Dear Member,

Today, nearly 50% of single-family homes are purchased with all cash by investor pools or other cash buyers, like the Chinese bus tours they do here in my home state of California.

With rates at generational lows and the government responsible for backing or funding most of today’s mortgages, housing is in yet another bubble, specifically in the Northeast and South Western United States.California, Arizona, and Nevada are even experiencing bubble mania again in some areas, with the first time flippers entering the market via large convention hall conferences that promise to turn interested prospects into real estate millionaires.

With the Class of 2009 through 2014 unable to find work, even the government numbers have them with a 10% unemployment rate. However, according to, the real underemployment rate for people between the ages of 18 to 29 is over 25%!

Even those who do have a job, nearly 50% of them are working in a job that does not require a college degree. These numbers are proving to support our prediction that America will become a landlord nation, with a massive rental boom happening over the next 10 years as the U.S. transforms from a home ownership society to a renter one.

Weak Signs from Housing Market

Weak signs starting to show from a housing market that was built on air…low rates, government funding, and millions of homes being kept off the market by the big banks to artificially reduce supply. Sales of both new and existing homes are flat to down. Housing starts are back to under 1 million units and mortgage rates are creeping up.

There is no first time buyer, and worst of all, we have the baby boomer generation that is looking to downsize, so the demand is low and supply will soon come in like a tidal wave. Further signs came last week with Staples, Home Depot, Dick’s Sporting Goods, and PetSmart all coming in below expectations with their earnings. Overall retail sales were a disaster last week, with the exception of luxury jewelry retailer Tiffany & Co.

Apparently the rich can still shop in the snow, but the middle class can’t, at least that could be your assessment if you buy the weather story pushed by CNBC’er and government officials. No doubt the rich have benefited the most from the rising stock market, housing recovery, and low borrowing rates. I believe Tiffany’s had their best quarter ever, coming in 50% higher than analyst expectations.

I think buying housing for appreciation is a big mistake, we are now at the point where low rates have done all that they can and now rates have only one direction to go, and that’s up.’s assessment is that rates will still stay low for the remainder of this decade, however it still doesn’t change the fact that in places like California, housing has likely plateaued.

Texas, Oklahoma, Kansas, North Dakota, and Wyoming will be the 5 outliers in our opinion due to the shale oil boom these states are experiencing. These states also have very low tax rates which is adding to the great migration we are seeing from the left and right coast to friendlier states like Texas.

Our Recommendation Regarding Real Estate Investments

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  • Sell residential real estate in California and the north east in 2014 and avoid Arizona and Nevada which have become saturated with speculators and cash buyers.
  • When buying a rental property, buy up to a P/E of 8. Take the annual gross rents, multiply them by 8, this should be the most you are willing to pay. Of course make sure it also cash flows as well.
  • Take a small speculative position in the Daily Real Estate Bear ETF, using symbol DRV. Make sure to set a 25% trailing stop loss.
  • Or, just watch this market implode for the entertainment value as the FED has yet again created another housing bubble.


Have a prosperous week!
Daniel Ameduri