US Real Estate Cycles: Dubious Speculation with Jason Pizzino

The 18-Year Real Estate Cycle [00:03:00]

• The 18-year real estate cycle is based on 220 years of US real estate sales data.
• The current cycle began around 2011-2012 and is nearing its peak.
• The cycle is divided into the first half, second half, and peak collapse.

  "So the first half of the cycle, no one believes that we've begun a new cycle."

First Half of the Cycle [00:04:00]

• During the first half, people generally do not believe the cycle has begun.
• The period from 2011-2014 was marked by widespread fear and recession calls.
• Fears of European economic collapse were prevalent.

  "So the first half of the cycle, no one believes that we've begun a new cycle."

Peak and Mid-Cycle Slowdown [00:05:00]

• The last peak before the mid-cycle slowdown occurred around 2018-2020.
• The mid-cycle slowdown in 2020 was catalyzed by the COVID-19 event.
• Mid-cycle events are typically financial, not land-led recessions.

  "Around 2018 through to early 2020 was the last peak of before the mid-cycle slowdown."

Second Half of the Cycle: The Winner's Curse [00:05:30]

• From 2020 to roughly 2022, there was significant money printing and a pullback.
• The years 2023-2024 represent the final two years of the second half, known as the "winner's curse."
• This phase sees everyone making money, leveraging up, and investing heavily, similar to market peaks.

  "Basically, everyone's been making money over these last few years. Everyone wants to make more money."

Approaching the Peak [00:06:30]

• The current situation mirrors the point where everyone is in the market, signaling a potential peak.
• Real estate typically peaks before stock markets.
• The peak is not a singular event, but a period of slowing down leading to a catalyst.

  "So we're kind of getting to that point now for the stock market, whereas for real estate, that usually happens first and then things start to eventually roll over."

Cycle Duration and Collapse [00:07:30]

• The cycle is roughly 14 years up, with two events breaking it in the middle.
• This is followed by a collapse at the end of the cycle.
• The 2008 crisis, with Lehman Brothers, is a remembered catalyst, but the slowdown began earlier.

  "Roughly 14 years up, two events. You got something that breaks it in the middle almost every single time."

Current Real Estate Market Position [00:09:00]

• For US real estate, the current position is at the top of the cycle, indicated by a yellow dot on a chart.
• Some markets have been correcting since 2022, while others are starting to recover.
• San Francisco and areas on the West Coast are showing signs of bouncing back.

  "For the US real estate, we're basically where this yellow dot is at the top."

Severity of Downturns [00:10:00]

• The 2008 housing market collapse saw prices drop significantly (30-40% or more).
• Downturns are not always as severe; the 1989-1992 low was less severe than 2008.
• There's a 40-year pattern of major collapses, with the one before 2008 being around 1989-1992.

  "So this time around, it might not be as severe for the US."

Homebuilders' Resilience [00:11:00]

• US homebuilders are holding up better this cycle compared to the last.
• They are less leveraged and hold less land, making them less vulnerable to downturns.
• This suggests the current downturn may not be as severe as in 2008.

  "So you're not seeing it as severe as what we did last time."

Australian Real Estate Market [00:11:30]

• Australia's property market has experienced extreme growth, with prices not expected to fall by many.
• Since May, prices have dropped 5-10% in some areas, with the top end down 20-25%.
• This is partly due to interest rate hikes starting in February/March.

  "Property prices, everyone did not believe that real estate prices would come down in Australia if you spoke to them last year."

US Dollar Cycle [00:18:00]

• The US dollar typically rises in the first half of the real estate cycle and falls in the second half.
• The dollar has been heading up from its lows but is showing signs of pulling back.
• A potential lower high around 104-105 is expected before a decline towards 96.

  "The US dollar in the first half of the real estate cycle typically goes up and then in the second half of the real estate cycle, it generally goes down."

Commodities: Gold and Silver [00:20:00]

• Commodities like gold and silver tend to head higher towards the end of the real estate cycle.
• Gold has not broken key levels, and its current move might be a "dead cat bounce."
• A breakout or breakdown for gold is expected in the first half of 2027, approximately 16-19 months from the current peak.

  "So you start to see commodities peak. It doesn't mean that they all run to all time highs at the end of these cycles, but they start to have a little uptick."

