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So in this article, we’re going to talk about what I think are going to be the winners and the losers in 2022, but first I want to talk to you about four things that are happening right now that you need to be watching, you need to be paying attention to if you’re going to make the right decisions on investing your hard-earned money or somebody else’s hard-earned money next year.
So let’s get right into it. So the very first thing if you aren’t already aware, the federal reserve or the central bank will be investing in 2022. Hopefully, you guys know how involved the federal reserve or the central bank has been in the bailouts that we’ve had in the past and the ones that we are currently in the middle of, and the ones we’re going to have in the future, which is where we’re going to talk about. But just for a refresher, I want to just point out a few things that the federal reserve is doing right now that you may not be aware of.
The first thing is there are purchasing assets right now so one of the reasons that the stock market is on the rise right now is because the federal reserve is investing in the stock market that’s primarily the reason it’s propping it up and it’s creating what many people think is a fake market. So that’s number one. Number two, the fed has bought billions and billions of dollars of ETFs, electronically traded funds, which are also part of the stock market and they’re going to continue that in 2022.
The Federal Reserve has also bought mortgages in the past and they’re also propping up the housing market, the commercial market, all of those kinds of things. So you guys must keep your eye on the federal reserve.
So there’s been a lot of criticism from the Fed because here’s why. If you take a look at their balance sheet, which hopefully you guys understand, tells kind of where the federal reserve has been in the past. As you can see over the years this started in 2007 but right here during this coronavirus they went from 4 trillion to over 7 trillion and that was money that was printed and that was money that was given to the people.
It was given to businesses in the form of PPP. It was all kinds of relief money but they went from four to seven trillion and there’s a lot of people that believe that this number here which is right now at about 7 trillion is going to go up over 10 because we’re not quite out of the woods yet.
So as you can imagine the federal reserve is under a lot of pressure right now and a lot of people are questioning its policies. In fact, with all the printing of all this money, are we going to see rapid inflation? Are we going to see our currency devalued?
All of those things are in the process of being discussed but here’s what the federal reserve is saying about all that. They’re basically saying that they’re defending the pedal to the metal policy and they’re not fearful of asset bubbles ahead, but that’s what everybody’s saying is be careful of all these asset bubbles.
So that’s what everyone’s concerned about. Are we in these asset bubbles right now, our asset bubbles in bitcoin, asset bubbles in the stock market, asset bubbles in real estate?
All of those are things that you have to be watching as the fed continues to pour more money into the economy to try to keep things afloat in 2022. Very very important that you keep your focus on the moves the federal reserve is doing for 2022 as you start to make your decisions for next year. So let’s move to the second point.
Interest rates will remain low through 2022. Again the Federal Reserve is in charge of the interest rates. One of their primary objectives is to manage interest rates. Okay, so there’s a lot of speculation about interest rates. Are they going to remain low or are they going to go up?
I’m here to tell you that they have to remain low in 2022 for multiple reasons. The primary reason is that Jerome Powell, the chairman of the Federal Reserve, has said so multiple times. Here’s an article that you can see where he says the Fed pledges low rates for years until inflation picks up.
The Federal Reserve’s latest economic forecast suggests that interest rates will remain zero at least through 2023. Okay, that’s good news on several fronts, for real estate specifically, but that’s why I believe that rates are going to stay low at least through 2022.
They go on to say it could last for years and by the way guys these are very recent articles that just came out so the Federal Reserve is telling everyone that rates are going to remain low for many many many years in a lot of ways. This is exactly why real estate is having the run that it’s having right now is because the federal reserve has got its federal funds rate almost down to zero. Never have I seen this before.
That means that borrowing money is going to be cheaper than ever now. We’re going to come back to this but just remember that these interest rates are going to be low through next year, so the third thing that we’re going to go over is inflation.
Now a lot of people talk about inflation. They talk about deflation. They talk about inflation, they talk about all kinds of stuff. Now inflation is this, rising prices. Deflation is prices that are going down.
