Real Estate To Follow The Oil Market

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In many posts, I surmised that we are going to see a radical change in the real estate market going forward.

Consider this scenario:

At some point, we are going to see a housing collapse. This is the natural cycle of housing. This market historically goes through long bull markets and, relatively speaking, bear markets.

Typically, when the market crashes, it takes a few years to come back. There is a clearing out period that has to occur. Prices pull back while debt is reduced. It is a painful process for the market to go through. It is often accompanied by home builders being caught off guard when the market turns.

After a few years of cleaning up the market, things can start to turn around. Prices eventually get to the point as well as demographic factors can some into play. All of this starts the process to improve demand.

Nothing here is any great secret. However, what if, right around the time things are to turn, they do not?

How could this happen?

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Remember $140 a barrel oil? Back then, there were projections that oil could reach $300 by many of the analysts that cover the market. Why did they believe this?

Simply they felt that we were headed for peak oil. Back then, it meant that there was not going to be enough oil produced to supply the demand. Of course, this was before fracking totally altered the market by pulling more oil out of the ground. We also saw the march forward into renewable energy.

All of this changed even what the belief of peak oil is. Today, that means that the demand is going to drop at some point.

Could his happen to housing?

It sounds absurd but, then again, the idea of oil never getting back to the peak price was absurd. Even after this recent run up, oil is still more than half of the peak. In other words, there is no way, short a major war in the Mid-East will ever see $140 oil again.

So what could cause real estate to follow oil?

The idea is that we are seeing a lot of technological development in the real estate sector. Robotics, AI, 3-D printing, and the material sciences are all being actively pursued to produce more for less. The goal is to spit out more product for less money while reducing waste.

Today, we are in the primitive phase of this. However, if the housing market continues on the same path for another year, give or take, and then have a few years where things are down, we might see the bounce back thwarted.

We need to keep in mind that the artificial urban real estate bubble is likely over. What is this? It is the concept that real estate in urban areas were pushed up due to the monopoly those areas had on good jobs. The work-from-home movement is serious and likely to grow as automation grows. In other words, we are going to see less companies having people in the office.

The obvious impact this is having is on real estate. If people can work from anywhere, they are, in many instances, going to opt for the areas that are less expensive to live.

We have another factor to consider in all this. Smart cities are going to be a part of our future. The belief is this will penetrate our present structures as well as cities.

However, this could be a mistake in thinking. It is far easier to build something from scratch in this area that it is to add to existing structures. This is only compounded if, due to some of the technologies just mentioned, the cost of construction is seriously reduced.

Thus we could see new cities constructed in more rural arenas, where there is space, that are smart from the start as well as orders of magnitude less.

It seems like an outrageous idea right now but, again, that is how people looked at oil 12-13 years ago. Yet, due to technology, things changed very quickly.

Judging by the timing, if the bottom in the next real estate pullback is around 2026 or 2027, things could get really dicey. By that time, we could see a big adjustment in the employment market as well as the technology associated with real estate. It is obvious nothing is operating in a vacuum.

Another factor to keep in mind, around that same time, it is estimated that VR will start to be entering mass adoption. The different factors could really alter how people think about paying for scenic views overlooking Central Park, the ocean, or mountains.

All of this come combine to really make like tough for those looking for a return to normal after the next real estate collapse.

What are your thoughts? Let me know in the comment section.


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It really depends as there are alot of factors that go into the housing market. Definitely once baby boomers start leaving this rock we will see a large supply flood the market but is it able to he propt up by immigration and people switching cities?

The biggest impact is people leaving cities for regional areas to seek safety from COVID. this has caused a housing slump in the rental market in Melbourne dropping from average price of $450 per week to $370 per week.

Again those in power alter things force people back into cities to over inflate prices.

The battle between the generations rages on.

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But Melbourne is seeing house price growth in the suburbs too right? But I agree on one thing, Sydney and Melbourne have both had solid population growth year on year. I can't see that happening for the next few years particularly whilst borders are still shut..so that's got to impact demand in the near term, just now seems like interest rates are offsetting this impact but they'll eventually go back up..

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One of the largest demographics to immigrate to Australia were from the Subcontinent which was pushing house prices up in western suburbs of Melbourne and Sydney.

With boarder closure this will definitely slow the housing boom and demand.

English and US also top immigration but I doubt anyone has gone anywhere over the past year and plans to do so will be limited. This will have a significant impact on housing.

What we are seeing and I think will occur is inner city people selling and moving further out for a better quality of life. Apartment living significantly impacted many people's mental health as housing was too small.

