRASHES when expressed in Real Money (Gold & Silver).

What many still not realize is, that today in the Western World, although the Fiat Prices still hover at record prices, the REAL PRICES have already started to crash. Actually, the trend reversed in 2004-05 and the Real Price of Real Estate has been crashing ever since. In a normal-historic cycle, the price will come down until the level where it started the climax or respectively 1981 and 1960.

Whereas in 2005 one could buy a property with 15 x 1 kg gold bars, today one only needs 5 x 1 kg gold bars and we expect that this figure will continue to come down until at least 1 Troy Ounce (32,1507 gr) for a single-family home.

 euro gold for 1 house 2021

As the hyperinflationary depression unfolds,  the REAL INCOME will also correct to the 1970 level where it started to rise after Nixon closed the convertibility of currencies into gold.

Average home price versus income 2021 06 01 huizenprijzen vs. netto inkomen 2020 06 22
Single Family Home price needs to come down by at least a factor of 10 to adjust to Fiat Currency Income. Single Family Home price needs to come down by at least 50% to adjust to Fiat Currency Income.

To many, it will and may not look dramatic, but the reality is that the REAL price of Real Estate and homes will severely crash over the next years. Other factors that will add to the bearish pressure are: the taxation, an inverted population pyramid (or more people selling properties than buying),  falling REAL pensions, the rising cost of living (food, utilities, medical services,...), aging Real Estate,

fiat versus real price of a house 2021 06 03 belgium House price vs. gold 2020 02 09
Treacherous is the higher Real Estate price expressed in Fiat currency Technically speaking, LEG 1 = Leg 2

Treacherous is the higher Real Estate price expressed in Fiat currency, while it has been falling since 1971 or the very day, the convertibility of CURRENCIES into Gold was lifted. This solid long-term trend is the very proof that one cannot have a prosperous economy based on FIAT MONEY.

REAL ESTATE is an extremely DANGEROUS sector to be invested in when entering any kind of depression (inflationary or deflationary) because the market dries out, selling becomes impossible and even illegal (Germany after the Weimar).  Worst case scenario, there is some kind of WAR, and your property gets bombed. (most people don't realize insurance cos don't cover this kind of risk).  Also, when you have to flee, as your house is solidly cemented to a parcel of land,  it is impossible to take your home with you.

 

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