There’s a lot more to it than that but that’s generally what it is. So I believe that we’re going to see a rise in inflation and here’s why on August 20th of this year the Federal Reserve came out and said, and I quote: the definition of price stability was to aim for two percent inflation and if you look at the year-over-year averages it’s been right underneath that.
Some years have been higher. For some years it’s been lower, as measured by the personal consumption expenditures price index. It describes this goal as symmetric, suggesting that equally concerned about inflation falling below or above that target okay so in the past the federal reserve has had a target of two percent.
What’s very very very interesting was in August they came up with this statement. The Fed says it will likely aim to achieve inflation moderately above two percent for some time. Okay, that’s the statement that we haven’t seen before for a long period. That suggests that the Federal Reserve is going to be a little looser about the inflation policy the federal chair Jerome Powell called the strategy a flexible form of average inflation targeting which officials are calling F8IT, which is a form of average inflation targeting.
The 2020 speech as you guys can see here, so is fairly recent.
The federal reserve is saying that inflation will rise so here’s what we know so far. We know that the federal reserve is involved very heavily. We know that they’re buying stocks. They’re buying ETFs or buying mortgages. We know that they want to keep interest rates low and we know that they want inflation to rise.
Those are three things that I want you to be clear on as we move into the next slide. So the next slide, which is important, is that unemployment will stay high through 2022, and here’s why. The virus numbers are surging right now. They’re spiking everywhere. Some are down in countries but generally, they’re up at their highest levels we’ve ever seen.
Two: the vaccines are out but there’s going to be a lag in distribution and also there’s a bunch of people that just plain don’t want to take it. Three: there are going to be continued business closures because of number one and number two.
If you go on the internet and you type in how many business closures have we seen during the pandemic or Covid, you’re going to see that we’ve already seen over a hundred thousand businesses permanently close. There are all kinds of data around this and this is going to get even worse because the businesses that used whatever money they had, maybe it’s from the government, maybe it was their reserves, maybe with their savings, just to stay open and limp along during 2020 as we continue to stay closed and we could continue to contain this virus and we continue to roll this vaccine out we’re going to see a lot more businesses close.
We’re going to see a lot more businesses file bankruptcy as we’ve already seen and I think it’ll be quite a bit worse than we saw in 2020.
The fourth thing and I think we’re going to see it quite a bit differently in 2020. here’s a great graph that I found on business closures from Fortune magazine. These are temporary business closures that are turning into permanent closures. As you guys can see the numbers are horrible. As we start to see, this was temporary and this is permanent and here we are at 160,000 right here.
So that’s where we’re trending right now.
So it doesn’t look good for the small business person and the reason why I’m bringing this up is that these are real people with real savings with real employees and real businesses and real commerce that helps keep the economy going, so this is going to continue through next year and it’s not going to be good.
The fourth thing is as we all know we’ve moved to a homebody economy. People are now home. They’re working remotely, telework, or whatever you want to call it, that’s here to stay.
Most of these CEOs, most of these business owners are not pulling a lot of these employees back and everybody’s kind of dealing with, where do I live and how do I still contribute to work.
And so businesses are reevaluating exactly how they’re going to do business remotely. It’s not going to go away and everything’s moving digital, so what that’s going to do, it’s going to have massive real estate implications.
All those people that pour out of those office buildings as an example to get lunch to get coffee to buy breakfast to grab a drink after work. All that stuff is going to hurt all of those core businesses that I mentioned right here.
So that’s just going to be another ripple effect beyond even if we reopen. All that stuff’s going to go away now. Those are all going to be displaced as we’re going to talk about in a minute. A lot of those people are moving all over the country, but for a lot of businesses, this is going to impact them very very seriously.
So right now we’re about 10 million people higher than we were at the beginning of the pandemic that is unemployed, but I think the number is significantly bigger because a lot of people got pushed down into that employed part-time category, and a lot of people that were looking or not looking. And so I think that this number is significantly less.