REITs vs. Direct Real Estate Investment [00:23:30]

• REITs (Real Estate Investment Trusts) have historically underperformed the S&P 500.
• Direct real estate investment offers more control and potential for value addition.
• Investing directly is recommended over REITs for those seeking real estate exposure.

  "So you would say if you want to get into real estate, actually get into it. Don't just half get into it by buying a REIT."

Real Estate Investment Strategy [00:24:30]

• For real estate investors, understanding the local market data is crucial.
• Areas with declining prices and negative sentiment might offer opportunities.
• Credit conditions are typically poor at the bottom of a real estate cycle, making financing difficult.

  "It doesn't mean it's going to take, go off to the races next year or in the next two or three years, because we could still be going through consolidation and accumulation."

Bitcoin and Crypto Market Outlook [00:15:00]

• Bitcoin may rally from current levels, but massive gains seen in previous cycles are less likely.
• Diminishing returns are expected, with potential rallies of 100-200% rather than multi-hundred percent gains.
• Economic downturns and credit contraction could temper Bitcoin's future returns.

  "I think it's more unlikely that we would see something like this again. We obviously know the diminishing returns that, that you've coined."

Real Estate Cycle's Impact on Bitcoin [00:17:00]

• Real estate usually tops first, followed by the stock market, which can continue to run.
• This lead time can influence the timing and magnitude of Bitcoin's cycles.
• A potential real estate downturn could temper Bitcoin's returns in later cycle phases.

  "So with the, as we said, with the real estate cycle, here we are here, the real estate usually tops first and the stock market can keep running."

Homebuilder Stock (DHI) as an Indicator [00:12:00]

• DR Horton (DHI), a major US homebuilder, can act as a leading indicator for the real estate market.
• In prior cycles, DHI peaked before the stock market and bottomed out earlier.
• DHI's performance in the current cycle suggests a potential peak in late 2024, with a stock market peak possibly in the first half of 2027.

  "So it was giving a lead that things weren't stable in the real estate market long before the stock market peaked."

Potential Trough for Real Estate [00:14:00]

• Based on national averages, the trough of the real estate cycle could occur approximately four years after the peak.
• This suggests a potential trough around 2029-2030 for the US national average.
• The exact timing depends on when the peak is definitively established.

  "What we've seen is about four years from the peak. Okay. So it could be 20, 29, 20, 30."

Shemitah Cycle [00:29:00]

• The Shemitah cycle is a seven-year cycle from Jewish tradition, with every seventh year being a reset year.
• Historically, years like 2028, 2029, 2022, 2015, 2008, 2001, 1994, 1987, and 1980 have shown significant market events or flatness.
• This cycle suggests a potential downturn or sideways movement around 2028-2029.

  "And when you look back over a hundred years, it's like every seven years starting the next one, 20, 28 or 20, 29, 20, 29, 22, the last one, 2015 didn't go anywhere."

Left-Translated Bitcoin Cycles [00:28:00]

• There's a possibility of a "left-translated" Bitcoin cycle, meaning it tops earlier than usual.
• Evidence suggests Bitcoin may have topped against gold and some fiat currencies earlier in 2024.
• This could indicate a shorter bull market or a less dramatic peak compared to previous cycles.

  "I think this time, I think, I think this will be a left hand, left translated cycle, you know, the left hand, you got your left translated."

Market Expectations and Patience [00:27:00]

• Investors often focus on short-term gains, but macro trends require patience.
• Adjusting expectations for smaller, more realistic returns (e.g., 50-100%) is important.
• Continuing to DCA (Dollar-Cost Average) into assets like Bitcoin, especially in the second half of a midterm year, has historically been a successful strategy.

  "And that's probably something you've noticed over the years, uh, many people don't have patience."

Federal Reserve and Interest Rates [00:21:00]

• Conflicting economic data (inflation vs. job reports) creates uncertainty for the Fed.
• There's speculation about potential rate hikes, which have occurred in other major economies.
• Historically, rate hikes have occurred towards the end of cycles to cool things down.

  "I think eventually they'll have to, whether it's the next thing they do and it's, I don't know, but I think before the, the end of the cycle, so whether it's the real estate cycle and then into the stock market cycle, I think they'll have to raise at least once."

