So in this video we're going to talk about
what I think are going to be the winners and the losers in 2021, but first I want to
talk to you about four things that are happening right now that you definitely need to be
watching, you definitely need to be paying attention to if you're going to make the right
decisions on investing your hard-earned money or somebody else's hard-earned money next year. So
let's get right into it. So the very first thing if you aren't already aware, the federal
reserve or the central bank will be investing in 2021. Hopefully you guys know how involved
the federal reserve or the central bank has been in the bailouts that we've had in the past and
the ones that we are currently in the middle of and the ones we're going to have in the future,
which is where we're going to talk about. But just for a refresher I want to just point out a few
things that the federal reserve is doing right now that you may not be aware of. The first thing
is there are purchasing assets right now so one of the reasons that the stock market is on the
rise right now is because the federal reserve is actually investing in the stock market
that's primarily the reason it's propping it up and it's creating what many people think is a
fake market. So that's number one. Number two, the fed has bought billions and billions of
dollars of ETFs, electronic traded funds, which is also part of the stock market and they're
going to continue that in 2021. The Federal Reserve has also bought mortgages in the past and
they're also propping up the housing market, the commercial market, all of those kinds of things.
So it's really really important that you guys keep your eye on the federal reserve. So there's been
a lot of criticism from the Fed because here's why. If you take a look at their balance sheet,
which hopefully you guys understand, tells kind of where the federal reserve has been in the past.
As you can see over the years this started in 2007 but right here during this coronavirus they
went from 4 trillion to over 7 trillion and that was money that was printed and that was
money that was given to the people. It was given in the businesses in the form of PPP. It was all
kinds of relief money but they went from four to seven trillion and there's a lot of people
that believe that this number here which is right now at about 7 trillion is going to go up
over 10 because we're not quite out of the woods yet. So as you can imagine the federal reserve
is under a lot of pressure right now and a lot of people are questioning their policies. In
fact with all the printing of all this money, are we going to see rapid inflation? Are we going
to see our currency devalued? All of those things are in the process of being discussed but here's
what the federal reserve is saying about all that. They're basically saying that they're defending
the pedal to the metal policy and they're not fearful of asset bubbles ahead, but that's what
everybody's saying is be careful of all these asset bubbles. So that's what everyone's concerned
about. Are we in these asset bubbles right now, our asset bubbles in bitcoin, asset bubbles in the
stock market, asset bubbles in real estate. All of those are things that you have to be watching
as the fed continues to pour more money into the economy to try to keep things afloat in 2021.
Very very important that you keep your focus on the moves the federal reserve is doing for 2021
as you start to make your decisions for next year. So let's move to the second point. Interest
rates will remain low through 2021. Again the the Federal Reserve is in charge of the
interest rates. One of their primary objectives is to manage interest rates. Okay so there's
a lot of there's a lot of speculation about interest rates. Are they going to remain low or
are they going to go up? I'm here to tell you that they have to remain low in 2021 for multiple
reasons. The primary reason is that Jerome Powell, the chairman of the Federal Reserve, has said so
multiple times. In fact here's an article that you can see where he says the Fed pledges low rates
for years until inflation picks up. The Federal Reserve's latest economic forecast suggests that
interest rates will remain zero at least through 2023. Okay that's really really good news on a
number of fronts, for real estate specifically, but that's why I believe that rates are going to
stay low at least through 2021. They go on to say it could last for years and by the way guys
these are very recent articles that just came out so the Federal Reserve is basically telling
everyone that rates are going to remain low for many many many years in a lot of ways.
