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Real estate: extreme bear market until 2088?
I can’t hide that I am presumably the biggest real estate bear in this corner of the galaxy… So I’d like to give 27 reasons why I expect a giant global real estate bear market into the 2nd half of the 21st century, ideally into approximately 2088 where many models bottom out. The first leg of the biggest real estate should last into the 2030s.
I define a total loss as a loss of 70-80% because this means that it is next to impossible to return to your original value. So one has to be prepared that during the 21st century almost all property will suffer a total loss, possibly with the only exception of some demographically very strong nations like India. Needless to say real estate is a totally local market, so a few objects may still appreciate – but this is like finding the needle in a haystack. The odds are light years away from a 50:50 set-up, somewhere between 1:10 & 1:100.
Property in rural communities should lose much less in percentage terms. Until the 2020s real estate should be viewed as a consumer good, not as an investment. Still, 5-10% of the NAV can be in agricultural property, losses should be limited in comparison.
Preliminary remarks on real estate
Real estate is the strangest of all asset classes, 7 factors:
1. transaction costs: real estate purchases are light years more expensive than every other asset class. In most countries and cases expect transaction costs of 8-10%, which is huge & on average needs years to be set off.
2. location: 3 factors matter for real estate prices: 1. location 2. location 3. location. The dominance of the micro level makes macro statements much less meaningful than in other markets, there will always be many objects that fight the trend.
3. performance: Unfortunately, official real estate indices have got very little to do with the performance of a concrete object. Statistics assume a constant object which doesn’t exist in reality – brainwashing for the real estate sheeple. Instead, the performance of a concrete object remains on average several (!) percentage points per year behind the real estate price indices. Costs are terrible: direct (taxes, repairs, insurance, property management…) & indirect (depreciation). That’s why real estate awill *never* beat real-world inflation over the long haul – if at all, it can keep up with the massaged numbers from statistical terrorists. I estimate historical performance remains a terrible 5-7% p.a. behind the equity markets.
4. irrationality: Historically real estate is mainly a consumer good & a bad investment – exactly the opposite of popular opinion. They are the most irrational of all asset classes, where the decisions are made by the reptile brain & not by the frontal lobe (rational mind). The widespread confidence into real estate has archaic roots & hardly ever withstands closer scrutiny. A massive house made of bricks is producing the illusion of safety & protection, so the financial consequences are hardly ever fully taken into consideration. So one can assume that the quality of real estate decisions is light years worse than other financial decisions.
5. tax disadvantages: In most countries you have to pay taxes on the *nominal* gains, even if you have suffered a loss in real terms. This is so much more painful for real estate investments because the average holding period is a lot longer than with other investments.
6. historic trends: The main difference between stocks and real estate is that equity bear markets are usually over after 2-3 years, while real estate bear markets last for 4-12 years at least, in the model by Martin Armstrong even 26 years (high 2007 -> low 2033).
7. mortgage purchases: It is amazing and shocking how many folks voluntarily join the Babylon debt slavery. Very few people understanding that debt is the new form of slavery.
Key factor #1: bad performance
In the past 120 years US real estate was *no* good as an investment 85% of the time. There were just 2 periods when real estate appreciated a lot (after WW2 and at the beginning of the century). These are the statistics for a country with a booming economy during a time of massive population growth, it might be worse in other countries. It is hard to find another asset class with a comparably ugly performance, even bonds are much better (but way behind stocks).
Key factor #2: bursting of last real estate bubbles
As expected, in 2013-16 the final real estate bubbles began to burst: in 2014 China, in 2015 London and Hong Kong (in free fall with losses exceeding 15% Link), in 2016 Singapore, Zurich/ Geneva, Vancouver, New Zealand.
In percentage terms the City should lose most, depending on the earth changes losses of 100.00% are realistic or likely. Depending on individual arrangements the losses might even exceed 100.00%, especially for those with mortgage loans, the by far worst choice one can make. The mortgage sheeple might experience a bad surprise if the governments adjust the principal to inflation, like in Israel in the 1980s after the hyperinflation.
Key factor #3: biggest wealth destruction
The biggest wealth destruction in the history of mankind (until 2023, partly extending into the 2030s) will totally devastate the 3 traditional asset classes (equities, bonds, real estate).
