First, I want to make clear that I did not say that the housing portion of the coming crash/recession/depression would be worse than 2008. I do think that some other factors will make things worse for people and markets outside of housing…and housing will also become distressed, IMHO. This is more of a long-term issue, though; possibly happening over decades.
It is not the over-supply of housing that will cause the future house price decline, IMHO, but the reduced demand — particularly of those who are willing to pay current prices. If investors/speculators begin to think that the housing market isn’t really all they thought it would be, you could see a pullback in demand between 20-50%+ in some markets. And if traditional buyers see the slowdown, they will also not feel as compelled to pay the same prices that are seen today because of the incredibly hot market (thanks, in large part, to the Federal Reserve’s interest rate policies and price-setting mechanisms which affect prices/yields of all asset classes over time…and are being coordinated with central banks around the world).
Now, in addition to this possible (likely?) reduced demand, most funds who are investing in SFH real estate have disposition plans for these assets in 5-7 years. Not only that, but many of the current RE investment funds have multi-year lock-up periods. What happens when investors in these funds decide to redeem their funds? What if this coincides with time that the funds plan to sell off these properties? What happens if interest rates are higher and investment returns on lower than had been anticipated with these funds (which is what I’ve been saying for some time)? What if the economy *still* hasn’t picked up for Joe Sixpack when all of this comes about?
And then you have the “mom and pop” investors (your example #1, and BG’s example, for instance) who might be able to earn a decent/comparable yield on Treasuries or other “safe” investments, without all the hassles of managing rentals. What if their expenses are higher than anticipated (as often happens) and rents flatten or decline? How long do you think they will want to hold onto these homes if they are losing money every month, or if they could just cut their losses and invest in easier, safer assets instead?
Another article stating that the smart money is getting out, and that returns aren’t what they thought they would be:
