What Happens After a Massive Property Collapse?

What happens after a massive property collapse?

Unfortunately, we have Spain’s case to give us a glimpse. After unemployment increased and owners couldn’t pay their mortgages, they got evicted.

Banks were left with empty properties…lots of them.

For a while, those sat empty, abandoned to the elements and growing weeds.

But then, something happened.

With unemployment at record highs and so many empty properties around, people began to move in.

Some were kicking in the door and settling in.

Others were going through ‘agencies’ that for a certain price would find them an empty property. These so-called agencies offered the choice of a monthly rental or ‘purchasing’ which in the long run, as they said, turned out cheaper.

Of course, these rentals and purchasing contracts only lasted until owners went to court and got squatters evicted.

But that can take a while, and the whole thing became so commonplace that there were plenty of for sale ads offering up properties in a ‘special situation’ at a discount.

How could you tell if a property you were looking to buy had squatters?

Well, for starters, you couldn’t inspect it. You also couldn’t get a mortgage for it, you had to pay cash. And, the costs of vacating the property fell on you.

To prevent people from moving in, some started cementing their front doors.

I snapped this picture a few years back:

Port Phillip Publishing

Source: Selva Freigedo

Of course, all this created a whole new business opportunity.

Companies — that mostly hired MMA fighters and boxers — started sprouting up to help vacate properties. And business boomed.

I got a little reminder of what happened in Spain after reading the following article in Vice:

During a time of great economic and general hardship, Civvl aims to be, essentially, Uber, but for evicting people. Seizing on a pandemic-driven nosedive in employment and huge uptick in number-of-people-who-can’t-pay-their-rent, Civvl aims to make it easy for landlords to hire process servers and eviction agents as gig workers…

In its Craigslist ads, posted across the country, Civvl explains the opportunity plainly: “There is plenty of work due to the dismal economy.”

“Unemployment is at a record high and many cannot or simply are not paying rent and mortgages,” the ads state. “We are being contracted by frustrated property owners and banks to secure foreclosed residential properties.”

While you may be reading about a recovery, we are still very much in the thick of it.

In a brand new report, market expert Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more.

The question of housing affordability isn’t new…

During the property bubble in 2008 it was buying properties at high prices and getting into too much debt that got people in trouble.

With the pandemic raging and people unable to work, it’s not only mortgages, but affording rentals that is in question.

But the question of housing affordability isn’t new.

It’s not a trend that started with the pandemic, but a situation that has been deteriorating for a while. One the pandemic expedited as salaries have remained stagnant.

From The Financial Times:

Over the past decade, the cost of shelter has risen sharply compared with everything else — housing prices contributed a record 81 per cent to core inflation in summer 2017 and remain responsible for “the lion’s share” of all inflation in the US, according to a recent Cornell University study.

The result is an affordable housing crisis in much of America. According to one survey last year, median-priced homes are now considered technically unaffordable for average wage earners in three-quarters of the country. This is particularly true for younger people (who now hold a record amount of debt), older people on fixed incomes and renters.

As I’ve been saying all along, all this money printing has consequences. We may not have seen much consumer inflation but there’s definitely been inflation in asset prices.

What comes next?

It’s already affecting younger generations that are saddled with student debt and are struggling to afford property.

This comes after private money has been flowing into trailer parks, which are usually more affordable than regular homes.

The huge question is, what comes next? Anticipating that question is crucial to preserving wealth.

It’s something US markets had on their minds too this week.

Markets fell earlier this week after the Fed asked for more fiscal stimulus to get the economy out of the hole it’s in. With the US funds rate at 0.25% and their balance sheet at over US$7 trillion, the Fed may be reaching the end of the line on monetary policy.

So far measures from central banks have mostly benefitted asset prices. Fiscal measures would put more money directly into the hands of the people.

We may already be looking at higher inflation with more tariffs and deglobalisation, but one that remains hidden. As I argued here, our spending habits are changing but our way to measure inflation hasn’t.

The question is what people will do with that money and how much actual real growth more stimulus brings.

With so much manipulation it’s best to focus on getting your hands on real things, like gold.


Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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