July 12, 2024

The 2022 Market Crash – Housing Market Crash – is just getting started. 

Home Prices and Stock Prices, adjusted for inflation and earnings, are at all-time highs in 2022. Just as Inflation is hitting record highs and the Federal Reserve is hiking interest rates. This is a nasty combination that could lead to the biggest Market Crash Ever.

Housing Market Crash

Housing Market Crash - San Diego real estate investing

Bond Yields and Market Mortgages have exploded in recent days, anticipating that Jerome Powell and the Federal Reserve will hike interest anywhere from 50-100 BPS at the next meeting. The result is that the cost of debt is higher, which is what is what will trigger the Asset Bubble Pop / Recession #1.

Recession #1 will be primarily a white collar recession that erases Wealth / Net Worth for high-income Americans. On its own this wouldn’t necessarily cause a deep economic downturn. However, combining an Asset Bubble Recession with Recession #2, a Consumer Spending Crash, is what makes my economic forecast very bearish.

Raging Inflation is eating away at the wages and savings of hard-working Americans. At some point Consumers will no longer be able to afford the Gas Prices, Food Prices, and record Housing Bubble. And when that limit is reached there will ultimately be a Deflationary Crash. Because there simply isn’t enough money out there to sustain the inflation pressures and economic activity across the US Economy.

Ultimately, at this Housing & Stock Crash plays out, it’s going to be important to have cash to 1) take advantage of the buying opportunities for cheaper assets and 2) have a buffer against a potential layoff and job losses.

Here in Phoenix Arizona, they say the inflation rate in is 12%, the highest in the nation!  Phoenix housing is up almost 45% in 2 years! Property values should reflect the local income average. If the average income is 50k pr yr then home values in a rational market should be 3-4 times that amount. 150-200k. To see these hyper inflated housing prices reflects how unhealthy the economy really is.

Personal savings is at an all time low, while revolving credit debt is at an all time high, which will affect a persons debt to income ratio and thus how they qualify for a mortgage. Given this,  I don’t think most people will even qualify for that 30 year mortgage. With how far and extreme prices have risen, I wouldn’t rule out some level of equal and opposite reaction in the correction of  home prices. Yes, it has already started with asking price reductions going way up in many ‘hot’ housing markets.

There is a perfect storm forming in America. Inflation, severe drought in the farm belt, the pandemic, food shortages, diesel fuel, and heating fuel shortages, baby formula shortages, shortage of and price of available cars, and the price of housing. It’s all coming together and could lead to real disaster for our economy.

Always keep in mind, that purchasing or selling a home is a major lifestyle decision, and as such, should not be rushed into. So, by all means, if you’re considering purchasing or selling real estate in today’s market, do your own homework and draw your own conclusions! But, also consult with your legal & financial advisors prior to making your moves.

My opinions here are just that, opinions!  The fact that I’ve been in the residential real estate market for over three decades, does not mean that my opinions are going to be any more accurate then your mother-in-law’s opinion, though I sure hope they are!

For those of you who may not be regular readers here is the link to the first warning blog post that I put out; my first post where I called the real estate market top was June 15, 2021 (https://brokerforyou.com/brokerforyou/real-estate-market-downturn/ ) . On June 17 I had a follow-up post ( https://brokerforyou.com/brokerforyou/real-estate-market-bust/ ) where I added additional indicators, that to me showed that the market was in a topping phase right now! I put the links to each one of those prior post above, and would suggest if you’re interested, to reread those posts!

Buckle up your seatbelt because the downward ride has just started!

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