Ken McElroy: The Coming Real Estate Crash Of 2021

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Listen On Your Favorite Player:

Ken McElroy, says that covid-19 is accelerating and exacerbating a bust cycle that was already in the making. He predicts massive upheaval in 2021:

You didn't have to prove hardship for the first part of that CARES Act. And then Trump said, “Listen, no evictions through October.” So, right now, we’re close to 3,000,000 people that have not paid their mortgages that are over 90 days delinquent.

I believe that if everything starts to open back up, if there’s a vaccine hopefully and we start coming back to normalcy next year, then you’re going to really see the aftermath. At that point, there’s got to be massive, massive government stimulus to keep this thing going.

And I believe at that point, Chris, the forbearance stuff has to end. They can’t kick it down the road. If I’m still not paying you, you – the landlord – are in trouble, you know? That’s income for you. When a renter doesn’t pay me, then I can’t pay the bank and then, the bank puts me in default and then, the bank owns the real estate. That’s the cycle. Nobody’s thinking or talking about that.

So, all that’s happening. It’s not being mentioned much but there are big companies that are missing payments – big ones. I’m talking about hotel chains and things like that. They’re just not paying. Big retailers are also saying, “Sorry, we’re not paying.” And the landlords are sitting there going, “Well, we own the center and you’re in it,” but their tenants are saying, “Yeah but, well, we’re closed.”

And so, all this is happening which is why I think we’re going to see a massive amount of inventory next year. And that inventory is going to jump up so high and the demand is going to be so much less that people are going to be hammered financially.

That’s when you’ll start to see the beginning of a massive price drop. You’ll see properties that are going to go back to the banks. You’re going to see all this migration of people moving all over the country, which remote working is now accelerating. you’re going to see massive, massive outflow from what I would consider to be high-density cities. You’ll see busts in certain places and booms in others. Real estate is very much a demand and supply business. For instance, if there’s a lot of people leaving a densely-populated urban area to towns with very limited housing, then of course, you’re going to have lower prices in the city but a very, very robust market in those small towns through all this.


Click the play button below to listen to Chris’ interview with Ken McElroy (67m:20s).

This is a companion discussion topic for the original entry at https://peakprosperity.com/ken-mcelroy-the-coming-real-estate-crash-of-2021/

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Big thanks to Chris and Ken for doing this interview. Just like Ken, I’m living in Northern Idaho and the real estate boom here right now is astounding to say the least. I was lucky enough to buy a foreclosed old homestead on several acres during the 2010 housing doldrums. By 2012 the market had made a nice comeback, but the last 6 months have been crazy. I think its fair to say that the market value of my place has gone up 30% in the last 6 months. There is a massive rush to escape urban environments and come to this neck of the woods no doubt.
For years it was mainly California imports, but now Texas and Colorado plates are regularly seen. Washington State residents seem to be fleeing at an alarming pace too. Everything here is selling and people seem particularly interested in places with acreage and some land to grow things. Ken seemed a little apprehensive to say that the back to the land movement and increased prices were sustainable, but up here 60 miles north of him I see nothing but increasing prices on the radar until there are no more newcomers.
In all honesty, I know that wealthy individuals moving here provides opportunity, but it is also changing the social fabric and the general disposition of the average person. Honking at people that don’t immediately move at a red light turning green was once a rarity. The wife and I often wonder if there is something better out there. In the end though, every day there are less great places left on a finite planet where people are seeking reprieve. Smoke em while you got em
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Excellent interview. Really enjoyable and good, actionable info.

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…and I’m such a small person. I got up wondering whether I should split that pile of hickory I cut last week or take down some dead ash trees I noticed yesterday.
Now I’m contemplating a global real estate bust.
I try to keep it in perspective. If the real estate market goes bust, well…the grass still grows, the cows still eat, the trees still make sap. The potatoes still grow, the corn still comes up. A “crash” or a “rally” are really just man-made illusions, arent they?
Well, back out I go. I think I’m going to split the hickory afterall.

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My inner George Carlin says fewer universities in the USA is just a predictable increase in stupidity of an already stupid society. On the other hand maybe SARS-cov2 is an attempt by “others” trying to slow that process down.