This is exactly why real estate is having the run that it's having right now is because the
federal reserve has got their federal funds rate almost down to zero. Never have I seen this
before. That means that borrowing money is going to be cheaper than ever now. We're
going to come back to this but just remember that these interest rates are going to be low
through next year, so the third thing that we're going to go over is inflation. Now a lot of people
talk about inflation. They talk about deflation. They talk about inflation, they talk about
all kinds of stuff. Now inflation is this, rising prices. Deflation is prices that are
going down. There's a lot more to it than that but that's generally what it is. So it's my
belief that we're going to see a rise in inflation and here's why in august 20th of this year the
Federal Reserve came out and said, and I quote: the definition of price stability was to aim
for two percent inflation and if you look at the year-over-year averages it's been right
underneath that. Some years has been higher. Some years it's been lower, as measured by
personal personal consumption expenditures price index. It describes this goal as symmetric,
suggesting that equally concerned about inflation falling below or above that target okay so in the
past the federal reserve has had a target at two percent. What's very very very interesting was in
August they came up with this statement. The Fed says it will likely aim to achieve inflation
moderately above two percent for some time. Okay that's the statement that we haven't seen
before for a long period of time. That suggests that the Federal Reserve is going to be a little
more loose about the inflation policy in fact the federal chair jerome powell called the strategy a
flexible form of average inflation targeting which officials are calling F8IT, which is a form
of average inflation targeting. At the 2020 speech as you guys can see here, so this is fairly
recent. The federal reserve is basically saying that inflation will rise so here's what we know so
far. We know that the federal reserve is involved very heavily. We know that they're buying stocks.
They're buying ETFs or buying mortgages. We know that they want to keep interest rates low and we
know that they want inflation to rise. Those are three things that I want you to be clear on as we
move into the next slide. So the next slide, which is really really important, is that unemployment
will stay high through 2021 and here's why. The virus numbers are surging right now. They're
spiking everywhere. Some are down in countries but generally they're up at their highest levels
we've ever seen. Two: the vaccines are out but there's going to be a lag in distribution and
also there's a bunch of people that just plain don't want to take it. Three: there's going to be
continued business closures because of number one and number two. If you go on the internet
and you type in how many business closures have we seen during the pandemic or during Covid,
you're going to see that we've already seen over a hundred thousand businesses permanently close.
There's all kinds of data around this and this is actually going to get even worse because the
businesses that used whatever money they had, maybe it's from the government, maybe it was
their own reserves, maybe with their own savings, just to stay open and limp along during 2020
as we continue to stay closed and we could continue to contain this virus and we continue
to roll this vaccine out we're going to see a lot more businesses close. We're going to
see a lot more businesses file bankruptcy as we've already seen and I think it'll actually
be quite a bit worse than we saw in 2020. The fourth thing and I think we're going to see
it quite a bit differently in 2020. here's a great graph that I found on business closures from
Fortune magazine. These are temporary business closures that are turning into permanent
closures. As you guys can see the numbers are horrible. As we start to see, this was
temporary and this is permanent and here we are at 160,000 right here. So that's where we're
trending right now. So it doesn't look good for the small business person and the reason why i'm
bringing this up is because these are real people with real savings with real employees and real
businesses and real commerce that helps keep the economy going, so this is going to continue
through next year and it's not going to be good. The fourth thing is as we all know we've
moved to a homebody economy. People are now home. They're working remotely, tele telework or
whatever you want to call it, that's here to stay. Most of these CEOs, most of these business owners
are not pulling a lot of these employees back and everybody's kind of dealing with, where do I
live and how do I still contribute to work. And so businesses are reevaluating exactly how they're
going to do business remotely. It's not going to go away and everything's moving digital, so
what that's going to do, it's going to have massive real estate implications. All those
people that pour out of those office buildings as an example to get lunch to get coffee to
buy breakfast to grab a drink after work. All that stuff is going to hurt all of those core
businesses that I mentioned right here. So that's just going to be another ripple effect beyond even
if we reopen. All that stuff's going to go away now. Those are all going to be displaced as we're
going to talk about in a minute. A lot of those people are moving all over the country, but for
a lot of businesses this is going to impact them very very seriously. So in a prior video I talked
about unemployment and I want to just finish up with that here. So this is the unemployment
chart that's the civilian unemployment seasonally adjusted. And from 2000 here all the way to
november 2020, so this is just about a month old, and we all know as we saw the spike
here and we all know that we're here and the government's saying that we're
just under seven percent right now. Now what I want to talk to you about is how that
number got created, because what I really like is this chart, which is what's called the U6. This
is U1 2 3 4 5 and 6. And I talked about the U6 in another video, but the totally unemployed plus
all persons marginally attached to the labor force plus unemployed employed part-time -
this is a big one because what we're seeing is the part-time worker that used to
be full-time is massive. This is a massive, massive number so the U6 number in my opinion
is one of the more important numbers to watch because as people start to fall out of the
