Q: Corey, what is the effect of stagflation on housing demand?
A: Thank you for your question. Demand is connected to supply and price. Stagflation is a combination of economic stagnation and price inflation, both of which place downward pressure on demand. Housing demand therefore is very strongly affected negatively by stagflation. Stagflation destroys demand for housing. The results is that prices go up while the number of buyers goes down. Home values and rents increase while fewer people can afford them. More money circulates, which fools some people into believing that they have the same or more money, while their purchasing power actually decreases. For real estate, this means fewer transactions, larger dollar amount, yet less real compensation for real estate professionals and investors, and less real investment in the real estate sector. The silver lining in this cloud benefits real estate companies and investors who already have more assets, those who best implement newer technologies and those who are in a position to take advantage of other major changes in the economy, including those with highly trained, efficient teamwork and workflow systems. As the worst overall economic situation, stagflation fools the general public by flooding the system with more money, yet providing even less purchasing power. Stagflation tends to initially benefit the government and the wealthy while taking away from the middle class.
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REAL ESTATE NEWS (Los Angeles, CA) — We’re right in the middle of a stagflating economic cycle, featuring stagflation of real estate and most other markets. It’s a time of panic and depression for some, yet a time of mega opportunities for others.
There’s a big, gaping hole in the Fed’s theory of inflation — incomes are falling at a record 10.9% rate.
The most distressing thing about Thursday’s report on U.S. gross domestic product for the first quarter wasn’t that the first line of the first table showed that real GDP fell at a 1.4% annual rate. It was the played-down news item on line 34, which revealed that real disposable incomes fell for a fourth straight quarter.
Incomes may be the least appreciated factor in driving economic growth, because everything starts there. Over the last year, the purchasing power of after-tax household incomes dropped by $2.2 trillion in 2021 dollars. That’s a whopping 10.9% decline, an historic drop, by far the largest on record.
Already, we can see signs that even the promise of higher interest rates is reducing demand for home purchases, particularly in the suburbs. Many people don’t realize that raising interest rates and historic crash markets will have unintended consequences, such as destabilizing banks, weakening other sectors, and potentially causing the federal government to reveal that Uncle Sam is broke and can’t pay his bills.
The Fed has a real problem. Most consumer spending is not that sensitive to Fed manipulation of interest rates, and neither is business investment, but the financial markets are very sensitive to interest rates. The Fed will likely keep hiking interest rates, only to find that the only thing they’ve accomplished is a bear market. History shows that the Fed must raise interest rates enough to damage the job market and damage demand, with little chase for a soft landing. Economists don’t necessarily agree the mainstream news that “too much demand demand” is the issue. Thus, the Fed might be making a big mistake by slowing demand.
We’re all acutely aware of supply shortages by now. What’s causing them? Some believe that it starts with supply shortages — but what causes supply shortages? Virus hysteria, lockdowns and government interference, along with inflation, government over-spending and war, are some of the preventable causes of supply shortages.
Mainstream economists love to make fun of far-left liberal lunatics who put the blame on profit-maximizing companies. Corporations are required by law to be greedy. They’re obligated to maximize profits a fiduciary responsibility to shareholders. This also requires corporations to be opportunistic, and to increase prices when there are shortages.
On a big side note, corporate profits are at levels well beyond what we have previously seen, and they are expected to keep growing. Much wealth has moved from the middle class to big tech companies.
The prospect for stagflation, low growth with high inflation, is real — and continues to be much greater than most realize due to continued overall money printing, over-spending and business interference by government. Some incorrect say that inflation can be alleviated by increasing supply with more domestic investment. This incorrectly infers to some that the government must inject money. That’s the wrong idea. The government must stop interfering with business, and the government musts stop injecting money where it does not belong. Private investors invest money just fine when they are not being unduly limited by government or other factors.
Buy the dip?
Recall the great selloffs of 2000 and 2007. They saw dips of 49% to 56%. Anyone timing those rallies correctly could have made a lot of money. Most people get timing backwards, which reminds us that the winners are the few who get in front of the cycles, just like a champion surfer propels himself directly in front of the wave, not behind it.
Stagflation is not coming. It’s already here. Communist China’s downfall is also already here. China is today collapsing under the weight of the biggest real estate crash in the history of the world. That’s precisely why the dictator has locked down more than 26 million Chinese citizens, and has implemented the fraudulent Zero Covid policy, along with the Great Iron Curtain of China. More than one billion Chinese citizens are now imprisoned, unable to leave their own country. To a certain extent, compared to China’s last 30 years of great leap, China is doomed. Likewise, the dollar is doomed. Economic stagnation and price inflation are here, and will be getting worse before they get better.
With tremendous inflationary pressures caused by too many years of radical low interest rates and extreme federal spending, we must have the right strategies in place ahead of time to protect and enhance our finances:
Real estate remains one of the very best strategies to defend and profit from stagflation because real estate can be used to generate more income, and real estate goes up in price directly from inflation. Other strategies for to protect and profit from stagflation include: Generating additional streams of income; gold, commodities, cryptocurrencies and other blockchain assets such as NFTs.
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