What Happens To Real Estate When The Dollar Collapses

A lot of people are worried right now that the dollar could eventually become completely worthless and that is not without warrant because this has happened to many different civilizations in the past. Probably the most recent one was in Germany back in 1923 when people were literally pushing around wheelbarrows full of cash in order to pay for a loaf of bread. At least that's how the story goes. I wasn't there. And so today I want to talk about what happens to real estate when the U.S. dollar collapses because it seems like we are on this inevitable path that this is going to happen. And depending on what you do before this happens, you can either end up completely broke or massively wealthy or at least a lot wealthier than the average person. Because the thing about inflation, especially hyperinflation, it can make all of your debts kind of disappear overnight. Like let's say you owe $300,000 on the mortgage of your house, right? And then hyperinflation hits and you borrow a bunch of money right before that. Well, now all of a sudden you have a ton of cash to pay off that $300,000 mortgage and it's like peanuts now. Because, you know, if you were to borrow that same amount of money today, it'd probably be more like borrowing $3 million. That's kind of like a great example of how this could work in your favor. But obviously you can see the opposite way of how it can easily destroy your finances if you're not ready. And today I'm walking on Shelter Bay Avenue and we'll be walking along the waterfront here as well in Mill Valley. Now going back to 1923 in Germany, when the currency in Germany collapsed, all debts, including mortgage debt, were completely wiped out in real terms, kind of like the example I just gave. And borrowers could pay off homes with just a handful of worthless notes and that's kind of how it went. And anybody who saved money or lenders back in these days got completely wiped out financially. We also saw similar patterns happen in Zimbabwe back in 2008. They experienced hyperinflation. And in Argentina, where people have been trying to preserve the value of their currency by buying property in US dollars. That's why you see so many South Americans come to Miami and buy real estate there, even at our crazy prices, because they look at it as a hedge against inflation. Because if you think the dollar is worthless, it's so much worse in South America, particularly Argentina. And so basically the way things go is when paper money fails, people kind of flock to hard assets and real estate is one of them. Now so far the US has never faced hyperinflation, but never say never, because we are on a direct path to experience it if we keep going in this direction, which we're showing no signs of slowing down. In fact, the current administration just wants to speed that up. That's kind of how it looks, especially with everything that's in the new big beautiful bill and all the spending and the tax cuts that have recently passed. In the 1970s was probably the worst bout of inflation the US has ever experienced. And fast forward to today has been the second worst, at least by the official numbers, when you go by people's real living standards and how much people's real cost of living have been going up. Well, then I think that paints a different story because the official numbers definitely don't tell the full story here. Right now the US government owes about 37 trillion dollars in debt and the interest payments are now larger than the military spending. And by the end of the year, the debt is going to be the largest line item in our national budget. Think about that for a minute. So here's the problem. The debt is soon going to be unpayable and history has shown us that you have two ways out of it. You can either inflate it away or default. And the governments in the past have pretty much always chose inflation. I just hope that one day when we get to the absolute point of no return, that somebody is level headed enough that works in our government that can turn it all around. Guys, I really hope that could be the case. It's not going to be me, unfortunately, but hopefully someone who thinks like me. So if this were to happen, inflation is obviously going to shoot through the roof. Prices of everyday goods sky rocket as the dollar's purchasing power completely evaporates and interest rates shoot up either to fight inflation or because lenders demand higher returns. Most likely it's going to be both. And we just saw a small preview of this recently when the Fed hiked rates and interest rates for everything went up to the point where people couldn't afford to borrow anymore. And I think this had the largest effect on corporate America, who is so used to borrowing cheap money to fuel their business model, especially investors in commercial real estate. But in a full collapse scenario, it would be total chaos. Mortgage rates would be in the double digits. There would be credit freezes across the board. Homebuyers would be completely gone. But remember, like I said before, in a full out collapse scenario, when people are looking to preserve their wealth, they're probably going to flock to hard assets, which could be things like gold, silver, real estate, things you can actually touch and that you own. Real estate is kind of questionable if you really