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I think we have a more harder problem for the baby boomers and its the retirement crisis. More and more of them are starting to qualify for social security and that money has to be made up somewhere. I think housing is an easy way for the government to tax so those are probably going up.

Also when the baby boomers start dying, I don't think it would bode well for their descendants. The reason why? The removal of the step-up taxes and the way they are destroying any way of getting generational wealth. I foresee that their descendants will be more likely to have to sell the house because they will not have the funds to get it passed down legally. And of course the rich will be the ones to pick up the housing.

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Oh wow that's definitely a different process than Australia, there was talk of a Death Tax I oppose it. A death tax only impacts current generations as previous generations handed wealth in the form of housing to their next generation. An opportunity that shouldn't be robbed from current generations. It will only seek to retain wealth at the top end and erode it from the bottom preventing more people moving up.

Family dynasties built on housing 200+ years ago have them all locked up in trust funds so are exempt from the tax but bring in vast amounts of income.

In Australia baby boomers have $2000 - $25,000 houses that are now worth $800k - $1.2m their retirement is safe. Just need to down size or draw on that equity.

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How they handle the taxation problem is certainly a factor in this. However, the Boomers, while starting to die already, are going to be around awhile. The youngest of them are just turning 57 this year (the oldest being 75). So yes the demographic issue is going to come into play.

However, that is a bit further down the road if I had to guess. It will be ongoing but not en masse. I see the technology side of things creating a bigger disruption since that can happen within the next 5 years or so.

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Immigration changes a lot of things and countries that have a steady flow of immigration will stand up a lot better to those that do not.

Japan, Germany, and Spain are three countries where they dont have a ton of immigration historically. They are also facing declining populations. This could be a factor.

China is also looking like it might have peaked. Some believe they will have a population decline in 2020, first time since 1949. That is going to really set that country back if the decline is starting.

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In Australia we think we are full lol people are always complaining about immigration they think we have no space but it's more fear of more people in less of the economic pie for them which is actually the opposite

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I used to think as you do on housing that city prices will plummet and rural prices will increase as people work from home more. Problem is it's not playing out like that where I live in Sydney, it's seen the biggest growth in house prices since the 80s. I put this down to record low interest rates, which was part of the economic policy response to covid.

I am also starting to see companies now require their staff to come into the office as Sydney has been covid safe for a while, I thought companies will pivot to the new way of working, but that's not happening either, sighting collaboration being just as important as individual efficiency. So on the balance looks like we are going down the path of what the world looked like in 2019 which means city real estate continues to grow as demand increases.

Not sure how I feel about that, but I'm wondering if Sydney is the leading indicator for other cities around the world or it becomes the outlier and other cities learn and adapt and change. Perhaps other cities have been through more disruption so this makes change easier in the long run...

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Be careful of looking at the worldview based upon one city. There could be factors in there such as immigration.

In the US, we see the exact opposite. The major cities are seeing people fleeing. They will try to get people back I am sure but not until their cities are in shambles.

Plus, keep in mind there is a lot of disruption so those companies that are calling people back might find themselves in a rough situation going forward.

There are a lot of moving parts to all of this and aging populations also have to be considered.

Add it all up and it leads to a completely new concept of what things will look like by the end of the decade.

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The FED and pandemic has distorted the housing market that I am not sure what to make of it. To your point that real estate will soon need to fall the reality is it already has in some parts of the country while other parts are thriving. For instance heavily dense areas like Chicago have condos that takes months to sell and below asking, while in suburban houses are being sold up to 50% above asking price and there are multiple offers. Not sure this can be sustained but we are into a year since the pandemic and I continue to see these wide market spreads. Just crazy.

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When there is manipulation in the market, it is hard to figure out what is going on. There are a lot of factors such as forebearance that are altering the landscape. This is something we cannot overlook.

You are right about the exodus from the cities. NY, SF, Chicago, and LA all are seeing massive moves out. The people are heading to areas outside the cities (if they dont leave the states altogether).

How this all unfolds exactly, we do not know. What we do know is markets eventually turn in the opposite direction. Since the overall trend is up (and for a while), sooner or later it turns down.

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Personally I don't think this is sustainable. Why? Because wages are not going up so the only reason why prices are going up is because lack of demand in the real estate market. So this means that the current prices are only going up due to scarcity.

If 3D printing takes off, we can see the scarcity drop and prices will revert. The only people buying now are those with really high credit scores and plenty of wealth. If this keeps going and I am wrong then houses would only be owned by the super wealthy and most people would be forced to rent from the rich. I don't foresee it going well because it would also mean the wealth disparity would continue to increase.

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The Millennials seem to be getting into the game, much to my surprise. That could sustain things for a while because there are a ton of them.

