Real Estate Crash

Posted By Darren Winters on Jul 7, 2022


Real Estate Crash

The stars could be aligning for the mother of all real estate crashes.

Since 2022 the Fed has been tightening, with rate hikes and quantitative tightening, reducing the size of its assets on its balance sheet to tackle inflation, which resulted in the crash of everything.

More than ten trillion dollars of wealth has been slashed from the value of pension funds and investment portfolios since 2022, with stocks, bonds, and cryptos crashing.

The last shoe to fall could be a real estate crash, which now seems highly likely as the Fed tightening continues into a recession

Real Estate Crash

The coming real estate crash of 2022 could be worse than 2008, and here is why.

In 2008 the Fed cut interest rates in a recession, and in 2022, the Fed is hiking into a recession.

So this is not the roaring 20s, tightening liquidity into a recession can only lead to one thing, Great Depression 2.

Fed minutes were released yesterday, July 6, which confirms what could be a policy error, another Fed fund rate hike of 75 basis points in July. 

Real estate prices have remained elevated for some time. 

So, real estate prices in 2022 have a high cliff to fall off. 

Moreover, the moratorium on evictions, and foreclosures in 2021 has resulted in a backlog of foreclosure properties hitting the market in 2022. 

The US economy is already in a recession, which is confirmed by the 2s 10s inversion of the treasury yield curves.

Layoffs are just starting to hit the headlines, another indication of a recession. 

With the Fed taking liquidity out of the system in a recession as foreclosures pile up, a real estate crash becomes more likely

Approximately, 50% of properties on the US market have a price reduction. 

“There are two kinds of sellers in today’s market. Those who already know that the market has cooled, and they learn about the cooling market as they go through the selling process,” said Redfin Chief Economist Daryl Fairweather. 

A recent check on Zillow shows a listing in Phoenix, Arizona where the property price was cut from 800K to 655K USD over the last few weeks and only 37 users have saved the page, which is an indication of very little buyer interest.  

So, this suggests that more aggressive cuts are coming, in the next real estate crash, which could be a golden opportunity for first-time buyers. 

Let’s zero in on the psychology of market crashes to gauge where the market is in the coming real estate crash

Market peaks in the thrill phase and then go into the complacency cooling off stage. Then comes the anxiety phase “Why am I getting no enquiries for the property, why is it taking so long to sell,” sellers ask. Price keeps sliding. Then the denial phase, where the seller believes prices will come back.

Prices decline continue and steepen into a panic phase, “sell everything I need to get out the sky is falling,” Anger is high people blame the government, central banks, etc.

Depression sets in, market inactivity prices stabilize, and smart money buys at the bottom. We believe the real estate market could be somewhere between complacency and panic.

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