workforce and they don't look for a job, let's say for four weeks, they actually fall out of this
employment number so it only takes four weeks for them not to be reported in what was called
the U3 number, which is the one that you see in the media. You really need to take a look
at the U6 number, which includes all of those people plus all these employed part-time
people that used to be 40 hours, 50 hours, and now we're down under 30 because that employer
maybe is trying to save for their health insurance or whatever it is or maybe they just can't afford
all those folks and they're just living on the and they're just hanging on right now. So all
that stuff is happening and what's really really important on the U6 number is that we're actually
at 12 percent. 12 percent and what they're reporting is 6.7 percent. So right now we're
about 10 million people higher than we were at the beginning of the pandemic that are unemployed,
but I think the number is significantly bigger because a lot of people got pushed down into
that employed part-time category and a lot of people that were looking or not looking. And so
I think that this number is significantly less and all you got to do is go online and you'll
see all kinds of information on this so guys I did a whole video on just this issue and there's
a link below if you want to check that video out, but there's a whole video about U 1 2 3 4 5 and 6
that'll go much much deeper and give you websites and everything that you can take a look at and
if you like what you've seen so far, hit the subscribe button down below. Because this stuff
it's a lot of work man, thank you. So what does all this mean? That's actually what we need to get
to next. What does all of this mean what do those four things mean to real estate, what do they mean
to investing and what's going to happen in 2021? But I would encourage you guys to watch those
four things very closely because as you start to make decisions on real estate for example and
your unemployments for example are not right then that can massively affect the way you're investing
if the Federal Reserve is propping something up temporarily and you're banking on that and you're
in an area that later falls out that's going to be a problem for your real estate investing, so
all of these things are really really important. So let's just summarize what we have at
the moment. The federal reserve does not want deflation because with deflation people lose
more wealth and so we have high unemployment, low interest rates, so people will invest and we're
going to see inflation as we already talked about. Deflation is the opposite. That's what we had
in 2008. In 2008 people's values and their homes went down and then the home was worth less than
the mortgage that created a whole another problem. What we're seeing now because of the Federal
Reserve is that they're injecting cash and the the housing market's going up so people are
literally out of work, not paying their mortgages, and we're seeing record increases in home
prices. So the the Federal Reserve does not want it deflation. It wants inflation and that's
what we're seeing right now. The second thing is the fed raised the inflation target as you guys
saw. That's a big big indicator. Number three, prices will rise. What inflation
means is that prices will rise. Number four interest rates will stay low and
number five the fed will buy more in 2021 so you need to keep your eye on all of these things
as you guys are investing into the next year. So what does this mean for real estate? So let's
get into that now that we've got all that behind us and you understand what's happening with the
central bank. What's happening with the printing, what's happening when congress is pushing
these policies that the federal reserve has to do or does do all of those things are very
very important for your financial future so let's get right into the real estate piece. The first
thing is, and this might blow some of your minds, debt will be an asset and cash will be a
liability. Now this is very different than you probably learned when you were growing up
where cash was an asset. Debt will be the asset because here's why. With inflation this is
what happens. Savers are losers. This is why robert kiyosaki says savers are losers and
i'll explain why retirees living on fixed income are going to be in big trouble. Workers on
fixed income are going to be in big trouble. Borrowers with variable rates in
other words rates are going to go up as inflation goes up. The whole economy
from a general economic uncertainty is going to be a problem and exporters will be less
competitive. Here's who the winners will be: debtors on fixed payment plans. Governments with
high public sector debt now notice this word debt debt okay debt is going to be your asset it's
going to be your friend next few years for sure owners of land and physical assets like real
estate firms who can cut real wages. Okay we're not going to get into wage growth on this
video but for sure inflation's gonna kill a lot of people that are living on these two and
three percent wage uh increases as well. Okay so let's go to the next thing. This is how inflation
works. If you want to take a look at a dollar, this is the purchasing power of a dollar at
three percent inflation for the next 50 years. Okay so I wanted to show you this if we're at one
dollar now that same dollar so it's still going to be a dollar but it's going to buy less now. This
is a long period of time so you don't have to go all that way, but you just need to understand
that each three year period gets you all the way down to here. And so that dollar, that's why
prices go up, that's why food's up, that's why all the things that you might be consuming right
now you're starting to see prices already rise. Yes there's supply chain issues. Yes there's all
kinds of other things and we can get into all the details, but the bottom line is the fed raised
their target number so this is going to happen. So if you're saving at zero and you're half
savings, which is why I said savers are losers and your target rate is above two, maybe three
percent, you're actually losing the purchasing power of your hard-earned money so you need to
be an assets that are inflation adjusted. That's what you need to do and real estate is one
of those things so let me show you something really cool that I found on the internet that
you can do yourself. So on this website RL360 as you can see here you could type in RL360.