However, there are also a lot of Boomers who are looking to downside, rightsize, dying off, or going to be moving into assisted living. Does that compensate for the Millennials? Hard to tell.

It does seem to be the Millennials are not enamored with the McMansions.

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I think the reason why they are going after oil is because of the volatility. It's probably due to the people making huge gains and others joining in on the FOMO. I tend to see some people promote those 3x SHORT and LONG oil ETFs.

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I've long thought property in the UK is overvalued - what's kept the prices up is cheap debt, and they bounced pretty quickly after that 2008 (I think it was) crash).

Region and locality make such a difference though - London and the South East of the UK are in for a crash sometime I think, maybe not so much the rest of the country.

My strategy for buying a property (now rented) was simple - buy in a nice area of a nice city with undervalued houses miles away from London. The price of that will hold up pretty well.

What I don't see going down in price is good quality land - the elite seam to be buying that up hand over fist.

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What I don't see going down in price is good quality land - the elite seam to be buying that up hand over fist.

That could be true. But what is quality land. With massive shifts that we potentially face, where do people end up? How much does VR and spending more time online matter? These are things we will not know until the end of the decade.

It is a very interesting dynamic taking place.

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I said it before, valuable land will continue to remain valuable ( outside of natural catastrophes ) we might tokenize it or whatever but the overall value of a nice piece of land in a nice area will only go up in time. Sure there will be dips in the market but the trend will stay the same. What you build on it might become cheaper but I'm not sure that will happen too quickly

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I said it before, valuable land will continue to remain valuable...

History has proven this to be false. There were many times in real estate markets where land was once valuable is now worthless.

Plus if you believe that it is driven by supply and demand, then the supply could be increasing a great deal. Look at what happens if some of the changed in agriculture, ranching, autonomous driving, and shopping to take place. Consider all the land for things such as shopping malls, parking lots, and entire retail sectors.

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A nice piece of land in the middle of a cute village or a prospering city was valuable 100 years ago and it's valuable now even if it's an old ruin on it. Repurposing land is expensive. Also in Europe malls are doing great, where I live they are always full even in the pandemic not to mention before the pandemic.

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I don't know how quickly the disruption will come to real estate, although this pandemic accelerated disruptions in many fields, but the oil industry won't go away so easily. They are present in plastics, rubber and asphalt. Also used to produce fuel for airplanes and ships. So it's not just cars.

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That is true but do you think the price of oil will ever get back to $140 a barrel?

I do not think that is possible. We are still less than half of that and the price of oil skyrocketed over the last year.

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Hard to say, this is another highly manipulated market through OPEC and organizations like that which can decide to lower or increase production.

$140 is very high though. Improbable to ever get there again, because nothing from what we know so far would support such a trend.

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And considering the massive run up and what they had to do to get there, from this point it is more than a double. I say it is completely impossible especially with the global economy being crap overall.

There will come a point where the push higher hits a wall and people change their behavior. Even a 5% hit to oil is a big deal.

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This housing market is definitely interesting. My wife and I are toying around with the idea of moving. While we know we could sell our house for a pretty penny rather quickly, finding a new house is another story. We thought about building, but land is scarce and the costs are just as high. Likely we will wait for things to die down (if it does) and make the move then. Hopefully by that time we will have the current house paid off thanks to crypto.

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You make bank in that situation by selling now at the high point, and renting until the market crashes. When that does, you can buy on the cheap. Depending upon the area, you might save 30% or more.

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Yeah, that is a good point. I don't like the idea of renting though. It has actually been pretty hard to find those types of places right now too. Especially with enough room for me to store my travel trailer.

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Right now new construction prices are insane, mostly due to a shortage in both lumbar and labor. Everyone built more last year, and same for this year. Contractors are already pushed out to Sep for smaller jobs, and lumber prices are up 100-200%. This is pushing existing house prices way up, then again, I am in a non urban area where the population is growing.

But you nailed it with with the remodel costing more than new construction, unfortunately the cost of land has also been climbing quickly.

I expect several bubbles to pop, but honestly think it is going to be while before it gets here. If things can manage to open/stay open people are going to spend!!!

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People are thinking and living differently these days and their goals have changed as well from what they once saw as have to haves. Many more people are working from home so being in a commute area is not a priority. Things have changed and everything has to change with it. Look what Dubai did when they realised their precious oil was running out so this is bound to happen. Housing should be affordable and not have to take one a lifetime to pay off.

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I think land will always appreciate over time. Of course there will be some price crashes and recoveries in the timeline but land will always appreciate only because it's a finite commodity and the human population is still growing (despite a few countries with negative birth rates). People are living longer too so that has to be factored in.

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