gfp: In the past Real Estate has always been a great storehouse of value. In these extraordinary times that may not be the case going forward. Now, having a "bug out" get-a-way would certainly be a valuable thing to have right now. And that probably won't change. Forever. And productive farm land with consistent water availability, either from rain or irrigation, would also be valuable to have. It would give you the piece of mind knowing that you would probably never starve. And even if only held for investment farm land is sure to retain value. Commodity prices, including food prices, are going to rise in response to inflation. That makes the productive land that is needed to produce that valuable commodity will also remain valuable.
Residential real estate, however, is a different thing in my view. I think if I had residential rental real estate it would depend on where it was and whether it was owned free and clear...and what my time horizon was. All residential real estate will suffer price pressures as interest inevitably rise. Few purhasers pay for real estate in cash. They borrow. Distressed banks will be stricter with their lending in the future. Interest rates are going to be higher. A buyer can afford much less house with interest rates at 6% or 8% than they can when rates are artificially low like now. The artificially low rates have spawned a real estate bubble AGAIN. It might not be as bad as the equity bubble or the bond bubble, but it is still a problem if your time horizon is less than 5 or even 10 years.
A younger co-worker asked me about buying a house right now. I asked him if he and his wife planned to stay in Austin and in the house for at least 10 years. He said "yes". I told him what was likely to happen. They would be underwater for a period of time. But by locking up an interest rate just over 3% it was probably the last chance to get in at such a low rate. As long as the mortgage didn't exceed 1/4 of their take home pay I told him to go for it. But for anyone else with a house currently I think prices will drop in the near future. Especially larger homes. As inflation diminishes the value of our work the price of things like electricity and natural gas are going to rise. Furthermore it is the areas that enjoyed the more appreciation that will suffer the most depreciation in the next 10 years. Urban areas are going to become less and less attractive, due to increasing crime and increasing taxes burdens. And more people are experiencing the benfits of working remotely. I expect that to become much more popular in the future. If a company can have half it's workforce supporting the main office from home that is a much smaller footprint to have to rent or build for your business. My company for example, one of the larger hospital corporations in the country, now has about 110 Pharmacists working from home just in Texas alone. And we earn the right to do it by demonstrating increased productivity.
I'll end this commentary with the 2nd dominant reason I'm down on residential real estate. GOVERNMENT. If we get future government dominated by the Occasional Cortex's of the world then God help us. Ideas like nationwide rent controls, etc. would make residential rental real estate an albatros to own. Even if we don't get an outright socialist government we are in an era where state and local governments are drowning in debt and pension promises they can't afford. They will be increasingly relying on real estte taxes to fund everything. Raising income taxes has proven to be counter productive because it gives incentives to the middle and upper middle class to move to a less taxing locale. Texas and Flroida aren't growing so fast becasue of the unbearable summers. It's the absence of an Income Tax. When real etste taxes go up it makes it HARDER for owners to sell and move away. New buyers balk at the tax bite they are going to be assuming. peter Schiff talks about this because he owns a home in Connecticut for his summers. He admits to being woefully underwater in that home. And he says that state is full of formerly expensive homes that have been on the market for years, with no buyers. Prices have dropped by 1/3 and still no buyers. Because the houses come with a $35 K or $40 K Tax bite yearly. Not enough buyers can overcome that in theior budget. And to a certain degree this is going to be commonplace in any larger metropolitan area. I would not own a home in Chicago (my birth place) if the munchkin Mayor gave me a free house. I would not want to pay the taxes that come with the house. I pay about $7k in property taxes on my house in Austin. But I have no income tax in Texas. My current house, dropped onto a lot in Chicago would give me a property tax bill closer to $20 K, and I would have an income tax to boot.
So as an investment....productive farm land would be OK. A bug out shelter would be valuable to have. But any residential real estate, rental or not, is probably going to be a poor investment for the forseeable future. And highly illiquid.
AI