This is the impact of an inflation calculator. So what I did for you was I typed in US dollars
so you could type in any dollars you want. Savings - a hundred thousand
dollars kept for 10 years at 3 percent and you could put in anything you
want. This is an RL360, great little website but here's what it shows you. If that money is in
savings in 10 years time, your dollars are worth 74,409 dollars. Okay that's if you just
hold savings so what you want is you want this hundred thousand dollars in something that's
inflation adjusted. You want something like debt, believe it or not. As again cash is a liability
and debt is going to be an asset, it's going to be the opposite of what you've been told since you
were this big. Everything that I was told since I was this big, it's going to be the opposite,
as the federal reserve continues to print money and create inflation moving forward. And so
if you don't learn anything in this video, this is something you need to be very careful of,
and that is do not stick all your money in cash in the bank and hope that it grows, because it won't
based on the fed's own admission of their targeted inflation rate. So let's go to the next chart.
So we talked about some of the current trends in real estate. Now we know that everybody's
moving to remote work. We know that everybody's doing telecommuting and what's happening is
they're making decisions based on affordability, based on weather, based on safety. Now
affordability also means property taxes, mortgage, all of that kind of stuff. So people are trying to
take a look at where can I live, where do I want to live, and how much am I making? So they're
making all those decisions and that's creating massive migration patterns. I've talked a lot
about this. If you guys really want to get into this, I suggest you look at the US postal
service, because you know how people have to contact the postal service when they
move. I would suggest you go to the DMV, the department of motor vehicles, the
the moving trucks, the Atlas van lines, U-haul, North American van lines. All those
things, those are all sources of tracking and kind of find out where people are going so
here's where we are right now. So this top states as of right now, which is the net. By the way so
it's people moving in and the people moving out. That's the most important thing now. These
are state numbers. They’re not city numbers and they're not submarket numbers and they're not
urban numbers and they're not suburban numbers. They're just numbers for the state but if you
want to dig down this stuff is there, so if you're interested like for example on texas which
had a negative 3040 people as an example, lost the most residents in the country. Then you can
actually dig down and say where you can actually go and take a look at the city and you'll you'll
find that Dallas is one of those cities now. New York is second, Washington D.C., North Carolina,
California, which everybody's talking about. But then on the positive side people are moving in
New Jersey, South Carolina, Maryland, Connecticut and Arizona as an example. So that's all data
that you guys can dig into and you can get even more detailed. You can actually look at cities
because what we're finding in a lot of cases, these migration patterns, people are moving
just 20, 30, 40, miles away from the city cores. So they're just getting out of the urban and
moving to the suburbs because it's a little bit more affordable than it is the closer that they
live as an example but and this just measures how many people are moving in and out of a state. But
you can get a lot more detail and as you guys are starting to invest this is really important data
because if you're putting your own money to work or you're raising some capital, this is really
important stuff that you need to pay attention to and and find out where that puck is going.
That's what you want to be. You want to be there, you want to get where people are going, so the
next thing that I want to talk about are the mortgage defaults and the mortgage forbearance,
which we all know about and this is both on the commercial and the residential. What's been easier
to track is the residential and if you go to black knight as an example they've got really good
data but we have a pretty big problem with people not being able to pay their mortgages and
have have gone into forbearance as we all know. And so that problem right now according to black
knight's website is pretty high as you can see what we have at the moment is we have somewhere
between three and four million people. So this is 3.5 million people we have um that are 30 years
or more past due or or are in foreclosure. So those are all real numbers those are real
people. They're spread all over the place. Another cool thing you can dig down - this is
obviously the whole country - you can actually dig down and say how many people are in this state
how many people are in this city because it that's where all the data comes from and attracts
all the way up to this number. So some of the bigger states are in trouble, as an example, are
Hawaii. So those are the kinds of things that you can check and then there's areas in hawaii that
are good and areas in hawaii that aren't good, but this is all really important data as you start
to move around because you don't want to invest in an area that's still falling and potentially none
of this has happened, yet these are these are all in the queue. These are all part of the CARES act.