Because this stuff it’s a lot of workmen, thank you. So what does all this mean? That’s actually what we need to get to next.
What does all of this mean what do those four things mean to real estate, what do they mean to investing and what’s going to happen in 2022?
But I would encourage you guys to watch those four things very closely because as you start to make decisions on real estate for example and your unemployments for example are not right then that can massively affect the way you’re investing if the Federal Reserve is propping something up temporarily and you’re banking on that and you’re in an area that later falls out that’s going to be a problem for your real estate investing, so all of these things are important. So let’s just summarize what we have at the moment.
The federal reserve does not want deflation because with deflation people lose more wealth and so we have high unemployment, low-interest rates, so people will invest and we’re going to see inflation as we already talked about. Deflation is the opposite.
That’s what we had in 2008. In 2008 people’s values and their homes went down and then the home was worth less than the mortgage creating a whole another problem.
What we’re seeing now because of the Federal Reserve is that they’re injecting cash and the housing market’s going up so people are literally out of work, not paying their mortgages, and we’re seeing record increases in home prices. So the Federal Reserve does not want deflation. It wants inflation and that’s what we’re seeing right now.
The second thing is the fed raised the inflation target as you guys saw.
That’s a big indicator. Number three, prices will rise. What inflation means is that prices will rise. Number four interest rates will stay low and number five the fed will buy more in 2022 so you need to keep your eye on all of these things as you guys are investing into the next year.
So what does this mean for real estate? So let’s get into that now that we’ve got all that behind us and you understand what’s happening with the central bank.
What’s happening with the printing, what’s happening when Congress is pushing these policies that the federal reserve has to do or does do all of those things are very very important for your financial future so let’s get right into the real estate piece. The first thing is, and this might blow some of your minds, debt will be an asset and cash will be a liability.
Now, this is very different from what you probably learned when you were growing up when cash was an asset.
Debt will be the asset because here’s why. With inflation, this is what happens. Savers are losers. This is why Robert Kiyosaki says savers are losers and I’ll explain why retirees living on fixed income are going to be in big trouble. Workers on fixed income are going to be in big trouble.
Borrowers with variable rates in other words rates are going to go up as inflation goes up.
The whole economy from a general economic uncertainty is going to be a problem and exporters will be less competitive. Here’s who the winners will be: debtors on fixed payment plans. Governments with high public sector debt now notice this word debt okay debt is going to be your asset it’s going to be your friend next few years for sure owners of land and physical assets like real estate firms who can cut real wages.
Okay, we’re not going to get into wage growth on this video but for sure inflation’s gonna kill a lot of people that are living on these two and three percent wage uh increases as well.
Okay so let’s go to the next thing. This is how inflation works. If you want to take a look at a dollar, this is the purchasing power of a dollar at three percent inflation for the next 50 years. Okay, so I wanted to show you this if we’re at one dollar now that same dollar so it’s still going to be a dollar but it’s going to buy less now.
This is a long period so you don’t have to go all that way, but you just need to understand that each three-year period gets you all the way down to here.
And so that dollar, that’s why prices go up, that’s why a food’s up, that’s why all the things that you might be consuming right now you’re starting to see prices already rising. Yes, there are supply chain issues. Yes there are all kinds of other things and we can get into all the details, but the bottom line is the fed raised their target number so this is going to happen.
So if you’re saving at zero and you’re half savings, which is why I said savers are losers and your target rate is above two, maybe three percent, you’re losing the purchasing power of your hard-earned money so you need to be inflation-adjusted assets.
That’s what you need to do and real estate is one of those things so let me show you something cool that I found on the internet that you can do yourself.
So on this website RL360 as you can see here you could type in RL360. This is the impact of an inflation calculator.
