Guess What Netflix is Telling Us About the Real Estate Market
When the general public becomes fascinated with an investment subject, it is usually a great indication that a bull market is nearing its end. Netflix viewership provides some very poignant insights into the real estate market in the United States.
Carden Capital spent the last two weeks meeting with current and potential clients in Denver, Las Vegas, and Los Angeles. Amongst them were many real estate developers who have made substantial money in the last five years. Most of these developers were quite nervous as real estate prices have now become so high in many regions and across a wide spectrum of segments that new projects, in spite of extraordinarily cheap debt, often no longer make financial sense.
These discussions correspond with our view that real estate is near its peak in the United States. Month over month increases in real estate indices appear to be slowing which indicates a curve reaching its peak. In many locations, the top end of the market has in fact already been falling for several months, typically a leading indicator for the rest of the market.
Obviously, talking to the real-world experts and extrapolating indices are insightful data points. However, we recently discovered another data point that gives further reason for concern: A few days ago we analyzed the Trending Now feature on Netflix, which features TV shows that are particularly popular. To our surprise there were no less than 12 shows produced in the last three years related to real estate, all of which are Trending Now. Most of these shows have to do with finding deals and flipping homes for a profit, all topics that sound really exciting to the general public when a lot of people have been making money for a long enough time. Here’s a list of shows we found followed by their launch date:
- Texas Flip and Move 2015
- Love It or List It, Too 2015
- Half-Price Paradise 2015
- Lakefront Bargain Hunt 2014
- Fixer Upper 2014
- You Live in What 2014
- Mega Mansions 2014
- Property Brothers at Home 2014
- Tiny House Hunters 2014
- Tiny House Builders 2014
- Flip or Flop 2013
- House Hunters International Renovation 2013
Netflix has almost fifty million households subscribing to its service in the United States. Assuming the overall US ratio of 2.54 persons/household ratio applies to Netflix households, this means that approximately 40% of the United States population is watching streaming video from Netflix. Whenever the general public, as a whole, gets fascinated with an investment topic, you can be sure that the cycle is coming to an end. That’s because whenever the entire public knows about the topic and is excited, all the marginal buyers have bought.
We can remember clearly what this was like during the last housing bubble. All the signs were there: TV shows on home buying, flipping and renovation, a torrent of print and radio advertisements for seminars on how to invest in real estate and flip homes. In the dotcom bubble it was just the same: stock-picking gurus selling their investment systems and general public discourse about tech stocks.
Once your grandmother, barber, and electrician were all talking about buying Dell and Cisco stock, the peak was near. In any case, if it wasn’t already obvious that our real estate markets were incredibly overheated in August 2016, Netflix is providing a clear indication that we should be at or near the peak of this real estate cycle.
So to sum it up, when it comes to real estate, the pros are nervous and the public is fascinated. That’s when it’s time to start thinking about protecting our downside, because one thing is for sure, we know there will be downside.
Businesses and financial markets are subject to cycles, including bubbles, and always will be. We’ve written on herd behavior and market bubbles recently to promote the good old principle of investing only when the deck is stacked in our favor rather than letting Netflix lure us into doing the opposite.
At Carden Capital and Carden Futures we specialize in solutions that help protect financial assets. Our Smart Wealth Indices provide a low cost wealth management solution with an element of embedded downside protection. They are designed to hold up better under adverse economic conditions than traditional stock, bond and real estate portfolios. In addition, our Night Prowler managed futures product (available to qualified clients only) thrives on volatility and usually does best when markets are falling.
If you are wondering how your current portfolio will hold up in the next financial downturn, there is an unbiased way to find out: The independent portfolio stress-testing firm Hidden Levers specializes in running any investment portfolio through dozens of past and potential future scenarios to take the guesswork out of how bad things might get. Unfortunately, most stock bond and real estate portfolios have fatal flaws and carry surprisingly high downside risk. We have written on the subject here.
We believe everyone deserves a well-designed portfolio that truly diversifies risk in an effective way. Therefore, we are happy to cover Hidden Levers’ fees for you. Please contact us here.