Inflation still hasn’t stopped. Regardless of the official numbers being reported or restated, real inflation in the street seems like a runaway train that has to hit a wall and crash eventually.

Hiking interest rates was supposedly the way to kill off inflation. Of course, it only fueled it instead.

Interest rate increases alone haven’t been enough to achieve goals, so, we now have other things, like higher taxes, more taxes, and minimum wage hikes of as much as $33 being floated in some places.

Something Has To Break

History, and the state of many other countries tell us that inflation can go a whole lot higher. Fixed rate, long term loans can disappear altogether. Mortgage interest rates have and can go above 20%.

Things can be made so expensive that just being able to afford food and toilet paper is hard.

When you can’t walk out of the ‘dollar store’ without spending $60-70 for a few snacks or a day and a half of food, nor run into the gas station without spending that much, it’s going to be a problem. Even with a $15 an hour minimum wage, that’s a day’s worth of work. Not counting housing, insurance, or utilities. All of which are going up too.

Then, not only are interest rates going up, but so are overall loan and borrowing costs. For those that can afford homes, now even putting in a few plants is a luxury expense many won’t be able to afford.

What exactly will break, when, how, and how badly will have to be seen, but it doesn’t appear to be sustainable. At least not while maintaining the lifestyles Americans have become accustomed to over the past couple of generations.

$190B In Real Estate Debt Being Sold At Discounts

According to Bloomberg, there is $190B in real estate debt being sold off at discounts around the world.

There are likely a variety of reasons for this. Chiefly being highly motivated sellers. While physical property values may not have changed, financial positions have.

Some are liquidating because they failed to plan and prepare for moments like these and are losing money. Others can’t get any more credit to stay afloat. Some just want more cash on hand. Or the banks that have failed have seen their assets literally bought for pennies. Which can now be cashed in on.

Interestingly, most real estate pros you’ll speak to will say that housing prices are still strong. In some pockets of the country there is more demand than ever. Open houses are busy, and are attracting multiple bids. There are cash buyers who still feel rich, coming from more expensive destinations, to new ones with lower taxes, and less crime.

So, there is currently this sweet spot, with inflation tragically bankrupting many businesses and families. Which means discounts on real estate. While strong demand means there are still great profit margins on wholesaling houses swiftly.

Those that take advantage of this, will find it is what keeps them and their own finances ahead of inflation.

Could expanding welfare and stimulus programs lead to a new surge in housing prices and rents?

COVID stimulus certainly brought a boost to the economy, along with hyperinflation. With more crises seeming likely, and more government welfare programs being expanded, might we be on the verge of a new surge in prices?

What might be the downside of this? How can investors invest through this?

Is The Recession Over?

According to the latest government data, the recession is already over. The economy reportedly rebounded with a strong 2.6% rate of GDP growth in Q3 2022.

Of course, there don’t seem to be any CEOs that agree with this. 98% or more of them are planning to deal with a recession over the next year. Even Jeff Bezos faces a $23B cut to his net worth as Amazon cuts its expectations for the end of year shopping season.

Moving To A Welfare State

Arizona, Massachusetts, and Oregon appear to be test subjects in dramatically expanding welfare programs.

New initiatives in these states have begun using medicare and medicaid funds to pay for just about everything, including housing, appliances, and furniture.

With previous COVID stimulus trailing off, a new Newsweek poll reports that 63% of Americans support sending out new inflation relief checks. Funds that would help offset the Fed’s recent rate hike spree, though obviously would spike inflation even further.

Of course, this is like catching a double edged sword. More government welfare and stimulus has to be paid for in new and higher taxes. Ultimately, pushing those on the edge into needing full time government assistance. Or just making it so unprofitable to work that it is better to stay unemployed and live on welfare permanently.

Will More Stimulus Stimulate The Housing Market

Housing prices and rents soared with COVID stimulus money. With more money like this in the economy, and the government absorbing inflation in rents, it is quite likely that rental rates could continue to rise fast. Low end house price increases may also surge.

The middle class being taxed out, and who just can’t keep up with extreme inflation in food and living costs may be more likely to let their homes go and fall into distress. Lowering homeownership rates, and creating more rental inventory.

Investing

Whether we fall into a new depression, or government programs flood the economy with cash and fuel inflation, real estate investors can find some sweet spots to operate in.

Most notably, these may be wholesaling affordable housing, and flipping rental housing, including whole communities to bigger funds.

 

Canada has announced that it is banning property purchases by foreigners. That could be great news for US real estate investors.

Canada’s Bold Real Estate Policy Change

In an effort to cool its own property market Canada has chosen to ban foreigners from buying property in their country.

This new rule is expected to be in place for at least two years, to bring down housing prices. At the same time they say they are committing billions in government funds to build more housing.

Canada seemed to be one of the few to manage a soft landing and avoid the worst of the last financial crisis. Yet, they are now under new leadership, with a new game plan.

Good News For The US

Canada has long been one of the top global destinations for international investors and second home and vacation home buyers.

It was favored for its legal system, taxes, and stable market. Canada has put an abrupt stop to that.

Not only is this very likely to divert that capital and buying activity to the US, but existing owners are going to be desperate to sell too. They must cash out before the government crushes their asset values. That is even more money that could be flying south in search of real estate.

This also comes at a time when the US may need to fill the gap left by Russian buyers and investors. They made up a substantial amount of foreign investment in the United States.

Marketing To These Motivated Buyers

There is a lot that US based real estate investors can do to market to and connect with this new wave of buyers and investors.

One easy and low cost method may be to create strategic referral partnerships with Canadian real estate agents. They can refer their buyer leads who they can no longer serve. They can also refer sellers who are cashing out of homes there and need to reinvest.

It can also pay to get out ahead of the herd, and market to these buyers where they are. You can use Google Ads, search engine marketing, marketing in their languages, and salespeople who speak their language too. This can be especially important post-COVID when many are still not traveling.

Summary

Canada’s decision to ban and push away international investment will likely be America’s gain. Fast thinking and moving investors can use this to their advantage to scale up their businesses and move more inventory.