Housing in the old world order; A house of pain in a world of rising mortgage rates, prices, costs, and rents

The terminal phase of the housing market in the Old World Order

Think about it; cheap home prices and low rents will not help the new world order engineers achieve their objectives. Only a crushing regime of rent increases, housing supply shortages, and punishing mortgage rates will work. While you and I may not be able to afford a mortgage with a 10% rate, the public sector with its tax-exempt financing and institutional money can afford to play the game.

Investors and landlords will pass along their costs to the tenants or will withhold supply as it would sometimes be more profitable to withhold rental housing stock than have to deal with tenant wear and tear and non-payment risk. If tax jurisdictions implement rent control policies, the supply shocks would be too high to overcome and would blow up in their faces.

Just a thought here; look at the chart below to see how stocks and housing performed after the implementation of the supply-side economic policies in 1981. The resulting ballooning budget deficits only made the wealthy wealthier. David Stockman cannot admit he was duped; supply-side economics was only an excuse to increase deficit spending to consolidate the world’s wealth and power over the bottom 90%. 

In a world of punitive price inflationary pressures, the housing market has endured systemic double-digit mortgage rates and survived to live another day. I suspect mortgage rates may begin to approach these levels once again before it’s over.

High mortgage rates destroy affordability, but what about home prices?

-While many today are quick to conclude that the housing market crashed in the early 1980s under the crushing weight of the 17-18% mortgage rates, many are too young to remember how the real estate market performed during that period.
-While existing home sales crashed during the early 1980’s, nominal prices were only slightly undermined. Prices still crept higher.
-After the real estate recession of the early 80’s, mortgage rates continued to remain between 12-15%, while the CPI dropped to between 3-5%. Real mortgage rates were much higher than today.
-If we were to compare the real mortgage rates of the 1980s to today, we would have to impute a 13-15% mortgage rate.
-The two graphs above tell the story of how bad it really was back then; not just for housing, but for most households.
-From the peak of 4 million existing-home sales in 1978, there was a 50% drop in home sales over the next four years, so that by 1982 only 2 million homes were sold. It took almost two decades, or until 1996, before home sales exceeded the 1978 level of 4 million units.
-I glance at the price data from the first chart, and it is clear that home prices held up in nominal terms. In real terms, house prices suffered greatly, while stocks outperformed. For the investors who were able to hold on, their rising rent rolls were enough to keep the lights on.

As the world transforms itself from the old world order into a new and “improved” one, we cannot expect linear relationships to hold true anymore. As for me, I am not selling, but will go into the abyss with very low leverage. Why should I sell my housing stock, if all I have to look forward to is a guaranteed 6% real annual loss if I place any sales proceeds into 10-year treasuries?

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14 thoughts on “Housing in the old world order; A house of pain in a world of rising mortgage rates, prices, costs, and rents

  1. Klaus says that by 2030 we will own nothing, and be happy. You can’t afford paying $5k+ for rent? No problem – take the mark of the beast, and the government will take care of it. A house market that is dropping to pre covid levels would be a huge step backwards towards Agenda 2030. This is the same Klaus that said many years ago that Putin is their puppet:

    https://youtu.be/UckMRGgpnN0

  2. The Fed is working to quickly destroy aggregate demand, but what if inflation has less to do with aggregate demand and more to do with exogenous forces? The Fed will do the worst thing at the worst time. Destroy demand as the dollar flies and the asset markets crater. What if inflation is from a loss of confidence? Then it won’t matter what the FED does.

  3. There will be no civil war while consumer sentiment remains this elevated. Give the livestock free porn and low cost streaming And the breeders and feeders are content.

    Here are the latest consumer sentiment numbers from this morning.

    ————————Act Cons Prev
    Apr. 14, 2022 — 65.7 59.0 59.4
    Mar. 25, 2022 — 59.4 59.7 62.8
    Mar. 11, 2022 — 59.7 61.4 62.8
    Feb. 25, 2022 — 62.8 61.7 67.2
    Feb. 11, 2022 — 61.7 67.5 67.2
    Jan. 28, 2022. — 67.2 68.7 70.6
    Jan. 14, 2022 — 68.8 70.0 70.6
    Dec. 23, 2021 — 70.6 70.4 67.4
    Dec. 10, 2021 — 70.4 67.1 67.4
    Nov. 24, 2021 — 67.4 66.8 71.7
    Nov. 12, 2021 — 66.8 72.4 71.7
    Oct. 29, 2021 — 71.7 71.4 71.4

    1. Real estate sales in NH off to a brisk start. Home price increases of 15 percent since last year in my area. Houses still going under contract within a couple days of listing.

  4. Wage slaves fall further behind and dip into savings to fund personal operations.

    ——————

    The Fed’s favorite inflation gauge rose 5.2% in March as worker pay fell further behind – CNBC

    Personal consumption expenditure prices excluding food and energy, the Fed’s preferred inflation gauge, rose 5.2% in March from a year ago.

    That was a slight deceleration from February and the Wall Street estimate.

    Employment costs accelerated 1.4% in the past quarter, while inflation-adjusted income declined 0.4% in March.

    Including food and energy, core PCE prices surged 6.6%, the fastest pace since 1982.

    https://www.cnbc.com/2022/04/29/the-feds-favorite-inflation-gauge-rose-5point2percent-in-march.html

    1. We received a letter from a National Grocery chain to restate their price increase policy. The policy was revised to allow a minimum 12 weeks for increases with full documentation detailing the nature of the increase. There are already penalties in their contracts for shorting, late, and incomplete line fill on orders so I suspect that if the math works out suppliers will short orders and take the fines or simply shut the doors. If shelves are going empty it is not necessarily due to lack of availability.

      During the toilet paper wars of early 2020 when shelves seemed to be going empty, the large chains were being left out of the supply loop because they paid net 45-60 days. There was a general feeling among suppliers that you would not be paid so delivery was made based on terms, mostly COD. Large chains felt the pinch and immediately paid all outstanding invoices as well as changing terms to net 7days. This solved the empty shelves problem within a week or two.

      1. Interesting. Supply chain and the wholesale sector shortages are all manufactured. It’s all institutionalized.

        1. All those grocery and box stores had that plexi glass, floor stickers and covid signs ready to go within the first week. Trump gave his speech and the next day it was all there in every city. I’m sure they had advance information on the invoices and financial part too.

          Higher rents include more homeless, more issues like domestic battery, longer work hours if employed. Increased substance abuse from the stress. The State welfare offices are obviously well funded.

          We see the 33 billion going overseas to the Ukraine, and actor Elon spending how much on the twitter…that 33 number keeps showing up, so I assume those numbers are false and just for news paper headlines.
          But that amount of money could resolve many internal issues this Country is going through and that’s always been the case.

          Interesting upticks in the market last few days, staircases 15-30 min timeframes. I’m out of RDBX.

          1. The higher dividend stuff is holding up well. I don’t know how stocks with a good dividend yield hold up with rising rates. Do you plan to exit as the fed continues to raise rates? The fed is set to raise rates again next week…

            1. I am out of everything. This week has been catastrophic for stocks. Look at what AMZN is doing. What a destruction. I have to believe there will be blood very very soon.

              AMZN earnings were the worst I could have imagined. A world of willful Fed members and rampant inflation.

          2. I was just thinking the same thing about those signs. They were all ready to go and don’t they all look the same- – blue colouring with white and charcoal letters and a face with out features.

  5. Hi everyone. I will put out a podcast and post for subscribers only tomorrow.

    1. Thanks Chris. We need fighters on the front lines. We are in the middle of a war whose price is our souls.

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