Stocks & Housing Prices Need to Collapse Another 40% Just to Get Back to the Median
The comments below are an edited and abridged synopsis of an article by King World News
It’s amazing that, even with the stock crash and the start of a housing correction, asset values are still 319% of GDP today. While that’s down from the highs, it’s still above the peak of the 2007 and 2000 bubbles, and more pain is coming.
How much pain? Well, simply get back to a ‘normal’ level of asset prices/GDP, the US would need a further 40% combined correction in housing and stocks.
Of course, the US could go below ‘normal.’ It could go back to a level more like 150% asset price/GDP. Or 100% asset/GDP. That’s what valuations were like in the 1970s during the last Great Inflation, which would mean price declines more in the order of 60-70%.
How did asset prices go so high to begin with? Interest rates. Low interest rates over the last 20 years caused asset prices to explode.
Yes, low interest rates and money printing caused the cocaine high in asset prices, but now that interest rates are reversing so is the cocaine high.
Now rates are rising—fast—and that’s causing a massive re-pricing of stocks and real estate, which is going back down to the levels fundamentally dictated by the size of the US economy and incomes (aka, GDP).