The Crash You Won’t See Coming — Because It’s Already Started

The Real Estate Market Watch - current events through a real estate lens.

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12d ago 58:42

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The Real Estate Cycle: A Warning for 2026 Insights from Phil Anderson on the Coming Real Estate Market Crash In my conversation with renowned economist Phil Anderson, you will gain unprecedented insight into the mechanics of real estate cycles and why we are right on the precipice of the next major real estate market crash. Anderson, author of "The Secret Life of Real Estate and Banking," presents a compelling case that combines economic theory with historical precedent to paint a picture of where we stand today – and where we’re headed tomorrow. The Foundation: Understanding Economic Rent The Law That Economics Forgot To understand the thesis, here’s a powerful analogy: just as we accept the law of gravity dictates that a dropped pencil will fall to the ground, there exists an equally immutable economic law that has been largely forgotten. Anderson calls this the "law of economic rent" and it’s the principle that all of society's gains and benefits will ultimately gravitate toward land prices. This fundamental concept explains why we experience predictable real estate cycles. When society allows land earnings to capitalize into prices (typically representing 20 years of earnings), and banks are permitted to extend credit based on those inflated prices, a real estate cycle crash becomes inevitable. It's not a possibility – it's a mathematical certainty. The Erasure of Land from Economics Anderson reveals a crucial historical shift that occurred after World War I. Prior to 1907, economists universally recognized three factors of production: labor, capital, and land. However, as land reform movements gained momentum and threatened established interests, there was a deliberate effort to remove land from economic textbooks entirely. Today's economists learn only about labor and capital, treating land as merely another form of capital. This fundamental misunderstanding, Anderson argues, is why virtually no mainstream economists saw the 2008 financial crisis coming, nor will they recognize the signs of the coming downturn. The Cycle Mechanics: Why 18-20 Years? Historical Reliability The 18-20 year real estate cycle has been remarkably consistent throughout American history, documented back to 1800. Anderson traces this pattern through every major economic downturn: the 1920s, early 1970s, 1991, and 2008. In each case, the proximate cause wasn't what most economists claimed – it was the deflation of land prices. The current cycle began in 2012, marking the bottom of the last downturn. We are now in year 13 of the cycle, approaching the critical 14-year mark that historically signals the beginning of the end. Here’s how it works: The Anatomy of a Cycle Anderson explains that real estate cycles run like this:

The cycle is 18.6 years on average - "14 years up and 4 years down"
2012 was the bottom - Land prices peaked in 2006-2007, then had approximately 4 years down to the 2012 bottom
2026 is the projected peak - As Anderson states: "14 years up from there [2012] takes you to 2026. It really is that simple."
We're currently in year 13 - From 2012 bottom + 13 years = 2025, approaching the 14-year peak in 2026
Years 13-14 are the "Winner's Curse" - The final speculative phase when "animal spirits are truly unleashed."