So what I did for you as I typed in US dollars so you could type in any dollars you want. Savings – a hundred thousand dollars kept for 10 years at 3 percent and you could put in anything you want. This is an RL360, a great little website but here’s what it shows you.
If that money is in savings in 10 years, your dollars are worth 74,409 dollars. Okay, that’s if you just hold savings so what you want is you want this hundred thousand dollars in something that’s inflation-adjusted.
You want something like debt, believe it or not. As again cash is a liability and debt is going to be an asset, it’s going to be the opposite of what you’ve been told since you were this big. Everything that I was told since I was this big, it’s going to be the opposite, as the federal reserve continues to print money and create inflation moving forward.
And so if you don’t learn anything in this video, this is something you need to be very careful of, and that does not stick all your money in cash in the bank and hope that it grows, because it won’t be based on the fed’s admission of their targeted inflation rate.
So let’s go to the next chart. So we talked about some of the current trends in real estate. Now we know that everybody’s moving to remote work. We know that everybody’s doing telecommuting and what’s happening is they’re making decisions based on affordability, based on weather, and based on safety.
Now affordability also means property taxes, mortgage, all of that kind of stuff. So people are trying to take a look at where can I live, where do I want to live, and how much am I making? So they’re making all those decisions and that’s creating massive migration patterns.
I’ve talked a lot about this. If you guys want to get into this, I suggest you look at the US postal service, because you know how people have to contact the postal service when they move.
I would suggest you go to the DMV, the department of motor vehicles, the moving trucks, the Atlas van lines, U-haul, and North American van lines. All those things, those are all sources of tracking and kind of find out where people are going so here’s where we are right now. So this top state as of right now is the net. By the way, so it’s people moving in and the people moving out. That’s the most important thing now.
These are state numbers. They’re not city numbers and they’re not submarket numbers and they’re not urban numbers and they’re not suburban numbers. They’re just numbers for the state but if you want to dig down this stuff is there, so if you’re interested in example Texas which had a negative 3040 people an example, lost the most residents in the country.
Then you can dig down and say where you can go and take a look at the city and you’ll find that Dallas is one of those cities now. New York is second, Washington D.
C., North Carolina, California, which everybody’s talking about. But then on the positive side people are moving to New Jersey, South Carolina, Maryland, Connecticut, and Arizona as an example.
So that’s all data that you guys can dig into and you can get even more detailed. You can look at cities because what we’re finding in a lot of cases, these migration patterns, people are moving just 20, 30, 40, miles away from the city cores.
So they’re just getting out of the urban and moving to the suburbs because it’s a little bit more affordable than it is the closer that they live as an example but and this just measures how many people are moving in and out of a state.
But you can get a lot more detail and as you guys are starting to invest this is really important data because if you’re putting your own money to work or you’re raising some capital, this is really important stuff that you need to pay attention to and find out where that puck is going.
That’s what you want to be. You want to be there, you want to get where people are going, so the next things that I want to talk about are the mortgage defaults and the mortgage forbearance, which we all know about and this is both on the commercial and the residential.
What’s been easier to track is residential and if you go to the black knight as an example they’ve got really good data but we have a pretty big problem with people not being able to pay their mortgages and have gone into forbearance as we all know.
And so that problem right now according to black knight’s website is pretty high as you can see what we have at the moment is we have somewhere between three and four million people.
So this is 3.5 million people we have um that are 30 years or more past due or are in foreclosure. So those are all real numbers those are real people. They’re spread all over the place.
Another cool thing you can dig down – this is the whole country – you can dig down and say how many people are in this state and how many people are in this city because that’s where all the data comes from and attracts up to this number. So some of the bigger states are in trouble, for example, Hawaii.
So those are the kinds of things that you can check and then there are areas in Hawaii that are good and areas in Hawaii that aren’t good, but this is all really important data as you start to move around because you don’t want to invest in an area that’s still falling and potentially none of this has happened, yet these are all in the queue.