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it is also changing the social fabric and the general disposition of the average person. Honking at people that don’t immediately move at a red light turning green was once a rarity. The wife and I often wonder if there is something better out there. In the end though, every day there are less great places left on a finite planet where people are seeking reprieve.
I hear ya. Can't believe the constant greater level of traffic this summer. I'm not used to getting down the hill of the side road to the T and having to actually wait while 5 or 6 cars go by before turning onto the main road. What's with that?!? Dang country's filling up! But this is home. Well established with the neighbors, and the guys down at the hardware store know me. And I got a call this morning from the feed store guy about that special order I placed last week: he woke up in the middle of the night anxious about something on that order and wanted to call me first thing. So there's that. But the general, surface-level - I guess I'd call it "public" - culture has changed. I can feel it. It's not as "safe" because there are so many people from the cities and they don't have the country feel about them. Most of them didn't come to adapt to our ways and learn to fit in; they're still "city" in attitude, but are fleeing what "city" created back home. Don't think most of 'em will learn different, they'll just want to make us more like what they fled so they can feel "at home." I'm not sure if I oughtta still leave the keys in my car or my doors unlocked any longer. And I kinda want to ring the acreage with security cams. It'll be interesting to see how many stick around now summer's officially over. And how many of those that do will still be here in February, dead of winter.
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Great interview, fortuitously I have shifted away from urban density a few years ago, with the current limitation of how much can I manage, and for how long? Looking after property(s) is constant, currently a pleasure, but work all the same. The communication revolution that is the internet has revitalized the rural circumstance and the viability for the workforce.
https://www.youtube.com/watch?v=sLAuzVb-C_o
 
 

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When I first bought my 6 acres in a small town of less than 3000 people there were few cars on a busy road that came into town from work, this was 1984. When I left in 2002 the town had nearly 6000 people, it was a parking lot from the single in town light that used to blink yellow all the time and now showed its red and green every 15 seconds of so.
We made improvements on the property to make it our own and I was in construction so put my stamp on things and settled in. We paid $42,000 thousands for the ranch style home, maybe $25k in improvements and sold it for $265,000 in 2002. We bought a new home in town because we lost our slave labors in our son’s to college and then marriage so we went with an easy maintenance home, put our things in, our garden and flower gardens and lived their until this past Nov. We moved because I felt the market was going to top and now was the best time to sell and get out at the highs. The home sold the first day with a bidding war. We bought our place for $217 thousand and walked away with $305K! Both deals are why we can pay cash on the build of our Cabin and now Barb and I will be debt free with a good bit left over because of the Fed throwing so much at the market that we have luckily done well with. We rent now and Barb and I decided she should look for part time work at the hospital near our build. Barb isn’t ready to quit outright because she loves her profession and lets be honest, it’s another revenue stream that is always necessary in the event something else is taken from us like Social Security and plus we never want a medical emergency to cause a large hit to our investments. So, with planning, common sense and an eye to managing things into the future is what we have always been about and it was hard work but, so far so good. One more thing, we plan to move into our 5th wheeler by March 1st and this savings is $2000 a month and we will use those funds to buy period pieces for the home and stay there until the Cabin is built so that just makes perfect sense.
Why on earth did I spew about our good fortune? I’m telling you this site changed my life. I leave my home and I see everything from different lenses. I know the why’s to everything. I always had these goals but I see things with such clarity than I ever have. Everything was done with a singular purpose and I feel terrific that we are near done with all our plans and goals. The sense of achievement is profound.
Great podcast, learning more stuff is why I’m even here. Peace
PS: I know Inflation is here or coming but I see a terrific amount of Deflation too and it will be a battle short term for sure are my thoughts but, the investments are properly hedged for either outcome so I’ll stand pat and move when one or the other win out. I’m just thrilled my plants give me seeds to replant what has shaped up to be a great growing season and the pantry is filling up. So my food budget looks great going forward. I’m telling you, for me, the only way to grow is through compost and NO Till gardening methods. I’m a believer.

