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%.
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?