As a parent, I was very cognizant of teaching my children certain lessons of life. Most especially was the concept of not making the same mistake over and over again.
You know the old saying “fool me once shame on you, fool me twice shame on me.”
I believe that I was successful in conveying that principal to my kids. Unfortunately, the real estate crowd can’t say the same thing.
On a daily basis, I’m besieged by radio, television, and print media to jump on board the so-called “once in a lifetime opportunity” of buying real estate.
Specifically, they’re pushing single-family homes to “rent and create an IRA stream of income for life.”
With historic low interest rates and increased rental demand, how can I go wrong?
It’s almost too good to be true.
Sadly, the same pied pipers were whistling the same tune in 2006.
The homebuilders heard that tune and started building with a vengeance.
After all, everyone has to live somewhere, why not in their own home?
t the same time, Uncle Ben Bernanke pronounced that real estate can only go up, so why worry?
We all know how that turned out as old fashioned supply and demand resulted in dramatically lower prices.
Once again, the homebuilders see the direction of the future as the March 2012 housing starts data was disappointing, but the permits for multi-apartment units exploded.
With every real estate agent pushing for buyers to become renters and homebuilders also jumping head first into rentals, the 800lb rental gorilla has definitely entered the room. The Federal Reserve has been pushing for regulators to encourage banks to not dump their shadow inventory which could further depress an already depressed market.
As an alternative, the Fed is persuading the banks to join the party by turning foreclosed homes into rentals.
Recently, the banks were indeed given the green light and will become landlords. Once again, individuals, homebuilders, and banks, in their persistent drive for profit, will repeat the same mistakes made during the housing ownership bubble.
For a while it will look good until the supply outstrips the demand, and then watch out. Already low prices will descend even lower.
Besides, it’s much easier to walk away from a rental than walking away from an owned home, especially if the guy (bank) down the street cuts rents in half.
Fool me once shame on you, fool me twice…it’s too bad that only my kids learned that lesson.
Hussman's Open Letter to the Fed; The Problem with Bubbles; Textbook Pre-Crash Bubble; Reflections on Not Chasing Bubbles; Integrity vs. Respect | Mike Shedlock