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...and I'm such a small person. I got up wondering whether I should split that pile of hickory I cut last week or take down some dead ash trees I noticed yesterday. ~snip~ Well, back out I go. I think I'm going to split the hickory afterall.
I'd usually much rather cut ash than split hickory. That's some tough stringy wood. But it all has to be done right? I just finished gathering up the last bit for my brother and as soon as I can get that last cord or so split up I'm done. Good luck and just think of it as a damned good workout! That's how I make it through each year. :) Real estate bust? Man I hope not. We desperately need to have housing prices corralled within the average person's price range. But what's it been? At least 30 years since that was the case. The price is killing us but the cure isn't even remotely pleasant. Will
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I hear ya about some inflation and some deflation. Now that my solar is in that is a load on my mind. Now to see about putting in a well for “irrigation purposes only”. Ruth Stout gardening method is great for potatoes and various squash. Plant and forget! We are going to try and get a few more deer tags to fill the freezer. I hope the city folks stay the heck away. They’ve ruined their areas with crap policies and we don’t need that here in fly over country!

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Just signed a contract on a 100+ year-old house in a nice neighborhood in a once-prosperous agriculture-based community in the Mississippi Delta, less than 5 miles from my farm. Sixteen hundred square feet, 12-foot ceilings, foundation and roof in good shape, electrical and plumbing mostly passed inspection. I just wish they hadn’t torn out the old lime plaster walls at some point and replaced with drywall. I’m debating whether to undo that little “fix,” but at least I know that almost all of the lead-based paint is long gone. Oh, yeah, the price: $68K. My kids in California paid more than that for their down payments.

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be good to know what he thinks about Australian real estate

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This sure looks like spam. Website blocked by Malware Bytes.

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I used to specialize in Historical Restoration. Especially the ones who still had the Old Michigan basements, usually 6 foot high area’s instead of 8 or 9.
I also liked when the octopus furnaces (wood or coal burning, sometimes oil)) were still their. It was awesome to see these beasts squirreling around a basement sending its tentacles to the rooms to be heated. I am sure the reason the plaster was removed was because of water issues and possible freezing in the homes past. The lattice strips under the plaster would fail and it was a constant repair until it was gutted and new strips put down and a plaster fix or was just too expensive to keep doing this over and over as other strips failed. Usually the nails would rust over time and the firing strip were literally just suspended, held in place by the plaster.
Yes, limestone plaster would be awesome however, try and find a company anymore that does plaster work. They can be found but the cost is frightening. Still, plaster is an awesome medium and if you can afford it then do it! With lime there is a period of time needed for the plaster to cure if my memory serves me correctly so follow the guidelines before painting. In painting you want the new surfaces to be painted by a professional, after all this first paint job (usually three coats), should you go back to plaster, is the coat that supports every other coat that follows. Get a good painting company that shows up with brush and roller and leaves the spray gun at home. The spray gun in my opinion is the worst time saving tool invented yet for painting, any idiot can pull a trigger and cover anything, the point is, they cover everything! Never would I consider it for painting any size home, inside or out. Good Luck, I wish I could help as it’s a privilege to bring these turn of the century homes back to life. God, I loved it so much. Peace.

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Ash before Hickory any day but, yes!, the hickory has to get done as well so…If you haven’t bought a log splitter then over time splitting logs that you think is making you healthier and stronger (while true), is also wear and tear on your body and as you age, you have to trust me, you will feel all this pain from splitting logs with an ax once again. The body breaks down from physical abuse, it doesn’t make you younger at all! LOL…My feelings, construction workers should be allowed to retire 10 years before office workers because of the abuse this type of labor puts on the body. I have no issues with pain but it’s a constant so I don’t believe abusing your body is in anyway a good idea long term. Log splitters are the single most important tool in the tool shed. Just ask Barb. That and a Stihl chain saw! Barb is great using both and she is a tall but slight person. No longer a sissy girl but, a respected hardworking member to the maintenance of our lives. She has a nice tractor too and hates weeds and loves getting rid of them!!! How did I get so lucky to have a Lady that does the work I gladly will give up. Just kidding about the chain saw, that’s basically my job and I could never let Barb handle such a beast as a 28" Stihl chain saw. I’m a gentlemen after all. Good luck with your work, nothing more enjoyable as stacking wood after splitting, in the Fall, leaves falling, leaves burning, it’s truly a “life worth living” moment.