own it. You're kind of renting from the government long term since you've got to pay property taxes forever. But that's a conversation for another day. So the people who are going to be winners in a scenario like this are homeowners who have fixed rate mortgages and their debts essentially get inflated away with all the cheap money and real estate investors holding property with long term financing. The losers are going to be renters because rents would rise fast as landlords try to keep up with inflation, although they're going to lose their tenants if they try to raise the rents that fast and they're going to lose their property anyways. So not too smart. But theoretically, that's what a lot of landlords would try to do. We saw that during the pandemic. People who are also savers and retirees would be completely wiped out because their cash would be worthless and their fixed income would mean nothing anymore. And any banks that were holding long term notes like mortgages would be wiped out because those loans would essentially be worthless now. So in fact, if hyperinflation comes to fruition, whoever is in the most debt actually wins, which goes completely against the financial norms. You know, normally right now, people who are in the most debt, at least if it's bad debt, are completely buried in it and they can't make a single financial move without taking on more of it. You know, people who use good debt and they use it to buy properties and create cash flow, things like that, then it's good. But most people don't do that, unfortunately. Most people are buried in credit card debt, personal loan debt, home equity loans, stuff like that. But in an all-out collapse hyperinflation scenario, the more debt you have, well, doesn't really matter because now that debt is kind of worthless. If you owe $300,000 on your house and the dollar loses 90 percent of its value, well, then your debt effectively shrinks down to $30,000. But there is a catch to all of this, especially if you want to come out ahead. And that is if you lose your job in the chaos, which a lot of people will, or you have an adjustable rate mortgage, you could definitely lose the house before inflation helps you. And of course, the government would try riding to the rescue as they usually do with everything else. But the problem is any of their solutions always come with a major drawback, just like we saw with their solutions to the pandemic. Look where we ended up now because of those solutions. Nobody can afford anything anymore. And if you think it's bad now, it'd be so much worse if this all ends up happening. If they decided to cap rents so people could afford rents, put a moratorium on rent prices going up, then it would basically destroy any incentive for a landlord to offer a property to a tenant who's willing to pay because they know they're not going to be able to recover their costs. If they did rate caps, then they would freeze lending. If they decided to print more money, then inflation gets even worse. So there's really no good solution to what they would do. They never have any good answers to any of this stuff. And the real solution is to stabilize the currency. You know, we would have to go back on the gold standard, essentially. It could be backed by anything that is solid and anything that can't be artificially produced. But it does have to be backed by something. In the past, it was always the gold standard. And that worked very well for our country until we decided to take ourselves off of it in 1971. And we can see how well that ended for everybody. And it's hard to say what's going to happen. Like if the dollar were to collapse, are we going to see a collapse of all the other currencies around the world as well? Because a lot of other currencies rely on the dollar to value their currencies. And even with how bad the dollar is in terms of us inflating away the value, it is still the best currency in the world to hold if you're going to hold a currency. So if the dollar were to collapse, I would have a hard time thinking that any other nation's currency would still be retaining its value. But in the event that it did, you would see a lot of people come here, buy up U.S. real estate because it would be cheap for them. This is typically what's happened in other countries where their currencies have collapsed in the past. And it's actually for a lot of these same reasons that the government doesn't ever want to see deflation because that can make your debt even more burdensome. And that can crush people's wages even faster because people could see their wages go down if there was a lot of deflation. So essentially, we can see a lot of the socioeconomic problems that we would see with inflation with deflation. At least that's the theory. But if they would have deflation in small amounts like they want to have inflation every year, well, that would be good for everybody. The problem is that's never going to happen because nobody ever wants less of anything. Everybody always wants more, more, and more. But I would say this, and this is the one good thing about owning real estate these days versus being a renter, is that even in an all-out collapse scenario or situation, the one good thing about your house is it is real. It is a tangible, physical asset that you can actually live in, and that is worth something. Of course, property