As seen on

PBS
Good Morning America ABC
CBBC
CNN
FOX News
FOX Business
Home Markets Real Estate

Real Estate

Real Estate

Real estate is different than other consumer sectors of spending. It’s obviously not consumable like food or clothing. But it’s not like a durable product either, like cars and washing machines. Real estate, with the exception of natural disasters or human insanity (arson, wars, etc.), tends to last forever.

The result in net housing demand, allowing for later retirement in the future is a whole different, and more sobering, picture…

Yes, residential real estate will never be the same. It most certainly will be nothing like what we experienced into 2005.

The same logic applies to commercial real estate. It gets hit harder in downturns as businesses voluntarily abandon leases and real estate faster than households do (after all, we’re more emotionally attached to our homes!).

Commercial real estate is driven by the combination of new entrants adding to the workforce at age 20 (on average) and leaving the workforce when they retire at age 63.

It should be no surprise that prime city real estate is priced sky-high worldwide. Buyers are paying so much for commercial buildings that their rental income is just too low. This is typical for the real estate cycle, but we’re approaching the top of the roller coaster. It all comes rushing down at some point.

But real estate, especially trophy buildings in the most important cities, is still one of the best ways to make fortunes. When economies soften, it’s these buildings that stay rented – and at top rates. Weathering the storm is key, regardless if you’re a regular investor or a billion-dollar CEO managing a brand.

The trends in commercial real estate aren’t as bad as they are in the residential space because baby boomer retirements peak in 2026 while their deaths don’t peak until around 2044.

Then there’s the retail sector that will be impacted by the natural spending trends reflected in our Generational Spending Wave. Those trends, in the U.S., peaked in late 2007. Only massive QE has offset those declines and limited the effects… but that can’t continue forever.

But besides the demographic challenges the commercial sector faces, there’s another demon out for blood. Amazon, among many other Internet-retailers, are taking market share from brick-and-mortar stores. Major warehouses skip the retail level and ship direct, don’t use as much real estate space, and certainly not prime/Main Street space. Unless we have some major catastrophe that sees us return to a world with no Internet, I don’t see this trend reversing!

So, what will do well, in an aging and Internet-intensive world with less need for brick-and-mortar real estate? Affordable rental residential real estate aimed at the younger millennials and retiring baby boomers. The same goes for vacation and retirement sectors, but only after they crash in the next three years or so, and only into around 2026 or 2027.

With regards to the aging boomer population, hospitals, healthcare facilities, nursing homes, assisted-living and funeral facilities should boom.

With a smaller generation (echo boomers) following a larger generation (baby boomers) for the first time in history, we’re caught in the trap of “diers” vs. “buyers.”

Essentially, millions more people will be leaving the housing market than entering it. With sellers drastically exceeding buyers, there will be a huge housing glut. And as we learned in Economics 101, when supply outpaces demand, prices drop proportionally.

That’s why we’re looking at another massive housing market crash just ahead.

But demographics also tell us other important things about real estate. Just as the aging of baby boomers and echo boomers will cause the next housing market crash, it will have widely varying effects on other real estate categories and geographies. That will create a number of profitable opportunities for those who are savvy enough to take advantage of these little understood trends, just like those we mentioned earlier.

Keep up with the changing real estate market, and where other opportunities will present themselves in Economy & Markets!

What Boomers Will Do to Real Estate and Nursing Homes

Recently we talked about why Millennials aren’t buying a house at the same rate as their Boomer and Gen X parents. Today, let’s talk about how Boomers and Gen Xers are actually contributing to the housing shortage, and so...

Millennials Are Not Buying Homes Like Boomers Did

Andrea Riquier, my favorite commentator on the housing market, grabbed my attention again with her 2018 MarketWatch article entitled “Missing Millennial Homeownership Endangers the American Dream.” You can follow her on Twitter @ARiquier. She pointed to a report from the...

Rent to Live… Buy to Rent

Did you read Andrea Riquier’s two articles on Market Watch last year about real estate strategies? Definitely worth it! The first was “The new housing play: helping priced-out renters become long-distance landlords.” It was a strategy aimed at people living in unaffordable...

Most Expensive Home Ever Sold in U.S.

What do you think of these apples? More than a year ago I suggested that the most expensive new listing on South Central Park – Billionaire’s Row – was going to be listed at $250 million. At the time, that seemed...

The 27 Cities With a Mortgage Problem

Look at this insanity… I would never have thought this many major cities would have 11%-plus mortgages underwater… especially not at the top of a second real estate bubble. How bad will it be when we move into the next recession...

The Insanity of San Fran Starter Home Prices

Bubbles ultimately die of their own extremes, although it always helps to have a trigger like the subprime crisis in 2006. But the San Francisco area takes the cake when it come to the U.S. real-estate bubbles! (That Canadian honor...

The Falling Supply of Homes Leads to Rising Prices… and Falling Sales

Did you watch my video two Fridays ago? If not, check it out here. I explained how gold bugs are giving you dangerous advice about gold as an investment. But gold isn’t the only investment that people mistakenly make because...

Will Housing Be the First Domino to Fall?

Early this week, the market shook off Thanksgiving blues and started with a bang! Stocks bounced sharply, and Treasury yields moved up in tandem. Last week’s start was a different story. Stocks fell sharply. Treasury bonds were mostly steady; despite the sell-off...

Running Out of Affordable Homes

Bubbles are self-defeating. Their success is what eventually kills them. The same is true for cycles. Take the urbanization cycle for example… As a population urbanizes, people get wealthier. But more affluent urbanites have fewer kids and that slows future demographic growth...

Top 10 Cities Pricing the Middle Class Out of Real Estate

Right now, the American dream of owning a home is getting further and further out of reach for much of the middle class. And as this historic real estate bubble grows even larger, middle-class households all over the country are...

We Will Never Share Your Information