Real Estate Market Has Multiple Personality Disorder? | Episode #301

Self Directed Investor Talk: Alternative Asset Investing through Self-Directed IRA's & Solo 401k's

The housing market is showing signs of multiple personality disorder... the two things that could bring real estate to it’s knees near-term… and Facebook lays an egg and gets scrambled on Wall Street. I’m Bryan Ellis… this is Episode #301 of Self-Directed Investor Talk.

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Hello, Self-Directed Investor Nation… a lot to get to today, after a bit of a hiatus. Today’s show page is SDITalk.com/301, so let’s jump right in, after a quick word from our sponsor, the Self-Directed Investor Academy.

Have you ever noticed that there’s just not much in the way of really great training material out there where self-directed IRA’s and solo 401(k)’s are concerned? Oh sure… all of the IRA companies provide “education”… but their end is clearly so you’ll give them your business. And there are a few books written by attorneys using the native language of attorneys which is a strange dialect of Latin known as “YesButProbablyNo”… but if you’re an intelligent person who just wants the hard truth about how to use self-directed retirement accounts while squeezing every penny of value out of them you can… even when that may not be in the best interest of your IRA company… well, SDI Academy is for you. SDI Academy is a private membership group that produces video-based Wealth Guides about the exact topics that self-directed IRA and 401(k) owners need to understand… totally free of the murky babble you see on the internet. I think you’ll particularly enjoy their trainings on how to pick the right self-directed retirement account for you and how to pick the best self-directed IRA company for you… because the results you’ll end up with are probably VERY DIFFERENT than what you’d expect… and so, you’ll really get TREMENDOUS VALUE. For a limited time, listeners to SDI Talk can get a FREE 3-day membership to the already-inexpensive but inordinately valuable SDI Academy by visiting SDITalk.com/academy. That’s SDITalk.com/academy.

Ok people… we all know that the overwhelming top asset class choice among self-directed retirement account owners is real estate, so what I’ve got to share with you will be quite directly relevant for a very large swath of you… say, 100% of you! Hehehehe.

This past week, some new economic numbers came out that suggest the housing market is slowing down… the evidence cited by sources like the very entertaining but not always accurate CNBC informs us the reason for this is a slowdown in boiling-hot markets like L.A. and Denver. For some reason I’m not entirely sure of, I’ve linked to the cutesy video CNBC made about this over at SDITalk.com/301.

https://www.cnbc.com/video/2018/07/26/housing-market-slows-down-real-estate-housing.html

But this very morning, July 30, 2018, the National Association of Realtors reported that pending home sales rose more than expected after a relatively soft selling season so far this year. Conflicting news, it would seem.

Not really. There’s more to it below the surface. And I, your humble host, will pull back the curtains for you now.

What we have right now, folks, is a situation where real in many of those hot markets, real estate prices are still increasing, but two other statistics have changed: The rate of increase is less than it has been in years – like in Dallas, Texas – and the number of home actually being sold is falling off too, like in Southern California, where CoreLogic tells us that there were SUBSTANTIALLY fewer home sales of all types have sold this year versus last… as in, a whopping 11.8% fewer home sales this year versus last.

So it’s strange… you’ve got rising prices, but decreased activity.

Now I could totally go into geek mode on you with this stuff, but I’ll tell you what I think is happening from a very practical perspective:

What we have is a real estate market that has boomed and boomed and boomed such that it looks like the mortgage meltdown of 2008 never happened at all. That’s only 10 years ago now… and practically NOBODY is sitting on a real estate loss anymore, if they just held on.

Do you know what you’re NOT hearing much about these days, that was a super popular topic back then? Foreclosure filing statistics. I’ll tell you why: There’s almost no bad news there. Foreclosures have tanked practically nationwide. That’s a very good thing.

So what’s going on here with this strange mix of positive and negative data? Everyone has a theory, including me, but let’s look at what we actually KNOW to be true:

The U.S. economy is BOOMING. By any and every reasonable standard, the U.S. economy is in better condition now than at any time in the last 10 years… and maybe longer. It’s eerily… well, quite positively, actually, reminiscent of the 1980’s from about 83 onward… the economy was just clicking on all cylinders… and the same is happening now. Unemployment is lower than it’s been since 2000… GDP is booming… wage growth was higher last month than it’s been all year so far… the fact is, it’s just hard to find any objectively negative indicators about the economy right now.