taxes and insurance would rise during this time, but the price of your house would literally become meaningless. The fact that you own it and you have a place to live would be the most valuable thing that you have in this type of situation. And this isn't to just push everybody to go out there and buy real estate. It's just kind of a preview of how things might look if something like this were to happen. But if you are interested in buying a house, always remember, I have a link for you down below. And in case anybody needs a real estate agent anywhere in the country, I can hook you up with that 100% free in all 50 states. All you got to do is sign up for it and follow the prompts and my team will handle the rest and get in touch with you ASAP. And if you use it, it helps the channel and I really appreciate it. Now, a lot of people like to listen to Dave Ramsey and his advice about getting out of debt and homeownership and things like that. And I actually have a lot in common with Dave Ramsey in terms of my beliefs, but we also have some differences as well. And if you are going to jump into buying a house right now in 2025, I want to go over some of Dave Ramsey's requirements that you should have if you want to buy a home to see how many of them I agree with and how many of them I can push back on. The first one is that Dave Ramsey insists that you must be completely free of debt, except for mortgage debt, no credit card balances, no student loans, car payments, or any other consumer debt. And this ensures that housing costs will not compete with the other debt obligations. Now, I like that theory because it means that you have to be extremely responsible and get out of all of that debt before even thinking about becoming a homeowner. And once you become a homeowner, then you're going to be 100% solid. You're not going to have to worry about financial problems unless you have a major medical issue or you lose a job and you don't have any savings, something like that. But I would imagine somebody who's able to get out of all of their consumer debt and then buy a home is going to have a substantial amount of savings. But I will say that in 2025, with the cost of living that people are looking at right now, this might be completely unrealistic, guys. To be out of all forms of debt before buying, maybe not all, but I would say most. I would say being out of your most difficult debt, meaning your highest payments, meaning definitely not having that $700 or $1,000 a month car payment. If you're paying $500 or $1,000 a month in student loans, getting rid of that too. Credit card debt, that's pretty much a no-brainer. You shouldn't even have credit card debt regardless of whether or not you want to buy a house. But say if you have a student loan payment that's only $200 or $300 a month and it's manageable and it's not causing you real financial trouble, then I would say that shouldn't be a reason that should hold you back from becoming a homeowner if every other aspect of your life you are actually ready. The other thing Dave says is to have a fully funded emergency fund anywhere between three to six months. And this protects you against the job loss, medical expense, or home repairs without forcing homeowners into debt. I like this one too. In fact, I would even say that you should have a six to 12 month emergency fund. Look at all the stories we've covered over the past couple of months of people losing jobs and not having the money to pay for things and being forced into gig work and going really deep into debt just to be able to pay the bills. It's not a situation you want to find yourself in. The other thing Dave says to do is to be able to afford a 15 year fixed rate mortgage. He doesn't like the 30 year mortgages at all. He says they're unnecessarily expensive due to the interest costs and the shorter loan term forces borrowers to buy less house that builds equity faster. I actually liked that one a lot. The one caveat I would say to that is say you're in a position where you know you want to pay off your loan early, right? And you want to have the lowest possible payment up front so that way you can pay off that loan early. Well then it might make more sense to still get the 30 year loan because you have no intention on keeping it for 30 years. Maybe you'll pay it off in 15 or 10 years. And in the meantime, you can have a lower payment, which can help you pay it off faster. But the 15 year mortgage, on the other hand, kind of forces you to do that naturally with the terms of the loan. So I guess it depends on your financial strategy and how you want to handle things. His next rule of thumb is to keep housing costs under 25% of your take home pay, not gross pay. This includes your principal interest taxes and insurance. Staying below this threshold leaves room for other financial goals and unexpected expenses. I would agree with this one also, but going back to the first point, is this going to be realistic for a lot of people? Probably not. In fact, people who make the median income in this country can only afford 30% of the homes on the market. And that's with using a 35% gross pay to afford the mortgage guys. So if you're talking 25% of take home pay, then the median income household is essentially screwed. They can afford nothing, like zero homes on the market. So that's why I say it's unrealistic. Is