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Correct me if I’m wrong, but I think these two states are among those that will demand taxes from former residents even after they have moved out to some other state. Similar to how the US federal government duns citizens not living within the US for taxes on income not earned in the US.
The point is that I am wondering how long that predatory system can last when enough taxpayers have moved away and are either refusing or unable to pay such taxes.

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We have the same thing here, VT. City people have piled in since June. I suspect most of them will be gone this fall. I dont feel less safe, these are people with the means to leave the city and stay here. They mostly have second homes or are renting somewhere local.
Generally, these are people with some money, not the type that will rob you in the night. The rudeness, the aggressive driving and the general abrasiveness are part of that “city” exterior you mentioned. For the few that stay…let’s hope they assimilate and soften their exterior over time.
When they realize that they dont have to get from point A to point B in the fastest possible time, every time, they might relax a little.

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Thanks PFT, I actually split the hickory and cut down those ash trees after. I guess I was feeling pretty spry. Yes I do have a splitter. I split by hand for 10 years, didnt feel much pain or wear and tear but I got sick of exerting myself to that level every day.
Now that haying is done [ such as it was this year ] my days are filled with the more leisurely and enjoyable tasks of the farm. I love this time of year. Its cooling down, bugs are reduced, leaves are changing, etc… A very contemplative season.
Today the split hickory goes in the wood shed and I’ll cut up and split the ash. Nice dry, sunny but cool weather here. Next, the sheep will go in yesterday’s cow pasture, then I’ll build out a new fence with step in posts for the cows this evening. Of course there is barn cleaning, brush burning and etc… It’ll all get done, by-and-by

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That’s the spirit brushhog. I must admit that my enthusiasm for the summer chores is starting to wane. I find myself eyeing the flannel shirts in my closet and looking for the newly gold and crimson leaves. Sniffing the air and wishing for hunting season.
PFT: That’s a good point. There is a tradeoff between hard work and long term wear. I’m not sure where it is and I’m not sure where you cross over from good workout to more wear than it’s worth. But I will admit that I use the woodsplitter a little more than the splitting maul anymore. It just plain produces wood that is easier to stack and allows me to get the gnarly stuff split up… other than the really large and limb free stuff that is. I can still stay well ahead of the splitter on most of that stuff. A lot of the stuff this year I had to invert the splitter and quarter it just so I could lay it parallel and split it normally. It was very big and limbs trying to poke out everywhere. :stuck_out_tongue:
Maybe we should start our own firewood post on the forum, lol.
One thing about it that does cross paths with the real estate market is the part about how much timber it has. I know my place was select cut prior to my buying of it. I have just under 70 acres of timber and it was all cut (18" and over). Half of it looks poor, half of it looks great. Maybe 5 to 6 acres where my deer stand is, along the fields, and by the house were untouched.
Getting a loan for an actual farm is not the same as getting a loan to buy a house. The vast majority of loans made now are federally insured and there are regulations that preclude buying large tracts of farmland and timber. If you have great credit and a good sized downpayment you can split the property into house w/a few acres and the rest under a different deed. (Assuming your assessment for the house is large enough percentage of the total loan!) But that often means bringing in a surveyor and many thousands of dollars before you even buy the place. I just went with a regular private bank loan and got a really good rate for what was left after a really big downpayment. I’ve no regrets.
A whole thread could be written about financing a farm as opposed to a normal house with a few acres.
Will

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Will I had a similar situation in that we bought a large property with about 80 acres of timber. Years later we came across what became our “dream farm” and purchased it. We ended up renting out the old house and we got with a local logger we knew who put us on a rotational logging system. So we get rental income plus yearly timber income.
If you can find a logger that you somewhat trust, you can talk to him about what you want and expect. Dont do the whole thing in one cut, that way he has no incentive to do what you want him to do. Have him cut 10 acres…in a part of the property that you dont see too much. That way if you dont like what he did you can stop him there.
If you feel OK with what he did you can give him another 10 acres or so the following year, and etc.