These are all people that have taken advantage of not having to pay their mortgage, so you got
to be very very very careful because this is coming guys, trust me. Somebody's going to pay
this. Somebody is. Somebody - it's either going to be the lender is going to eat it or the resident's
going to eat it or the landlord's going to eat it or the bank's going to eat it or somebody's going
to eat this. Okay this is a big number and it's going to hit in 2021 and 2022. So you have to
be very very careful as you start to navigate this and as you guys can see, as it should be no
surprise, mortgage delinquencies are right now at a 20-year high. Okay that's even higher than
2008 when we had all these problems, so this is a big deal and uh it's not really talked about a
lot because you know everybody's kind of banking on the next round of stimulus and all that, so
the last thing which is more along what I do, is this renter disruption okay. And
we all know about this and this is a this is where we are right now so for our projects
we're doing fairly well but we're only collected about 80 percent at the beginning of the
month and a lot of people are on payment plans and we have as you guys know about 10,000 tenants.
Well a lot of my friends are in the same category. So people are hurting right now, they don't have
work, and there's no income coming in and they're running out of money too so right now. As of
December there's nearly 12 million renters that will owe an average of about 58 hundred and fifty
dollars in back rent and utilities by January. So this is coming guys and so of course it helps
residents that the eviction moratorium gets kicked into the following year into 2021. At the end
of the day there's still 12 million people that owe a lot of money to a lot of people again and
this will all need to work itself out next year. So these are some of the things that are happening
right now that you have to keep your eye on, because nobody's really talking about forbearance.
Nobody's really talking about evictions. Every once in a while you get this stuff that
comes out in the media, but it's usually negative toward the landlord, negative toward the lender.
They need to forgive it or whatever, but the real issue is that these are real people that are
running behind both on their mortgages and on their rent and this is all going to hit the fan
in 2021 and 2022 and you need to know where it's going to hit because it's going to hit one way
or another. So if you like what we've done so far hit the like button hit the subscribe button below
thank you guys so much. I got more coming at you right now so now we're going to wrap up with
the two things that I follow the most and one is residential and one is commercial and what's
going to happen on those two fronts based on all the information that I've given you so far.
So let's first jump right into residential so the current trend of the residential market is
that in 2021, inventory is definitely going to go up for multiple reasons. One, the vaccine's
out. A lot of people did not want anybody to go through their house while Covid was here and the
pandemic is here and so everybody pulled back in because of that. They also pulled back in because
maybe they had some disruption in their employment and so there's a lot of people that think there's
gonna be a lot of inventory hit the market next year as people try to figure out where they're
gonna go next. It's gonna be another big wave in addition to that we're obviously going to see
- all those forbearance and mortgage defaults and all that kind of stuff all unravel on their own
as they do over a period of time. So I believe we're going to have a massive amount of inventory
next year. It's going to grow the supply and it's going to flatten or even go negative in a lot
of municipalities and a lot of markets. Now some markets are going to go up and I know a lot
of you out there going to go oh my god things are going up how can I never go down? Trust me
the reason it's going up so much right now is because the inventory is so low and people are
freaking out and they're moving all over the place and they're buying so that's all going to change
next year as the vaccine comes rolling out and as people start to figure out what is what it is
they're going to want to be and where they're going to want to live, how financially stable
they are. Now the good news is is that this last little run we had if they sell their house they're
actually going to be able to pay whatever they had in the back mortgages so if they were delinquent
the run-up that they've had in the appreciation is going to be good for them. The problem is is they
have to sell in order to do it so that is going to also contribute to the amount of inventory that
we're going to see in 2021. So I know this is not exact but prices are going to be up and they're
going to be down depending on the markets and for those of you want specific answers, I'm
sorry I can't give it to you. But listen, New York is down Chicago's down, Seattle's
down, LA's down, San Francisco's down. Okay so we know that you guys know that it's going
to be based on the jobs, the remote work, and the defaults. All that's going to be
rolled up. You need to know all the data all the specifics if you're going to invest and
you're going to have to somebody buy something then you're going to want to know which direction
the market's going based on all of this stuff, and every market is different. Even cities are
different by sub-market. Even streets can change, you know on one side of the street versus the
other. So this is all very very detailed and sub-market driven all rolled up into one big
thing. But be very careful on where prices, inventory defaults, where all that's heading.
