In the US housing market, prices have tumbled for close to five years. Today, interest rates are at all time lows and there are tremendous deals to be had on foreclosed homes. Yet, the market is still faltering. Why?
The answer is the American consumers and the squeeze their getting from the ultra-rich and banks.
A couple of reports came out this week that highlight the plight of the American consumer.
In “Americans Tap Savings to Keep Up With Prices,” Ben Casselman reports that, “Personal income edged down 0.1% in August from July...disposable income, which strips out tax payments, fell 0.3% when adjusted for inflation. Wages also fell as businesses laid off employees and cut back worker’ hours.”
He goes on to say, “Even as their incomes declined, workers spent more—not by choice. Spending rose .02.% from July, but the entire increase was explained by higher costs, mostly of food and energy.”
When wages are stagnant—or as it now appears, declining—and prices are rising, who’s going to buy a house?
Also reported in the same article, personal saving rates are again declining as Americans are forced to use their savings to make ends meet. Last year, Americans saved 5.6% of their income. This year, they’re saving just 4.5%.
To top it off, the unemployment rate is still above 9% in the US, with many people simply falling off the radar. The unofficial rate is much higher.
So, millions don’t have jobs, and haven’t for years in some cases, and everyone else is losing money — everyone in the middle class, at least.
Without a job, who’s going to buy a house?
Another report, “House is Gone but Debt Lives On,” chronicles the alarming uptick of lenders and creditors using the contractual tool called a deficiency judgment to sue foreclosed homeowners for the difference between the loan amount and what they were able to sell the foreclosed home for.
In many cases, these former homeowners thought they were finally in the clear when years later they’re slapped with lawsuits for money they don’t have. According to the article, lenders and creditors have up to 20 years to collect these debts in most states—meaning most people who have been foreclosed on won’t be in the clear for a long time.
In the past, these types of lawsuits didn’t make sense financially. But now, with the price of homes down so much, they finally make sense for banks and creditors. And these lawsuits are starting to grow.
With former homeowners owing hundreds of thousands in debt on homes they don’t even own anymore—or even facing the possibility— Who’s going to buy a house?
The answer, of course, is those who can.
In most cases, this appears to be investors and the rich
Investors are taking advantage of the downturn to buy low-priced housing with the lowest interest rates in history and renting those houses out for profit to those who can’t afford to buy one.
The rich are taking advantage of the downturn by swapping their mansions with each other.
For those with the means and the financial literacy, now is the time to build a solid real-estate portfolio that cash flows and to lock in loans that won’t likely be around in ten years (when inflation takes off, rates will skyrocket).
The good news is that if you don’t have the means, you have time. This housing market won’t recover any time soon — and with the economy on the brink of recession, the Fed won’t be raising rates in the near future. If you don’t have the financial literacy, money, and/or partners to take advantage of the downturn as it now stands, take advantage of the time you still have to build those things and then begin building your portfolio.
My wife, Kim, started with one house in Portland, OR many decades ago. It made $20 cash flow. Today, she owns thousands of apartment units across the US and makes millions in passive income. She built her financial literacy, started small, learned from her mistakes, and is now financially free — and some.
True investing is not a get rich quick scheme. It’s a game of financial literacy and patience, taking advantage of the opportunities afforded by the market, whether up or down, to build slowly and smartly for the future.
If real estate is your game, today is the time to play.
If you’re ready to start playing the game of real estate investing, Rich Dad offers many classes and coaching to increase your financial literacy.
For more information, check out our free community here, recent blogs like “A Word to Those With Money… and Without” and our coaching and education services here.