The housing market…it’s been on fire over the past 2 years.
Subdivisions are popping up everywhere, home prices have been exploding, and every girl
from your highschool is a realtor.
But this house party is about to come to an abrupt end & a housing crash is coming which
will make 2008 look pale in comparison.
So did you buy the top?
Or have you been patiently waiting on the sidelines for the dominoes to fall.
Well they will fall, and find out why in just about 10 minuetes…because it’s time for
Chico Crypto!!
It’s not a matter of “if” but a matter of “when” the housing market will lose
its luster, and residential real estate prices will steeply decline.In fact, evidence is
emerging that the downward trend has already started.
Home sales are coming to a grinding halt, checking out existing home sales we can see
that they are down over 20 percent over the past year, back down to June 2020 levels…which
was just one month after RONA shut down everything.
And checking out home loan application volume, it’s down significantly by nearly 64 percent
since August of last year.
I wonder why sales are dropping and dropping so quickly?
Well US Housing Affordability is at its lowest level in 33 years, below the July 2006 low
which was at the peak of the last housing bubble.
Back then, national home prices subsequently fell 25% to their low in Dec 2011.
Today, the price declines have just begun….
Checking out the average home price here in the States, we can see home prices have declined
5.5% from the record high of nearly 400k hit during the four-week period ending June 19th.
And this decline seems to be accelerating across the sector…On average, 7.7% of homes
for sale each week had a price drop…a level not seen in decades.
It’s not only in the US…with our friends up north in Canada, home prices fell for a
fourth consecutive month, and home sales are down 29 per cent compared with July last year.
Sales are plummeting, affordability is gone, and prices are starting to fall.
What effect do you think this has on supply??
Well there now seems to be a massive supply of new homes for sale, in all stages of construction.
Checking out this chart there's over 9 months' supply in the US, which is the highest level
since the tailend of the 2008 crisis…and if we look at this chart on housing inventory,
we can see over the past few months inventory has been rising and rising, up over 50 percent
in the past couple of months as buyers are nowhere to be found.
Now, people are saying…this time is different.
The housing market we have today is nothing like the housing market in 2008.
People can afford their mortgages this time…as the lenders weren’t putting people in houses
who couldn’t afford it.
OH REALLY!?
Checking out this chart, we can see that mortgage payments as a percentage of a person’s income
are reaching levels not seen since the last housing crisis.
On average a person’s mortgage is 25 percent of their income…which was the peak in the
last housing crisis.
And if buyers are so better off than in 2008…why are they putting so much less down as a downpayment.
Home Buyer Down Payments in 2021 and 2022 were LOWER than in 2006 during the peak of
the Subprime Bubble.
If buyers are better off…you would think downpayments would be higher right…??
Well not when the buyer is going heavy into debt…Average Debt to Income Ratios today
are comparable to mid-2000s.
This means homebuyer incomes today, on average, are just as stretched in their ability to
afford the mortgage payments as back in the mid 2000s.
People are getting to their financial wits end…many people with heavy mortgages.
Today…Mortgage Lending Standards are just as bad as back in 2008 by the two most important
metrics…the Borrower’s ability to repay and how much they have to pay back…aka what
was the size of their downpayment.
But here is the most interesting statistic…which in my mind puts the likelihood of a crash
at near 100 percent.
Home-flipping is once again getting out of hand…and has soared back to levels seen
before the 2008 housing crash…
And many people blame the poor who couldn’t afford housing, the greedy banks and lenders
who gave them loans as the culprits of the 2008 crash…yes they were a small piece
of it, but the major reason housing crashed back then?
Home Flippers over leveraging themselves…
Quartz put out this article in 2017, titled “House flippers triggered the US housing
market crash, not poor subprime borrowers” and the article states “Mounting evidence
suggests that the notion that the 2007 crash happened because people with shoddy credit
borrowed to buy houses they couldn’t afford is just plain wrong.
The latest comes in a new NBER working paper arguing that it was wealthy or middle-class
house-flipping speculators who blew up the bubble to cataclysmic proportions, and then
wrecked local housing markets when they defaulted en masse.”
“Recall that back then the mantra was that housing prices would keep rising forever.
Since owning a home is one of the best ways to build wealth in America, most of those
with sterling credit already did.
Low rates encouraged some of them to parlay their credit pedigree and growing existing
home value into mortgages for additional homes.”
We have a very similar worldview today…people think housing can just keep rising and rising.
Leading them down the path of leveraging their assets to expand their housing portfolio…
But just like this article from Business Insider…home flippers are about to get hammered as this
hot market cools down and cools down fast” and the article states “A slowdown in home-price
growth, or even a decline in prices, represents the biggest threat to flippers today.
So far, surging home prices have shielded overzealous flippers from losing money, as
they can sell a property for profit in hot markets even if their renovation costs stretch
over budget.
If and when that changes, these less disciplined flippers may find themselves staring down
losses.”
A perfect storm is brewing today as the main cyclical factors are making new lows.
We know prices are starting to fall, we know sales are starting to fall…but the housing
market index is also crashing, building permits are crashing, and purchase applications are
making new lows.
Seeing all 4 of the main cyclical factors in the market falling is a basket approach,
thus seeing them all making new lows is a very powerful signal…
So when could we see the crash, the housing market crumble to it’s knees as the speculators
get wiped out??
Well Business insider recently put out this article “A perfect storm is brewing': A
senior economist says home prices are primed for a 2008-style crash as housing construction
booms and demand gets crushed by rising mortgage rates” and in the article, Jose Torres of
Interactive brokers said he “expects median US home prices to drop by 25% when all is
said and done.
That's how much the S&P/Case-Shiller US National Home Price Index dropped during the mid-2000's
crisis.”"We're going to see something very similar to what we saw during the Great Financial
Crisis.”
“Jose expects to see double-digit declines in early 2023, and said that the market would
bottom when the Fed pivots to more accommodative policy, which he expects to happen in mid-to-late
2023.”
A housing market crash with double digit declines will happen in early 2023 and a housing bottom
will happen later on that year…
Sooo, what does this have to do in relation to Bitcoin!??
Well I have a feeling with the next BULLRUN for bitcoin and crypto assets, 1 Bitcoin will
be able to get you a massive downpayment, paying off half of a house…or even near
being able to fully purchase a home in some parts of the United States….
No one thought with this last bear market when BTC was at 3k, with the next Bitcoin
Top you would basically be able to buy a Tesla with 1 Bitcoin….and no one thinks 1 Bitcoin
will ever be able to buy a home…
Now Benjamin Cowen recently put out a poll on where people think the next top for the
next Bitcoin Bull Run will be at and a majority of people think between 100k to 200k, although
over 14 percent of people think it will be over 200k…
So let’s just say BTC hits 200k in the next bull run.
If housing market was to crash by 25 percent or more….that would be enough to purchase
homes in many states in the US…and put a nice down deposit in the more expensive states…
So what would you rather HODL over the next 10 years??
Real Estate or BTC?
I’m going with BTC, because in 10 years…you might be able to buy a mansion or a few houses
with 1 Bitcoin.
Cheers viewers, I’ll see you next time!