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The last time the U.S. saw such skyrocketing home prices, the global economy faced a catastrophic meltdown. The imbalances between supply and demand, wages and home price appreciation, interest rates and inflation, are once again setting up the stage for a dramatic crash. Now, the U.S. housing market bubble is out of control, and although this bubble may be configured differently from the one that preceded the Great Recession of 2008, it keeps expanding just as rapidly. Even policymakers are concerned their easy money policies and stimulus packages – which helped to fuel the growth of this splendid bubble – may soon blow up on their faces as the economy reopens, inflation surges, and interest rates are pushed up, collapsing the entire housing market and bursting several other asset bubbles. As more and more Americans continue to be priced out of the market, the current home valuations will have to adjust and experts are warning that a sharp price correction is looming on the horizon. That is to say, a major housing market crash is coming, and that’s what we’re going to expose in this video.
The U.S. real estate sector is completely out of whack. On one hand, as a significant chunk of the population remains unemployed or experiencing steep financial setbacks, nearly 10 million Americans can’t pay their rent. While on the other hand, those who managed to stay employed throughout the current economic recession have been frantically looking to buy houses, but there are just not enough homes for sale. According to the chief economist for the National Association of Home Builders, Robert Dietz, some underlying causes for this imbalance is what he calls “the five L’s,” which stand for labor, land, lending, lumber, and laws.
The labor issue started after the previous housing crash, when a lot of construction workers decided to leave the market. Land has also been incredibly expensive, and that’s an obvious obstacle for building companies, which leads us to the lending issue because now getting loans isn’t as simple and easy as it used to be, so these companies are facing extra strains to start construction projects. On top of that, lumber prices are through the roof, having hiked 180% in less than a year, adding almost $25,000 to the cost of a house. Another problem is zoning laws. With so many rules in the way of home building, in addition to all the previously cited factors, companies are entirely overwhelmed.
When rents and home prices start to move in opposite directions, that’s a clear sign that the housing bubble is inflating. In January alone, which is considered a slow month for the market, home prices increased 14 percent compared to the same time last year, and sales climbed 24 percent, regardless of an unemployment rate that was roughly twice as high. As the pace of home price appreciation is fast outstripping wage growth, determinants are once again setting up the stage for a stunning housing market crash.
The market is registering artificially inflated home valuations that are justified by estimates that distort our economic reality, which means things are getting increasingly unsustainable, and very soon prices will be forced to a correction. The price run-up is going to choke off first-time buyers for a prolonged period of time and the more the bubble expands, the sharper the correction will have to be. The affordability crisis will not only weigh upon the market’s future but also prevent millions of Americans to build up wealth and become extremely financially vulnerable.
Without first-time buyers, the market’s long-term growth is put in jeopardy. Moreover, another major concern is rising mortgage rates. As the economy reopens, the trillions injected into the economy will create an inflationary surge that will force policymakers to push interest rates up in order to cool off the overheated economy. That will cause a sudden drop in property prices because the threat of rising inflation will burst all asset bubbles that have been artificially fueled by printed money, the housing bubble included.
Now, we are right in the middle of a global “everything” bubble. And past experiences suggest that when interest rates start to rapidly soar, and easy money stops flowing into the markets, bubbles start popping. The best-case scenario would be the occurrence of a housing market crash happening in isolation from other asset crashes. But as we discussed in previous videos, all signs point to the simultaneous bust of the real estate, stock, and bonds market.
As the nation stays engaged in a budget and monetary policy stimulus experiment of epic proportions, the rest of the world will soon find out what happens to the global economy when America succumbs to an inflationary fever. Unfortunately, there is no reason to believe that any of this will end well.
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