For some time now (years?), Mish has made the case that we would see a deflationary collapse. I think he is right.

But I also think this deflation could be short-lived, as the government/cabal will use all available options to stimulate the economy. But, I am no economist. I see this from the perspective of a software guy who wants to conserve capital and make money building systems that will profit from this secular change.

The change I am talking about is one where the psychology associated with the purchase of many, if not all classes of assets is re-evaluated.

Obviously, average people with some amount of money to invest are going to have some increased barriers to entry in making certain investments. Lets take real-estate, for example. What increased barriers might exist for residential real estate investment going forwards?

• Uncertainty about the direction of prices–psychology has changed. Greed has become fear.
• Tighter lending standards
• The small matter of much of the banking system being insolvent, and the impacts that may have on the availability of credit

No doubt, house prices have fallen. In my view, they have further to fall. Prices have to get back in line with incomes.

Who will buy, then?

I think the buyers will be investors with the following:

• ability to hedge against capital losses due to falling prices (or guts)
• confidence about their ability to prove ownership
• confidence about their ability to manage properties
• appropriate scale to manage their properties
• an edge with regards to finding and retaining good tenant
• some capacity to strike a bargain with good tenants

Good Tenants? How about Good Landlords?

Good tenants will need something extra. A different relationship with the owner. The Landlord/Renter relationship has to change, because the risks are different.

These days, who is more likely to go belly up? The Landlord or the Renter? Surely this has to be factored into the solution.

We need new sources of trust in real estate. We don’t need more NAR economists like Yun or Lereah. We need:

• contractual rebalancing (contracts chosen by both parties based on a market system)
• proper payment escrow support
• practical, verifiable standards of tenant responsibilities
• practical, verifiable standards of landlord responsibilities
• balanced arbitration support

Sure, there are laws that will get in the way. But this will happen by mutual consent of both parties.

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Idle Assets and Exclusive Policies

When a house sits empty, several problems arise.

• broken windows
• squatters may take posession.
• grass grows out of control
• bad for morale of neighborhood.

The number of vacant houses in the US is growing. Rapidly. The following chart is brought to you by Calculated Risk

I recommend reading the Full Article.

Clearly, the owners of this idle asset have an interest in cutting their losses. But so does the neighborhood: ultimately, empty houses (condos, whatever) is bad for property values.

So one of the first issues we are going to tackle is the idea of regulation within a community (e.g., the Home Owner’s Association), and whether we ought to expect that HOA’s will, en-masse, take actions to effectively lower the barrier to entry in the community. Such regulatory changes could affect things like:

• parking constraints (no commercial trucks)
• bans on daycare businesses within houses
• bans on multi-family occupancy
• bans on renting housing

My guess is that HOA’s will move in this direction for the simple reason that it allows them to reduce the number of empty or abandoned houses.

At the high end of the market, this would have a negative effect, as exclusivity is a major selling point. We’ll have to keep our eyes on this.

What might the secondary effects of this kind of change be? How would it affect the way people choose housing? What is the nature of the platform that could turn this trend into a competitive advantage?

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