Members,
In the coming months the market will soon be flooded by tens of thousands of spare houses nobody can afford.
And homebuilders will have no choice but to slash prices to sell them.
If things don’t change their course immediately, we are likely going to see the beginnings of a REAL ESTATE implosion this year and this will be compounded by current massive debt levels of consumers.
What should club members do to prepare?
Hoard cash as assets are going on clearance.
You won’t like this, but a housing collapse is coming.
In June, approximately 22,000 properties were foreclosed in the United States. That is a 200 percent plus jump from a year ago. Several agencies are reporting that REAL ESTATE sales are grinding to a halt. This is just the start of foreclosures in the USA and I believe in the coming months we will hit 6 digits in monthly foreclosures.
At this time loan officers are underwriting much fewer loans. In fact, mortgage applications for new homes have dropped over 50 percent compared to a year ago. This is the lowest demand since 2000. The main reason is mortgage payments have become much more expensive with higher interest rates.
As an example, a $500,000 house a year ago on a 30-year fixed mortgage (average 3 percent) would be a $1,800 dollar a month payment. That payment is now $2,700 dollars at 5.7 percent and if the rate jumps to 10 percent it will be $3,750 dollars.
It is very possible that interest rates could go to double digits. In fact, in the 1970s when Fed Chair Volker was fighting inflation mortgage rates peaked at 18 percent.
Could you imagine mortgage bills at 18%? The same $500,000 house with a $1,800/month payment would increase to a monthly bill of $6,450! The bottom line is that affordability will continue to drop for Americans as rates rise.
Upon closer examination the most concerning thing is that housing today is so expensive and that, with still historically low 5.5% mortgage rates, it’s as unaffordable as it was when mortgages were at a crazy 14.5% in 1985!
That means a breaking point is closer than we think, potentially just a few rate hikes away. Homebuilder demand is weak and prices are being reduced. In addition, active listings are growing rapidly.
Mark my words, the market will soon be flooded by tens of thousands of spare houses nobody can afford.
And homebuilders will have no choice but to slash prices to sell them.
Will it be Worse Than in 2008?
Not only is housing “un-affordability” off the charts, but over a decade of money printing and record-low rates led the economy to pile up so much debt that it’s crumbling under its weight.
As the Fed keeps bringing the cost of money back to reality, mortgage payments will go up. Meanwhile, nationwide layoffs will destroy incomes, which are supposed to pay those increasingly expensive mortgages.
Can you now see what the era of cheap money has done to affordability? While the masses believe low interest rates makes things more affordable, on a longer timeline, it does the opposite due to massive debt
What should you do to prepare?
Hoard cash, and get ready for the next few years.
Assets are going on clearance.