Should I buy a house? Real Estate Housing Market crash? Inflation or deflation? Fear in the streets

Are you questioning: With the market turmoil, should you wait or buy a house now? Will housing market crash? Is there inflation or deflation coming?

You got good questions. Here I will cover them and the impact on real estate market. As we go through a period of unprecedented uncertainty, what will the economy look? I will focus on my perspective how the economy will impact main street.

I am going to break this down into near term and long term.

When I say SHORT TERM referring to 6 months to 18 months. Look at the major activities and indicators:

• Oil Price: drastic oil price change from $55 per barrel end of 2019 to negatives in April and now back in the $20’s. huge price reduction and fluctuation. Retail gas used to be in the $3 and now in the low $1. AUTO SALES: Who are buying cars? if you do some research, there are tons of cars sitting in inventory. With no one renting cars, rental companies are suffering too. Rental companies aren’t able to sell at the prices when they do.

• RETAIL INDUSTRY: department stores, restaurants, furniture stores are going into bankruptcy like Neiman Marcus, pier 1, J. Crew, just to name a few. Earth Fare, Lucky’s market, and energy sector companies: Sheridan, Bridgemark Corporation, and Brio’s (restaurants).

• UNEMPLOYMENT RATES: the unemployment claims and rates have been increasing to 16% ending in April making that 22.6 million people. Many may argue that this is only temporary due to Corona-virus shut down, but with benefits from the stimulus package, many are willingly to claim benefits than going back to work. Stores will unable to operate. Causing fear in the street, and I’m talk about main street, not wall street.

Fear will reduce many activities such as buying activities, Job losses will exacerbate the situations. In the short term, there will be a downward pressure on prices. Mortgage lenders are adding higher standards so it is hard to get loans and cash out refinance. Comparing 2008 and 2020, amount of money available for equity cash out was in the $800 billion versus $200 billion today. There is also much less foreign investment especially from the Chinese investors pumping the market. Price reduction and pressure may not be uniform across the US, places like NY and CA will get hit harder just like what we saw in the last housing bubble in 2008. To wrap up the near term, what I see is pricing deflation on big ticket items.

LONG TERM referring to 1 to 2 years. After the pricing declines, what does it mean with all the money that the government has printed and injected into our money supply? Trillions of dollars that is! In addition, the low interest rate is at or near 0%, which is at all time low EVER in the history of United States of America. Combining this to the Coronavirus lock down, which has caused the shortage in many productions of goods and services. (By the way, this is a typical definition of reducing supply and increasing demand, and we know what all that is going to cause. Think of the demand as the money that has been printed into the system that can be used to buy goods and services. The supply are the goods and services which are dramatically reduced.) This will result in very high inflation (eg. Zimbabwe, Weimar Republic, Venezuela). Mass printing has resulted in high inflation or hyperinflation. Folks, we cannot print our way to prosperity.

Back to near term, we are only seeing the beginning of short term deflation and this will not last long. When it jumps, it will be fast and high I am afraid. Home prices may drop 10% to 15% at the most as there are insufficient supply to drive for the drastic decline as people are expecting. This time around, more than 54% of Americans have more than 50% equity in their homes many will not walk away from their home as easily.

We will likely see our real wealth and buying power decrease for the reasons as I explained earlier even though the amount of money that we have has gone up over time. Because money or currency isn’t equal to wealth when there are trillions of dollars pumped in to the circulation.

3 tips for the short term:

1. Look for deals sooner than later before the prices rise.

2. Learns skills and maintain jobs if you can as we see these fluctuations in price deflation and inflation

3. Do buy the necessities and only necessities. Life-time investment, home fixtures, are good examples while prices are still relatively low.