it better Dave's way? Yeah, absolutely it is. Is it realistic? Probably not. So what he suggests to do, and if you can't meet these criteria, is you should rent for longer and pay off your debt, build your savings. He also says that delayed home ownership usually leads to better financial outcomes because if people wait until they can fit more of this criteria, then they will buy more of the appropriate house with manageable payments, avoiding the financial stress that comes with overextending. So overall, I completely agree with Dave Ramsey on this. He said some things in the past that I definitely don't agree with. And you know, one thing he doesn't like is using debt at all or having debt for anything, but you can definitely use debt in smart ways. But the problem is most people don't. Now let's talk about mortgage rates for a minute because mortgage rates have been coming down and a new study came out from Lending Tree that shows that the recent rate drops could save potential homebuyers around $40,000 of interest over the life of a 30 year loan. The fixed 30 year rate mortgage is at 6.3% right now. And this is about as low as they have been in a year. So a lot of people are getting all excited about this. And mortgage applications have been ticking up recently. They're up about 14% compared to a year ago. And the amount of buyers who are signing purchase contracts is up 3.8% from one year ago. But you know, they try to make it sound all exciting, like, oh, you're going to save $40,000 over the life of the loan. But what this really breaks down to guys is people would be saving about $112 a month, which equals about $1,340 a year. In my opinion, that is not what's getting people off the sidelines to buy right now. In my opinion, it is the price cuts and then you combine it with some lower mortgage rates. Well, affordability has been increasing lately. Is it back to where it should be right now? Definitely not. But is it getting better than it was two or three years ago? 100%. And so saving $112 a month isn't going to move the needle for most folks, but saving $500 or $600 a month definitely is. And that's what's happening when you combine these lower rates with lower prices. I've shown you guys countless examples in my videos of homes that are literally losing money right now. People who bought houses back in 2022, that they're trying to sell for a profit and it's not happening and they're being forced to sell at a loss. Even in some of the most expensive markets like Massachusetts, California, and Washington DC, homebuyers are still only seeing about a $210 a month average savings or $76,000 over 30 years. I mean, it's essentially nothing guys. I'm not saying it's 100% nothing, but it's not enough for people to say, Oh look, it's $200 less. Now all of a sudden I'll be willing to pay a million dollars for this house. No. But if that million dollar house drops to $850 and the mortgage rates come down, maybe people will give it a second look, you know? And of course you should always shop around for your mortgage and get the best rate. You can also pay points to bring down your APR and you can consider getting the 15-year mortgage if you can swing it like Dave says you should do. One of my viewers, Kay, recently commented on my video saying, Hey Michael, mortgage loan closer here and we have been super busy with refinances, especially cash outs. And it's sad because a lot of them were free and clear. Great video as usual. So what does that mean? People who owed nothing on their house are now pulling equity out of the house in 2025 to be able to pay the bills. I mean, why else would someone do that? Guys, if you have a house that's 100% paid for, why on earth would you borrow against it unless you needed to? There's no good reason. This is part of the mortgage story and the rate story that they don't really put out there very often. You know, you don't hear this side of the story because they just want to pump up the housing market and make it sound great. Like, Oh, rates are coming down. This is why buyers are jumping back in. No, it's not. It's only one piece of the pie of why they're jumping back in. I've seen sizable price cuts on different properties throughout my summer here in California, as well as when I'm in Florida. And those price cuts are definitely enough to get people looking at buying again. Just like the cost of living going up has been a big enough reason for a lot of people to borrow against their paid off house that they never thought they were going to have to need to do that. But the cost of living is forcing them to. So never trust the headlines, guys. Look past the headlines, read what you're being told and digest these things for yourself to see if the stories people are telling out there are really adding up. Because when you read between the lines, it's a much different narrative than what the headlines tell us. You know, if you just look at, Oh, look, mortgage activities up 14% year over year, it gives buyers FOMO like, Oh my God, I better jump back in the market before prices explode again. No, buyers are jumping back in the market because prices are down, making it more affordable and more attractive to buy for the first time in a while. So if you guys enjoyed this video, make sure you subscribe to the channel. And if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.