Key factor #4: biggest interest rate shock
With a perspective of 5-20 years the level of interest rates is the decisive macro factor, even more important than demography and economic trends. This is also the explanation why inflation-adjusted US real estate prices declines from the late 1940s into the 1990s, in spite of a booming economy and a massive population growth: because interest rates were rising or high. The bull market didn’t start before interest rates came down a lot in the mid-1990s. Demography only becomes the dominant factor when using a perspective of decades and generations. In late 2015 the Fed started a new tightening cycle, in the next 6 years the biggest interest shock in history is looming. The interest rate high = bonds low of our lifetime is due by the mid-2030s, until then real estate should be a terrible investment.
Key factor #5: biggest population reduction
The most populous state China begins to shrink soon because of the top of the demographic cycle by 2015, caused by the 1-child policy. Population growth is concentrated in rather exotic regions like India and Africa which are very unfavorable for investors: many wars and riots, no developed legal system and partly laws saying that foreigners can’t buy property.
However, everything suggests a decline of world population never seen before: by up to 95% to 300-500 million. The first commandment of the Georgia Guidestones is: “Maintain humanity under 500 million.” The real world population decline begins in 2021, because of a giant wave of epidemics. 7 main reasons for the biggest population decline in history:
1. demography: carved in stone
2. electrosmog: the by far strongest factor
3. earth changes: return of Nibiru?
4. wars: mainly because of the ongoing WW3
5. radioactivity: The radioactivity from Fukushima spreads more and more over the whole globe through the Pacific.
6. GMO food
7. NWO maneuvers: HAARP, Chemtrails
The chart of world population looks like a typical bubble chart: once bubbles burst the decline is much steeper than the advance. The population shrinkage will create a base vacancy rate of 5-20%, as much less space is needed to live and work. In many areas the vacancy rate might explode to 80-100%.
Key factor #6: biggest economic crash
Global GDP declines of 50-99% are predicted for the coming 20 years, which will send vacancy rate of commercial estate to all-time highs and also put tremendous pressure on the other sectors of the real estate market – especially in larger towns, less in the country. Until the 2020s and 2030s global unemployment rates explode to 30-80% (BRICTIS) or even to 50-90% (socialist bloc). That’s why Detroit with about 50% unemployment is a good model. Good houses can already be bought for a couple of thousand bucks in Detroit: 99% less than the US average of $260,000. Farmland has many advantages over real estate:
1. rather independent from the economy
2. partly negative correlation with the stock markets
3. low volatility
4. high performance
5. outside of the financial system
Key factor #7: World War 3
There is no doubt whatsoever that WW3 began in August 2015, even though it won’t climax before the early 2020s (but might stretch into the 2030s). Wars destroy most real capital, mainly property and production facilities. Especially buildings in big cities could be impaired heavily by the battles and lose their value. Small town property is somewhat better off, but far from ‘safe’.
20 other factors suggesting a real estate bear market
Apart from these 7 super-bearish factors there are 21 other very negative factors for real estate prices:
1. Our model of real estate prices: bottom in the mid-2030s
2. tax disadvantages: Many countries around the globe have started to handicap property owners a lot, much more than other investors.
3. fire sales: Real estate prices will be hit much harder by distress sales than the other asset classes. Precious metals and partly also stocks are mainly held by smart investors with deep pockets, who have a lot more reserve assets than Joe Sixpack with his house (plus debt in the worst case).
4. no manipulation: In contrast to pure paper assets like bonds & stocks there is no way to buy real estate up easily, silently & inconspicuously through futures. In manipulation times like that this is a huge drawback.
5. means of exchange: The currency system should crack in the coming 10 years, so alternatives are necessary. Property is a huge object which can’t be transported and divided like the precious metals, so it can’t be use as a currency.
6. hedging: Physical metals can be perfectly hedged over the markets, as long as the exchanges are not closed. A similar hedge is impossible with real estate.
7. inflexibility and immobility: A giant disadvantage is that they can’t be taken with you when you have to move somewhere else. In contrast, securities and precious metals can be easily sold within a business day. Selling property takes very long: months in normal times, in the 2020s rather years – if a buyer can be found at all.