So what’s going to happen next with housing prices? You people who’ve listened to me for a long time know that I don’t claim to be a prognosticator, and that has not changed. But just from a simple logical point of view, here’s what I expect:

I expect that there will be continued slowing in the rate of appreciation in the super-hot markets, but I don’t believe we’re facing any sort of impending real estate collapse. The fundamentals of the economy are simply too strong for that right now, and there are a number of leading indicators suggesting that it will boom still more.

That said, there are two big potential headwinds to keep an eye on for those of you who may be in the market to unload some of your property to finance retirement or other expenses.

The first headwind is rising interest rates. Interest rates are already on the rise and will likely continue to do so, as is to be expected in a rapidly expanding economy. The thing to watch is whether the Fed goes nuts with this. In recent decades, the Fed has been as much a political entity as an economic one… and that’s NEVER good for the economy. Right now, that tendency appears to be still reasonably in check.

The second potential headwind is the midterm Congressional elections of 2018. Set aside your political biases and beliefs for just a moment, and let’s make some rational predictions here.

What we know, without a doubt, is that the stock market tends to be a leading indicator of the broader economy. We also know that when President Trump was elected in 2016, from the very next day onward for a very long time, the market boomed upwards with a ferocity and consistency that was absolutely breathtaking, which means that the market believed… even though nobody seemed to want to admit it… that they WANTED Trump policies for the good of the economy.

So fast forward to the election to happen in November of this year. Should the Democrats retake the House of Representatives, you can be certain that Congress will instantly slam the door shut on Trump’s economic objectives. There will be a number of things he can continue to do independently, but to effect real change, he needs Congress. So if the Democrats retake Congress, the Trump boom in the economy will likely stagnate… and I bet the stock market will start to bleed consistently.

What I expect, overall, is more of a plateau in real estate values rather than a hard decline. In a weaker economy, sure… you might predict a bit of a collapse. But a weak economy is not what we have right now. It’s strong, and arguably getting much stronger.

What’s the prescription? Same as always: With your real estate investments, focus on cash flow. Cash flow, cash flow, cash flow. Strong cash flow makes it wholly unnecessary for you to focus much on flighty valuations in real estate or stocks or anything else. Enough cash flow from your investments, and simply nothing else matters. Cash flow is king.

And I can’t wrap up today without mentioning the absolute slaughter of Facebook stock last week… a meltdown that slashed $100 BILLION of value from Facebook. That’s never happened before in the history of the stock market that a company has taking such a quick market cap slashing of that degree.

I bring this up for two reasons:

First, for any of you who remain focused on investing your money in Wall Street, you should take the time to learn about stock options as a way to hedge your risk. You buy insurance for your real estate… I think it’s a bit foolish not to do the same for your investments if it’s simple and economical to do that… and that’s what stock options can do for you.

Second… the Facebook debacle reminds me of one of the reasons it’s so wonderful to invest in non-Wall Street assets… and that is that with a bit of effort, you can actually buy assets at a discount versus their current value… and thereby build in a strong cushion against loss. You can’t do that with Facebook. As I look right now, Facebook is trading at about $170 per share. That being true, there’s no way you’re going to be able to buy those shares at a huge discount versus their current price. But in real estate, for example, it happens ALL THE TIME that you can buy real estate far below it’s market value. That’s a huge difference… a huge reason to seriously look at pushing more and more of your assets AWAY from Wall Street and into assets you actually control and understand yourself.

That is all for today, my friends… I’ll be back with you tomorrow and will tell you something I’m observing in that industry known as “turnkey rental properties”… this is a big deal… and NOBODY is talking about it… except for me, tomorrow, on this very show

I am, of course, Bryan Ellis. This is Self-Directed Investor Talk, the biggest, fastest-growing self-directed investor podcast in America.

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Self-Directed Investor Talk is a production of the Self-Directed Investor Society. This content is not intended to be advisory in nature and is not offered with the intention of providing legal, tax or other licensed professional guidance to any listener… be sure to see your own licensed advisors for that type of advice. This broadcast is copyright 2018 and is used under license from the Self-Directed Investor Society.

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