Housing Market Crash 2.0: The Jury is in for 2018-2019
Housing Market Crash 2.0: The Jury is in for 2018-2019 by David Haggith – The Great Recession
As happened with the first housing market crash that began in 2007 but didn’t become widely recognized until mid-2008, the present housing crisis began exploding one story at a time last summer, and this blog was perhaps the first to state that summer’s change was the turning point from decades of ascent into a collapse in housing sales and prices. I said the same thing back in 2007, and people didn’t believe me then either.
The present housing market crash, like the last, was created by the Federal Reserve artificially pressing mortgage rates down, then down further, and then down as deep they dared push for years and years. Falling interest, allowed people with flat incomes to keep purchasing increasingly expensive homes. Since people buy payments more than house prices, housing prices kept rising as payments were kept in line via these artificial interest reductions.
The Fed’s ill-conceived plan, however, was never sustainable prior to the last housing market crash and is not now. I’ve said throughout the Great Recession and ensuing years that, sooner or later, we’d get to the point where the Fed would have to raise rates, and I’ve said its quantitative tightening will certainly raise rates as much as it increase in stated interbank lending interest targets. I’ve also said that, by the time the Fed started raising rates, housing prices would be unaffordable without the Fed’s artificially lowered interest; therefore, the market would have to crash all over again because , all over again, people would find themselves underwater on their mortgages.
And now here we are. US banks have not started to go down, but they are feeling serious pressure as this article will point out, while eight months of statistics now prove housing is relentlessly falling with NO hint of letting up. As I wrote in my first Premium Post, “2019 Economic Headwinds Look Like Storm of the Century,” Housing Market Crash 2.0 is one of the numerous forces that will be knocking the US economy down in 2019. The rest of the global economy is already down further than the US.
The principle driver in Housing Market Crash 2.0 is the Federal Reserve’s Great Recovery Rewind (the downsizing of its balance sheet, which tightens financial conditions). This, I said two years ago, would cause mortgage rates to start rising one year ago, and you can now see that mortgage rates did exactly that all of last year:
Mortgage rates rose only a minuscule blip when the Fed started with a tiny rolloff (tightening) near the end of 2017, even as I had said the Fed’s unwind would not likely cause any serious damage to the economy until January 2018. Rates, however, immediately ramped up steeply went the Fed doubled its roll-off rate in January (which was when I said the balance-sheet unwind would start to have serious market impacts). This has hit stocks, bonds and housing the worst … so far.