These are all part of the CARES act. These are all people that have taken advantage of not having to pay their mortgage, so you got to be very very very careful because this is coming guys, trust me.
Somebody’s going to pay this. Somebody is. Somebody – it’s either going to be the lender is going to eat it or the resident’s going to eat it or the landlord’s going to eat it or the bank’s going to eat it or somebody’s going to eat this.
Okay, this is a big number and it’s going to hit in 2022 and 2022. So you have to be very very careful as you start to navigate this and as you guys can see, as it should be no surprise, mortgage delinquencies are right now at a 20-year high.
Okay, that’s even higher than 2008 when we had all these problems, so this is a big deal, and uh it’s not talked about a lot because you know everybody’s kind of banking on the next round of stimulus and all that, so the last thing which is more along what I do is this renter disruption okay.
And we all know about this and this is a this is where we are right now so for our projects we’re doing fairly well but we’re only collected about 80 percent at the beginning of the month and a lot of people are on payment plans and we have as you guys know about 10,000 tenants.
Well, a lot of my friends are in the same category. So people are hurting right now, they don’t have work, and there’s no income coming in and they’re running out of money too so right now. As of December, there are nearly 12 million renters that will owe an average of about 58 hundred and fifty dollars in back rent and utilities by January.
So this is coming guys and so, of course, it helps residents that the eviction moratorium gets kicked into the following year 2022. At the end of the day, there are still 12 million people that owe a lot of money to a lot of people again and this will all need to work itself out next year. So these are some of the things that are happening right now that you have to keep your eye on because nobody’s talking about forbearance. Nobody’s talking about evictions.
Every once in a while you get this stuff that comes out in the media, but it’s usually negative toward the landlord, negative toward the lender.
They need to forgive it or whatever, but the real issue is that these are real people that are running behind both on their mortgages and their rent and this is all going to hit the fan in 2022 and 2022 and you need to know where it’s going to hit because it’s going to hit one way or another.
So if you like what we’ve done so far hit the like button hit the subscribe button below thank you guys so much. I got more coming at you right now so now we’re going to wrap up with the two things that I follow the most and one is residential and one is commercial and what’s going to happen on those two fronts based on all the information that I’ve given you so far.
So let’s first jump right into residential the current trend of the residential market is that in 2022, inventory is going to go up for multiple reasons. One, the vaccine’s out.
A lot of people did not want anybody to go through their house while Covid was here and the pandemic is here and so everybody pulled back in because of that.
They also pulled back in because maybe they had some disruption in their employment and so there’s a lot of people that think there’s gonna be a lot of inventory hit the market next year as people try to figure out where they’re gonna go next.
It’s gonna be another big wave in addition to that we’re going to see – all those forbearance and mortgage defaults and all that kind of stuff all unravel on their own as they do over some time. So I believe we’re going to have a massive amount of inventory next year.
It’s going to grow the supply and it’s going to flatten or even go negative in a lot of municipalities and a lot of markets.
Now some markets are going to go up and I know a lot of you out there going to go oh my god things are going up how can I never go down?
Trust me the reason it’s going up so much right now is that the inventory is so low and people are freaking out and they’re moving all over the place and they’re buying so that’s all going to change next year as the vaccine comes rolling out and as people start to figure out what is what it is they’re going to want to be and where they’re going to want to live, how financially stable they are.
Now the good news is is that this last little run we had if they sell their house they’re going to be able to pay whatever they had in the back mortgages so if they were delinquent the run-up that they’ve had in the appreciation is going to be good for them.
The problem is they have to sell to do it so that is going to also contribute to the amount of inventory that we’re going to see in 2022. So I know this is not exact but prices are going to be up and they’re going to be down depending on the markets and for those of you who want specific answers, I’m sorry I can’t give them to you.
But listen, New York is down Chicago’s down, Seattle’s down, LA’s down, San Francisco’s down. Okay, so we know that you guys know that it’s going to be based on the jobs, the remote work, and the defaults.
