Splendid Housing Bubble
Mind the gap, as the most splendid housing bubble is about to burst.
US home sales keep falling; demand is anaemic as buyers do not want to transact at these prices.
Sellers have yet to react to the reality of spiralling interest rates, which makes purchasing a home with an average-size mortgage now more expensive than the alternative, renting.
US mortgage rates have climbed to 7.16%, the highest since 2001 (higher than the 2008 financial credit crisis, a crisis in the subprime mortgages that led to contagion and an almost financial global meltdown.
Stars are aligning for a splendid housing bubble burst
Households are being thrown on the sacrificial altar by the worst cost of living crisis in generations. In other words, it’s a currency crisis. The fallout from the largest monetary easing experiment in decades led to currency debasement. Geopolitical instabilities and war in Europe are adding to supply shortages and hyperinflation in food and energy.
Throw in the mixer elevated mortgage rates, the highest in twenty years, and you have a splendid housing bubble primed to burst.
Even cash buyers are pulling back in this splendid housing bubble
Sales of previously owned homes (houses, condos, and co-ops) fell further, by 2.2% in July from June to a deep-dismal seasonally adjusted annual rate of sales of 4.07 million, the lowest since January, which had matched the March 2020 lockdown low.
Meanwhile, housing supply hit 2020 highs, according to the National Association of Realtors today.
So the housing market is in dire disequilibrium with excess supply and too little demand.
However, the lack of demand is not due to people not wanting shelter, as the American homelessness crisis worsens.
According to the January 2022 PIT Count, 582,462 people were experiencing homelessness across America. Spirallying mortgage costs since January 2022 with the Fed’s eleven rate hikes have priced the next generation of middle-class buyers out of the market.
Free market economics; solution to this splendid housing bubble
Free market laissez-faire economics would let the invisible hand of the market do its job. In other words, this splendid housing bubble would burst. Home prices would come down to realistic levels, making homeownership for the next generation of home buyers possible.
Crony Capitalist quasi Marxist solution to this splendid housing bubble
With the current Fed fund rates of 5 to 5.25% making mortgages unaffordable for working people, the growing homelessness crisis will become a political hot potato and polarize politics even further.
The Left of the political spectrum will push for more public housing and rent controls, seeing it as the best solution to unaffordable shelter.
Meanwhile, the liberal right of the political spectrum will see the market as the solution. If demand is lacking, then prices need to fall to a level stimulating demand.
Few would doubt that another housing market crash is coming, but what will be the solution to the problem?
Is this the beginning of the state and its crony capitalists monopolizing home ownership?
There is chatter of another lockdown coming. Blackrock must be ejaculating in their pants. Guess who got access to all the cheap finance and made billions in the last lockdown? If you know the answer to the above, then you have figured out who will buy the next wave of foreclosures.