August 29, 2014
Property Managers Put Clients on “Bubble Alert” for Fiscal Planning
Posted: 28 Aug 2014 08:00 AM PDT
The U.S. economy has come a long way from the frightening fiscal collapse that happened at the end of the Bush administration in 2008. The Obama administration inherited the worst economic crisis since the Great Depression.
The Federal Reserve has been managing America’s monetary policies since 1913. Once former Fed Chairman Ben Bernanke saw the dire realities facing the financial fabric of the country in the summer of that fateful year he and the Federal Open Market Committee (FOMC) pulled out all stops.
Quantitative Easing, massive amounts of bond buying and the now famous “Zero Interest Rate Policy” (ZIRP) quickly were implemented to save the day. That led to the stock market tripling in value over the past 6 years and a number of U.S. real estate markets going from cold to hot in the same time period.
Hundreds of thousands of “underwater” or foreclosed housing properties have been sold to investment syndicates who quickly converted them to rentals. This helped create not only a residential real estate housing bubble but also a rental price bubble.
To help inflate this bubble private equity firms joined with big banks to bundle the mortgages on these rental homes into a new financial product known as “rental-backed securities,” reminiscent of the mortgage-backed securities that crashed the economy in 2007 and 2008.
This situation is beginning to make a number of investors and analysts very nervous. I’m one who are sounding an early warning signal, but I’m not the only one.
Dan Barnabic, the author of “The Condo Bible for Americans, Everything you must know before and after buying a condo”, has been writing about this new bubble trouble in a number of publications.
As recently as August 18 stories with titles like “Consumer Advocate Barnabic: Almost the Entire U.S. economy is in a Bubble” have been written. The contents of the articles aren’t scare tactics but rather clarion calls for all of us to keep our minds wide open to what’s going down.
“The stars seem to be aligned for the bubble to burst within almost all sectors of the economy. This may spell a serious hardship for an average American,” Barnabic writes in an article for MarketWatch.
“Whether it’s going to happen later on this year, or in the next three years, isn’t a question anymore. The question is, how severe will it be and are Americans going to have enough resources to sustain and recover from it?”
He estimates boldly that real estate is overvalued by at least 35 percent and maybe up to 50 percent in some crowded urban areas. Some really hot markets like Miami may be even higher.
“If real estate was to crash simultaneously with the stock market, the future doesn’t bode well for the North American economy,” Barnabic warns.
“It may now be time to sell your stock and real estate and hold on to your cash. Later on, you can buy the stocks and real estate cheaper once the bubble bursts and devaluation takes place.”
This article isn’t about timing the exit of any investment market. It’s about hedging any risks with prudent fiscal awareness.
The bubble may continue for the next year or two, but if property managers have owner-clients who are over leveraged with rental properties now may be an excellent time to ask them how the inevitable bubble bursting would impact them.
You’ll be a hero to your clients if you become a source of prudent information about the bubble economy we’re experiencing. Spin it positively, don’t be a naysayer, but use this article as grist for your conversations.
While you’re making contact with existing clients don’t be shy about asking for referrals.