8. earth changes: Natural disasters are rising a lot, thus damages by floods, earthquakes and other natural calamities are possible. These earth changes are almost impossible to predict, but could result in a total destruction of the property. Insurances either don’t cover that at all or can no longer pay out as it would bankrupt them. Real estate is hit hardest by the climate deterioration: little ice age in mid-2030s.
9. very local market: The real estate market is very heterogeneous and location is everything. The problem is that the turbulences of the coming years could produce bizarre moves that nobody is able to foresee.
10. duties: Real estate holders have a great many duties like maintenance, so there is so much less freedom than with precious metals. This is also true of farmland owners, but to a much lesser degree.
11. real estate prices synchronize (towns/ rural). The gap between high and low prices should get much smaller and partly even turn upside down. At present the top percentile of the market is 50-100x more expensive (per square meter) then the bottom percentile. This could spread could collapse to 3-5x, which will hit the standard property investment in larger towns. Because of the riots and wars people will start to leave the cities and‚head for the hills‘, which favors rural estate a lot.
12. low rental revenues: The gross returns have crashed to 1-5% in the bubble areas, so amortization takes decades and generations. If you factor in all costs (regular depreciation, taxes, maintenance costs, loss of rents, administration costs, realtor’s fees…), then you definitely arrive at a fat negative yield. Rents will collapse anyway, not just because of the economic collapse but also because of political interventions.
13. diversification: Theoretically the cluster risk of real estate can be diversified, as with every other investment. However, practically this is not true of 99% of the households/ investors, with most having their entire capital in one single object. From an investment theory this is the ultimate nightmare, so risk-adjusted performance is even worse than nominal performance
14. financial repression/ state terrorism (special taxes, forced loans, seizures): One huge disadvantage of this asset class is that the NWO plan says the crowd shall by impoverished by slaughtering the real estate sheeple. This has happened many times in the past and there is no reason why it can’t happen again.
15. losses >100%: In normal times the maximum loss is 100%, but in the end times one should be prepared for (much?) more, up to 200-300%. The pioneer was the EU defining rules for Greek bonds in 2012 that would have resulted in losses of up to 140% (!) for small investors.
16. collapse of law and order: theft, fraud, vandalism – real estate is hit hardest (broken window theory). E.g. watch Athens in Greece: the previously most noble & expensive part of the Greek capital became a center of drug-trade and prostitution during the crisis. I don’t know how much exactly prices fell but I guess by 90-99%, who wants to work or live in the middle of criminality?
17. cheaper construction methods: new construction methods will mature over the coming 10-20 years and lower average productions costs. E.g. straw-bale construction allows 10-15% lower costs, which might still go down further. Free energy will lower construction costs most: by 20-50%? This means that by and large real estate prices will fall by a similar percentage. Almost half of the energy is used for construction.
18. Satya Yuga (Golden Age): In the past 5,000 years (Kali Yuga) real estate has been only judged following ‚materialistic‘ criteria. However, in the Satya Yuga beginning in the 2030s (partly already in the 2020s) the preferences should change from scratch. E.g. geomancy, Vastu/ Feng Shui and other subtle criteria might cause massive price changes, or totally devalue older buildings.
19. higher base vacancy rate (beginning in the 2030s, maybe already in the 2020s): After the age of fossils (= next Kondratieff innovation) is over, all energy will be produced in every house in small boxes. That’s why many facilities will no longer be needed: gas stations, boiler rooms, power plants, refineries… Likely this will increase the base vacancy rate by 3-5%.
20. revolution of transportation and decay of cities: Transportation will be totally revolutionized from the 2020s and 2030s on, so that classical cities will partly cease to exist. Sometime in the 21st century it might be possible to travel to every location on the planet in a few hours (or even less?) – similar to the vimanas (flying objects) of the old scriptures (Vedas) written before the advent of the Dark Age (Kali Yuga). Instead, communes of like-minded people will arise. Under Pluto in Aquarius 2024-43 the states will lose most of their power, which is transferred to the lower (local) levels instead. Traditional property will hardly be suitable for the new living forms and thus will be demanded less. The shrinkage of the big cities will put most pressure on classic real estate objects.