Real Estate vs. Stock Market Investment [00:25:30]

• Real estate offers potential for adding value and can be less volatile than stocks, acting as a portfolio diversifier.
• Stock market investing is simpler and more liquid.
• The decision between real estate and stocks depends on individual strategy, risk tolerance, and market conditions.

  "Real estate, you can start to add some value to it. And I'm sure your mates have talked about that as well."

Australian Market Specifics [00:26:00]

• Melbourne's unit prices are described as "insane" and the area has terrible sentiment.
• Sydney is coming down, but not as severely as Melbourne, with the top end hit hard and the lower end holding steady.
• Interest rate rises have pushed buyers to the bottom end in Sydney, causing a turnaround there.

  "Like that area, it's just shot to crap. Everyone hates it. And the unit price is insane. It's really crazy."

US Dollar's Role in Cycles [00:18:30]

• The US dollar's movement is closely tied to the real estate cycle phases.
• A potential higher low for the dollar could signal a new upward trend, contradicting the general population's belief that the dollar is finished.
• The dollar has been in a trading range since the 1990s, with a brief spike in the eighties.

  "If this happens to be a higher low, that could be, that could be a new start for the US dollar heading higher, which would be a massive contrarian idea."

Gold's Potential Top [00:20:30]

• While gold has moved up, it hasn't broken key levels, and its current move might be temporary.
• A definitive answer on whether the current high is the ultimate top for gold is expected in the first half of 2027.
• Historically, gold cycles have lasted around 16-19 months, similar to previous moves in 2006, 2008, and 2011.

  "Gold, it hasn't broken any of the key levels. I've been talking about this just being a like a dead cat bounce in this downtrend where it just needs to consolidate for this year."

Silver's Uncertainty [00:21:00]

• The speaker is less sure about silver's trajectory compared to gold.
• Silver experienced a massive drop in 2008 but had time to recover.
• Patience is advised for silver, waiting for it to break above $88 and consolidate before expecting a significant move.

  "I'm a little bit unsure of that gold. It hasn't broken any of the key levels."

Real Estate Investment: Localized Opportunities [00:26:30]

• Real estate investment is highly localized, with opportunities varying significantly by region.
• In Australia, some areas are undervalued, selling for less than construction costs.
• The speaker is looking at areas far away with terrible sentiment, like Melbourne, for potential investment.

  "My area, they're not down. It's so high. I'm not buying in my area. I'm looking out."

The Importance of Cash Reserves [00:31:00]

• Holding some cash is advisable, especially if anticipating a market correction.
• This cash can be used to buy assets at lower prices during downturns.
• However, being entirely in cash is not recommended, as it misses potential gains.

  "I think that's kind of a, maybe a reason to just have some cash on hands, especially if you think it's going to happen, but that doesn't mean be a hundred percent cash."

Timing the Market vs. DCA [00:30:00]

• Timing the market is extremely difficult, and best investors advise against it.
• Consistent monthly investments (DCA) in index funds have historically been a reliable strategy.
• Even if corrections occur, DCA allows for buying more shares at lower prices over time.

  "The best investors will tell you not to, um, I know, no, I mean, it's true."

Asset Allocation and Risk Management [00:26:00]

• Diversifying across asset classes like stocks and real estate helps manage risk.
• Real estate can offer lower volatility compared to the stock market.
• The goal is to balance portfolio risk and achieve desired risk-adjusted returns.

  "If you start to see that tank, you're like, I'll have less volatility in my real estate position."

Long-Term Outlook for Commodities [00:23:00]

• After decades of strong performance, a prolonged bull run for commodities may be unlikely.
• Central banks buying gold to shore up balance sheets suggests a potential final push before a longer downturn.
• The speaker hopes gold remains bullish for another year or two but acknowledges historical patterns.

  "It's done a fair bit of a move. And if we get this one last push, I think that could be it for gold for quite some time, just like what's happened throughout history."

Real Estate Investment: Adding Value [00:26:00]

• Unlike stocks, real estate allows investors to actively add value through renovations or improvements.
• This can enhance returns beyond just market appreciation.
• This active involvement is a key differentiator from passive stock market investing.

  "So for you, investing in the stock market makes far more sense. It's just way less levers to stuff around with."