The Real Estate Bubble Is Losing Air & A Financial Crisis Is Coming
The comments below are an edited and abridged synopsis of an article by SchiffGold
Artificially low interest rates caused a housing bubble even bigger than the one preceding the 2008 crash. But this time, it is combined with a bubble in the entire economy that dwarfs ’08. This has the makings of another massive financial crisis.
As the Fed raises interest rates, the housing bubble is deflating, leading some to believe that the CPI will drop because housing costs will fall. But just because housing prices are falling doesn’t mean shelter costs are falling.
A 30-year fixed-rate mortgage in the US is now above 7%, so even if you pay a little less, your financing cost is much higher. Then you have higher insurance prices, property taxes and maintenance costs.
Meanwhile, more and more people will be reluctant to sell because they are locked into a low mortgage rate. This will slow the housing market even further, and that’s a problem for lenders.
The fact that many people won’t sell in this market should reduce the supply of available homes and that will theoretically push home prices down. But it likely won’t give the market a significant boost because of the high mortgage rates.
These problems were part of the 2008 financial crisis, and it will be an even bigger problem this time. Even more concerning is that the real estate bubble is now combined with an overall bubble that dwarfs what we had in 2008.
This is potentially a much bigger financial crisis than we experienced in 2008, and why Schiff doesn’t believe the Fed will sit back and watch it play out. The Fed will hold off as long as it can, but when it senses things are about to implode, it will turn on a dime.