Current Position in the Cycle This precise timing explains why Anderson identifies us as being in "the last couple of years of the cycle." All the current signals he observes - housing stocks rolling over, banking deregulation beginning, frenzied speculation in Bitcoin and cryptocurrency - point to our approach toward the 2026 peak rather than suggesting we've already arrived there. The critical insight is that we're in the dangerous final speculation phase right now. We're experiencing what Anderson calls the "Winner's Curse" period of years 13-14, when speculation reaches fever pitch and "animal spirits are truly unleashed." The peak is expected in 2026, which would then trigger the inevitable 4-year down phase running from 2026-2030. This timeline explains why Anderson emphasizes the urgency of preparation - we're not looking at some distant future event, but rather a cyclical turning point that's rapidly approaching and may have already begun. Presidential Patterns: The Republican Connection A Striking Historical Correlation One of Anderson's most intriguing observations concerns presidential politics. Since Abraham Lincoln's era, every final phase of a real estate cycle has coincided with a Republican president taking office. These aren't coincidences but reflect the political dynamics that emerge during speculative bubbles. Anderson notes the historical bookend: George Washington, the first president and America's largest landowner at the time, and now Donald Trump, the 47th president and a prominent real estate developer, both representing the connection between land ownership and political power. The Deregulation Imperative Following a predictable pattern, Republican administrations at cycle peaks immediately begin dismantling banking regulations. Anderson emphasizes this isn't partisan commentary but historical observation: "The very first thing they do is get rid of all bank regulation." This deregulation serves a specific function in the cycle – it allows banks to engage in the aggressive lending that characterizes the final speculative phase, ultimately setting the stage for the inevitable crash. Current Signals: Reading the Tea Leaves Housing Stocks as Leading Indicators Anderson employs the analytical methods of legendary trader W.D. Gann to read market signals. Housing stocks – companies like Lennar, Toll Brothers, and D.R. Horton – serve as the canary in the coal mine. These stocks historically peak 1-2 years before the broader market, as analysts recognize that rising land costs will eventually squeeze builder profits. During a brief banking scare in early 2023, while some worried about contagion, housing stocks actually made new highs - but have since peaked and rolled over and are now trending downward – a classic signal that the cycle is approaching its peak. The Dollar Dilemma For the first time in American history, we may face a scenario where the Federal Reserve cannot lower interest rates during a recession. This stems from growing concerns about the U.S. federal deficit and potential challenges to the dollar's reserve currency status. Anderson explains that while other countries have often faced this constraint – they cannot simply print money to solve problems – America has enjoyed "exorbitant privilege" of the dollar. However, current policies may be eroding international confidence in U.S. fiscal responsibility. The Speculation Frenzy: Bitcoin and Beyond Modern Manifestations of Ancient Patterns Every cycle's final phase features a speculative vehicle that captures public imagination. In the 1960s, it was oil and Boeing 747s. In the 1980s, real estate itself. In 2005-2007, it was mortgage-backed securities and subprime lending. Today's vehicle appears to be cryptocurrency, particularly Bitcoin. Anderson points to concerning developments like MicroStrategy's strategy of borrowing money to buy Bitcoin, which supports the stock price, enabling more borrowing for more Bitcoin – a classic pyramid structure. The involvement of political figures in similar cryptocurrency ventures only amplifies the speculative fervor that characterizes cycle peaks. The Psychology of Peaks Anderson describes the cycle as behaving like "a living entity" that must draw absolutely everyone in before it can peak. The market cannot top until there's no more money or credit available – until everyone is "all in." This psychological dynamic explains why peaks often coincide with maximum optimism and minimum skepticism. Strategic Positioning: Preparing for the Inevitable The Million-Dollar Question When asked how he would deploy $1 million today, Anderson's advice reflects the cycle's current stage: Immediate Actions:

Keep funds liquid and in banks rather than rushing into investments
Avoid taking on additional debt, especially at potentially rising interest rates
Prepare for property values to decline 20% or more

Positioning for Opportunity:

Maintain an exemplary financial profile to secure credit during the downturn
Prepare to be a buyer when others are forced sellers
Focus on cash preservation and credit access rather than current yields

Timeline Expectations Based on historical patterns, Anderson expects the downturn to begin around 2026, with the bottom likely occurring around 2031-2032 (years ending in "1" have historically marked recession bottoms in America). This suggests a 4-6 year period of adjustment, similar to the 2008-2012 cycle, presenting significant opportunities for those positioned correctly. Implications for Commercial Real Estate Reading Between the Lines For commercial real estate professionals, Anderson's analysis suggests several critical considerations:

Traditional metrics like cap rates, rent projections, and employment growth may be misleading at this cycle stage.
The fundamental driver – land values – is approaching a cyclical peak that transcends these conventional indicators.
The deregulation of banking, combined with potential Federal Reserve constraints, could create a uniquely challenging environment for real estate financing.
Unlike previous cycles, the usual monetary policy responses may not be available.

The Contrarian Opportunity While Anderson's analysis paints a sobering picture of the near-term outlook, it also illuminates tremendous opportunity for those who understand and prepare for the cycle. The next 2-3 years may offer the last chances to position defensively before the inevitable adjustment. The key insight is that real estate cycles are not random events but predictable phenomena driven by fundamental economic laws. Those who understand these patterns can navigate them successfully, while those who ignore them risk being caught unprepared when the cycle turns. Anderson's message is ultimately one of empowerment through knowledge: understand the cycle, respect its power, and position accordingly. The pencil will fall – the only question is whether you'll be ready when it does. *** In this series, I cut through the noise to examine how shifting macroeconomic forces and rising geopolitical risk are reshaping real estate investing. With insights from economists, academics, and seasoned professionals, this show helps investors respond to market uncertainty with clarity, discipline, and a focus on downside protection. Subscribe to my free newsletter for timely updates, insights, and tools to help you navigate today’s volatile real estate landscape. You’ll get:

Straight talk on what happens when confidence meets correction - no hype, no spin, no fluff.
Real implications of macro trends for investors and sponsors with actionable guidance.
Insights from real estate professionals who’ve been through it all before.

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