ADragan
Robert Kiyosaki – famously known as “Rich Dad” recently predicted that the real estate market is set to face a severe crash that will exceed even the 2008 downturn that set off the Great Financial Crisis. He went on to recommend that investors flee the real estate sector (VNQ) and instead invest in gold (GLD), silver (SLV), and Bitcoin (BTC-USD).
In this article, we look at his prediction, share our own thoughts on it, and then discuss the investment outlook for gold, silver, and Bitcoin.
Mr. Kiyosaki’s Dire Real Estate Warning
Mr. Kiyosaki recently tweeted:
Greatest Real Estate crash ever. 2008 was the GFC. 2023 will make 2008 GFC look like nothing. In 2019 Office Towers in San Francisco were hot. In 2023 same buildings have lost 70% of value. What will WOKE cities do with office buildings? Homes for the homeless. Get [gold, silver, Bitcoin].
This comes on top of his previous prediction a few months ago that:
Giant crash coming. Depression possible. Fed forced to print billions in fake money. By 2025 gold at $5,000 silver at $500 and Bitcoin at $500,000. Why? Because faith in US dollar, fake money, will be destroyed. Gold & Silver God’s money. Bitcoin [is the] people’s money. Take care.
Is An Epic Real Estate Crash Coming?
There is certainly cause to be concerned about the real estate market right now. Just a few days ago, Politico published a piece, cautioning that
Some $1.5 trillion in mortgages will come due in the next two years, a potential time bomb as higher interest rates push down property values.
Elon Musk has repeatedly made similar remarks recently, predicting that not only will commercial real estate crash, but that home prices will also crumble.
Charlie Munger – perhaps the most authoritative person to speak out on the matter – recently stated:
A lot of real estate isn’t so good any more. We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.
So, yes, there seems to be a general consensus that all indicators point to a downturn and even potentially a crash in commercial real estate. Between the aforementioned wall of real estate debt maturing in the next two years (much of which was originally underwritten at much lower interest rates and more robust occupancy rates), the rising work from home trend which has been reducing demand for office space, and the accelerating job cuts as the economy heads into recession, the outlook for office land values looks very poor.
This outlook is particularly weak in major cities like New York, Los Angeles, and San Francisco where there already was an oversupply of office space that got only worse in the aftermath of government lockdowns and other regulations and mandates during COVID-19. Many businesses fled these municipalities for greener pastures in places like Florida and Texas that were mostly lockdown free and had few to zero mandates. Moreover, taxes, crime, and homelessness were generally not as bad in these regions, creating further incentive for employers to redomicile there. Overall, it looks like commercial real estate – especially in the large cities in liberal states – is in for a hard time ahead.
On the other hand, where housing goes from here is less certain as the work from home trend actually increases demand for housing space and housing supply is much tighter than office supply is at the moment. Moreover, many homes are tied to long-term fixed-rate mortgages that were refinanced when interest rates dipped in 2020-2021, so that sector of the real estate market is unlikely to face the same wall of interest rate driven headwinds in the coming years.
Nevertheless, home affordability has never been worse, so that will certainly pose as a severe headwind to housing prices and it would not surprise us in the least to see housing prices at the very least stagnate – if not decline – in the coming few years. This will be especially true if we indeed go into a recession and the unemployment rate rises, as demand will likely shrink meaningfully in such an environment.
Should You Buy Gold, Silver, And Bitcoin?
While we agree with Mr. Kiyosaki’s gloomy outlook for real estate (though whether or not it will be worse than 2008 is less clear in our view), what about his advice to buy gold, silver, and Bitcoin?
As we detailed recently, we think gold has a tremendous long-term outlook for the following reasons:
- Gold tends to outperform during a bad economy as it serves as a safe haven and the Federal Reserve tends to cut interest rates during recession, which increases the relative value of gold.
- Gold is a proven hedge against inflation, which is likely to persist due to runaway deficit spending and massive sovereign debt across many of the world’s economies, particularly in the U.S. and China. While not as strong as some out there, it nonetheless has proven to benefit more often than not from elevated levels of inflation:
Bloomberg Intelligence
- Gold is likely to benefit from the increasing challenges to U.S. Dollar supremacy and the very aggressive gold purchases from central banks right now.
Silver shares many of these same long-term tailwinds, though it lacks the same appeal to central banks as a monetary reserve. However, it also benefits from being a valuable industrial metal, especially in many renewable energy products like solar panels and wind turbines.
What about Bitcoin? This investment is more difficult to project how it would respond to an economic downturn given its much shorter track record and more speculative and volatile nature. That said, it is highly likely that in a scenario where the U.S. Government is forced to print a lot of money and slash interest rates along with macroeconomic and/or geopolitical uncertainty soaring, Bitcoin would likely enjoy tailwinds as investors in the U.S. and abroad will be scrambling for alternative stores of wealth from the stock market (SPY) and fiat currency.
On the other hand, the ever-present threat of harmful government regulation is seemingly growing at the moment, especially with the recent lawsuits against Coinbase (COIN) and Binance going on.
Investor Takeaway
While Mr. Kiyosaki’s concerns about the commercial real estate market – especially in liberal major urban centers like San Francisco – seem to have merit, we think his remarks may be a bit on the sensational side. In particular, we are not overly concerned about the state of U.S. housing as – while we are not bullish on home prices – we see supply remaining somewhat constrained, mortgage default risk is minimal given the mechanics of home mortgages and recent interest rate history, and housing space demand supported by the growing work-from-home movement.
Overall, however, we agree that office real estate investments are likely highly risky at best at this point. As a result, we are steering clear of highly leveraged office REITs like SL Green Realty (SLG) and Vornado Realty (VNO).
Moreover, we agree that gold and silver – and possibly Bitcoin – have a bullish outlook. While we remain on the sidelines with Bitcoin for now due to its highly speculative mature, we are not only long gold and silver directly, but we are also buying gold miners (GDX) like Barrick Gold (GOLD) quite aggressively during the recent dip in share prices.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