Because it's going to have a massive impact on residential for 2021. Now let's get to
commercial. So on the commercial real estate here's what I think the winners are going
to be: industrial data centers, healthcare, cell towers, and multifamily in select markets.
So obviously for those of you who don't know, Amazon and everybody is selling things that used
to sell them you know in stores and people now don't want to go to those stores and and
they can order whatever they want online. They're all looking for what's called the last
mile distribution center, you know in their particular market, so they can load it up with
stuff so that you can get stuff on the same day. Data centers need I say more cloud data, cyber
privacy issues, all that kind of stuff is big healthcare. We know that's going to be
on the move because of the baby boomers. Cell towers, obviously the connectivity and
all that, and then multifamily as people fall out of residential and they fall out of some
of the residential due to the forbearance and the defaults and stuff like that. We're going to have
another wave of multi-family pressure because of the renter boom that we're going to see from the
residential market, just like we did in 2008. The losers currently: hotels, regional
malls, retail, office and factories and in some cases multi-family. If the plan was
based on you know big rent growth in an area that's currently going to get depressed, I
have friends at old stuff in Seattle, Chicago, New York, and they're not doing so well in the
multi-family. So again it's market by market, so the question that everybody asks – okay, so
what are gonna be the opportunities moving forward in 2021 then. So here's what I think that they're
going to be. Right now the last mile distribution I talked about - this is big guys. So this
is every single supplier of whatever it is. Let's say you order a suit and you're not going
to go to the local store anymore because you might only have a limited selection. Now you're
going to want to order whatever you can order and you're going to want it now because amazon's kind
of set the precedence that way. So there's a lot of this last mile distribution happening both on
the retail side but also on the cold storage for food and all that kind of stuff. So this is
all a big big thing I think you're going to see the redevelopment of malls, factories, and
retail. So people are going to see these these businesses are going to leave the non-anchored
groceries as an example. These malls, they're already big companies, taking a look at these
for redevelopment into a multi-family and they're looking at some distribution and things like that.
Even corporate headquarters we're starting to see already this happened. You're going to see
multi-family in certain growth markets where people are going and where jobs are going. We're
already seeing for example, Oracle moved out of California to Austin. That's a massive, massive
real estate play. Yes it's big news, but it's really big for Austin, especially in the area
around wherever they're going to move. Residential we already talked about. You're going to see
this sporadically in different growth markets, mostly in the suburbs away from urban but not
entirely but urban's taking a big hit right now. The last three - affordable housing obviously.
We've seen massive run-up in prices. We've seen massive run-up in rents. Affordable housing
is going to be a massive issue. We have some mobile home guys on here. We've talked about tiny
homes. We've talked about all that kind of stuff. People are going to be scrambling for this kind
of living. That's why RV sales are going crazy. That's why RV parks are going crazy. People
are looking for affordability in this area. It's going to be continued. The six things are the
opportunity zones. If you guys haven't seen this, trust me, these are areas where people are
selling real estate. Let's say out of California, out of Seattle, Chicago, and they're rolling their
capital gains into these opportunity zones so they can save tax and it's starting to re-energize
some of these areas in this redevelopment areas and so you're going to see that's going to
be a big deal for 2021 and 2022. The last thing are data centers, the cloud, the cyber security,
the privacy. Those are all massive. They're going to continue to be massive. These are all really
really good areas of redevelopment as you start to see some of the big money is already looking at
all these strategically. Some of the big managed money is already investing in most of these, so
if you guys liked what you saw you can obviously find me at kenmcelroy.com. You can go here and
take a look at all the videos and all the free stuff we have. You sign up for our newsletter
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