A Look Ahead: Property Values in an Age of Inflation

Several SurvivalBlog readers have contacted me in recent weeks, asking me to gauge where we are in the housing market cycle, here in the United States. My replies to them have reiterated a few key points:

1.) House prices have risen between 15% and 30% in most markets in the past 12 months. This is not sustainable, unless Dollar inflation increases considerably.
2.) There is a wide diversity of regional real estate markets. Some are clearly “over-bought”, while others are likely to continue to rise.
3.) Interest rates will probably continue to remain low, but at some point, they must rise. At that juncture, the real estate market –as well as many other markets—will decline. Your “gains” in real estate may not keep up with inflation. But at least you won’t lose much, in real terms. Compare that with “money in the bank” — where adjusted for inflation, your net worth will decline greatly.
4.) Given the gross over-spending and increase in the National Debt, inflation is unlikely to abate. This may result in a period of “stagflation” wherein the economy stagnates, while inflation continues.
5.) Your only genuine protection from mass inflation is in the form of tangibles. With currency inflation, most Dollar-denominated investments will suffer greatly, while tangibles will hold their value.
6.) You should hold both liquid tangibles (such as precious metals, guns, and ammunition) and less liquid ones like farmland, timberland, and your home.
7.) Avoid debt, unless the inflation rate goes ballistic. Remember: Paying off a load with inflated Dollars is a good thing unless there are mass layoffs, and you end up losing your income. At that point, you won’t be able to service your debt, regardless of the inflation rate or interest rates.
8.) If you must borrow money to buy a house or land, always borrow at a fixed interest rate. In times of mass inflation, an adjustable rate mortgage (ARM) would become a torturous burden.

Macro Trends

I don’t claim to be a prophet, but I’ve watched the markets closely for  30+ years. I can extrapolate from current trends. I can extrapolate from what we witnessed in previous market cycles. But there is an unpredictability stemming from the fact the Federal Reserve banking cartel and the U.S. Treasury have conspired to disrupt the market cycle. By keeping interest rates artificially low and injecting massive amounts of stimulus money at various levels, they have forestalled a recession for several years longer than we’d normally experience. Not knowing how much longer they can keep their great charade in motion makes it hard to put any timeframe on the upcoming market swings.

But with all that said, I can make a few observations on macro trends:

A.) Investment firms like Blackrock are buying up swaths of residential real estate, turning those houses into rental properties. If they are so strongly seeking tangible investments then they obviously envision a period of high inflation ahead. And so should you.
B.) The U.S. government shows no sign of slowing down its overspending. They just raised the Federal Debt Ceiling. (That video was produced 10 years ago. The National Debt is now $29 Trillion, and climbing.)
C.) The trends toward working-at-home (WAH) and homeschooling accelerated greatly during the first year of the Wu Flu Pandemic. Even if the pandemic were to magically end tomorrow, I don’t expect a reversal of the WAH trend. Nearly 11% of Americans now homeschool their kids and with so many school districts pushing socialist indoctrination, I expect homeschooling to continue to grow in popularity.
D.) The social and political divides between America’s Blue States and Red States have widened and will continue to widen. I can foresee that this will be the primary engine driving families to relocate, throughout the 2020s.
E.) Technologies like photovoltaic power systems and high-speed telecommunications — typified by DSL and more recently Starlink– have matured greatly. These make living “off-grid” less of a barrier than it had been in the past. Eventually, this will begin to normalize prices between urban and rural houses. So this will mean that most people who own rural land will see more of a gain than people owning property in urban areas. Yes, land will go up in price (at least in Dollar terms) everywhere, but it will go up more out in the countryside.

Some Predictions

Now comes the tricky part: Applying my observations of the trends into making some specific predictions about the near future. Granted, there are a lot of variables that are hard to gauge. Some of these variables will be determined outside of the United States. Namely, by the geopolitical situation, the flow of investment funds internationally, the relative strength of the U.S. Dollar on the Forex market, and the advent of sovereign cryptocurrencies.

Here is how I see the next few years possibly playing out:

1.) Continuing rounds of Federal bailouts of Blue States and stimulus at various levels.
2.) Ongoing hyped-up claims of WuFlu mass deaths, “staffed hospital bed” shortages, and demands for forced vaccination, as well as renewed demands for masking, social distancing, and small business lockdowns. The Biden-Harris regime may soon demand vaccination for passengers of domestic interstate flights.
3.) Inflation, and then a lot more inflation. Currency inflation will wipe out the value of bank deposits, pension funds, Social security, and many Dollar-denominated investments.
4.) The Republicans will regain control of the Senate –-and possibly even the House—in the 2022 midterm elections. This will be followed by a period of legislative gridlock.
5.) Executive orders by the dozens in the 2022 to 2024 period. Many of these will eventually be struck down by the courts.
6.) Exit taxes, international taxation, and other barriers to expatriation.
7.) An interest rate jump, followed soon after by a cooling in the real estate and equities markets and a protracted economic recession.
8.) Once Rent Forbearance ends, there will be a short-term glut of rental houses hitting the market.
9.) A scramble out of Dollars and into tangibles of all descriptions.
11.) Attempts by populous Blue states like California, New York, and Illinois to tax any of their residents who depart to other states. The courts will eventually stop such taxation unless the income continues to be demonstrably earned in one’s former state of residence.
12.) The first substantive moves at state partition, possibly as soon as 2023. Keep your eyes on Texas. I predict that will Texas be the bellwether state, for partition. Once Texas successfully becomes five states (with 10 U.S. Senators!), then other states will quickly follow suit.
13.) Following Sniffy Joe Biden’s debacle in Afghanistan, several foreign nations may feel emboldened to make territorial gains. China’s lust for Taiwan is at the top of that list.
14.) Continued global supply chain disruptions. This will make it difficult to find all of the construction materials needed to build a house. Hence, it might be wise to buy rural property with an existing house, barn, and shop.
15.) The launch of an e-Yuan, followed soon after by an e-Euro and an e-Dollar. That will mark the end of any financial privacy.
16.) A rural land rush in Red States, as conservatives give up on living in the cities of the Blue States.
17.) With inflation, property taxes and utility costs will rise correspondingly. You will need to set aside funds for those. Pray that you don’t ever have to choose “between heating, and eating.”

A Caveat, In Closing

All of the foregoing are just my opinions. So consider this nothing more than a Gedankenexperiment. Precipitating circumstances may change. Your mileage may vary.

Oh, and: Vote with your feet! – JWR