All that’s going to be rolled up. You need to know all the data all the specifics if you’re going to invest and you’re going to have to somebody buy something then you’re going to want to know which direction the market’s going based on all of this stuff, and every market is different. Even cities are different by sub-market.
Even streets can change, you know on one side of the street versus the other. So this is all very very detailed and sub-market driven all rolled up into one big thing. But be very careful on where prices, inventory defaults, and where all that’s heading. Because it’s going to have a massive impact on residential for 2022. Now let’s get to the commercial.
So on the commercial real estate here’s what I think the winners are going to be: industrial data centers, healthcare, cell towers, and multifamily in select markets. So obviously for those of you who don’t know, Amazon and everybody is selling things that used to sell you know in stores and people now don’t want to go to those stores and they can order whatever they want online.
They’re all looking for what’s called the last mile distribution center, you know in their particular market, so they can load it up with stuff so that you can get stuff on the same day. Data centers need I say more cloud data, cyber privacy issues, all that kind of stuff is big healthcare.
We know that’s going to be on the move because of the baby boomers.
Cell towers, obviously the connectivity and all that, and then multifamily as people fall out of residential and they fall out of some of the residential due to the forbearance and the defaults and stuff like that. We’re going to have another wave of multi-family pressure because of the renter boom that we’re going to see in the residential market, just like we did in 2008. The losers currently: hotels, regional malls, retail, office and factories, and in some cases multi-family.
If the plan was based on you know big rent growth in an area that’s currently going to get depressed, I have friends at old stuff in Seattle, Chicago, and New York, and they’re not doing so well in the multi-family. So again it’s market by market, so the question that everybody asks – okay, so what is gonna be the opportunities moving forward in 2022 then.
So here’s what I think that they’re going to be. Right now the last mile distribution I talked about – this is big guys. So this is every single supplier of whatever it is.
Let’s say you order a suit and you’re not going to go to the local store anymore because you might only have a limited selection. Now you’re going to want to order whatever you can order and you’re going to want it now because amazon’s kind of set the precedence that way.
So there’s a lot of this last mile distribution happening both on the retail side but also on the cold storage for food and all that kind of stuff.
So this is all a big big thing I think you’re going to see the redevelopment of malls, factories, and retail. So people are going to see these businesses are going to leave the non-anchored groceries as an example.
These malls, they’re already big companies, taking a look at these for redevelopment into a multi-family and they’re looking at some distribution and things like that. Even in corporate headquarters, we’re starting to see already this happened.
You’re going to see multi-family in certain growth markets where people are going and where jobs are going.
We’re already seeing, for example, Oracle moved out of California to Austin. That’s a massive, massive real estate play. Yes, it’s big news, but it’s really big for Austin, especially in the area around wherever they’re going to move. Residential we already talked about.
You’re going to see this sporadically in different growth markets, mostly in the suburbs away from urban but not entirely but urban are taking a big hit right now. The last three – affordable housing obviously. We’ve seen a massive run-up in prices.
We’ve seen a massive run-up in rents. Affordable housing is going to be a massive issue.
We have some mobile home guys on here. We’ve talked about tiny homes. We’ve talked about all that kind of stuff. People are going to be scrambling for this kind of living. That’s why RV sales are going crazy.
That’s why RV parks are going crazy. People are looking for affordability in this area. It’s going to be continued. The six things are the opportunity zones. If you guys haven’t seen this, trust me, these are areas where people are selling real estate.
Let’s say out of California, out of Seattle, Chicago, and they’re rolling their capital gains into these opportunity zones so they can save tax and it’s starting to re-energize some of these areas in this redevelopment areas and so you’re going to see that’s going to be a big deal for 2022 and 2023. The last thing is data centers, the cloud, the cyber security, the privacy.
Those are all massive. They’re going to continue to be massive. These are all good areas of the redevelopment as you start to see some of the big money is already looking at all these strategically.