Those who were not aware of what was happening to America’s housing economy in 2005 through 2008 only have the movie The Big Short as a reference for how and why the “gully” an collapse of our fraudulent financial system occurred. The scene from the movie below best illustrating the how and why:
Most Americans smoked the hopium, watched their 401K’s skyrocket back to what was considered normality over the years that followed and assumed that the joke known as Dodd-Frank fixed all of the problems in our financial system. Yet despite zero indictments, zero prosecutions, and zero changes to the laws or regulations which enabled CDS, CDOs, CLOs, and other derivative instruments the assumption was promoted that the Federal Reserve under “Print First ask Questions Later” Bernanke and the Obama regulators that everything was awesome.
Yet at the end of the movie was a very interesting note for the average person and what truly was a warning:
Fast forward to 2021. The economy has been ravaged on a global scale by a plandemic which kills 0.2% of the population and resulted in lockdowns which has wiped out anywhere from 20-40% of small to mid-size businesses across America. Yet home sales have hit all time highs as shortages persist in new home production while prices have double off of the lows of the 2008-2009 collapse.
Something in this formula does not fit, that being the Federal Reserve’s excess printing which has enabled speculation in cryptocurrency, equities, and of course housing. Instead of fixing the problems from 2005-2009, the government has doubled down, enabling a new generation of idiots to speculate and believe that “housing prices never go down” and other such nonsense.
The S&P Case-Schiller index provides a glaring look at the bubble (from the St. Louis Federal Reserve FRED series):
The FHFA from the US Government series is also parabolic:
The affordability index is not promising for any household making less than $60,000 per year as reflected by the Home Ownership rate:
Thus the surface, or visual contraction has yet to begin but the problem with parabolic spikes is that they are ignored and explained away as part of a new or larger trend in a “new future” which old fashioned investors do not understand.
Apparently younger investors do:
Chuckle as may of us might want to do, a story from the Orange County Register on July 8, 2021 caught my attention:
So after a historic crash which almost took down the entire capitalist global financial system, this insanity returns!
Of course this excerpt from the story above hits the major home run on what is happening, just like 2005-2008:
The loftiest of home prices are upon us. Like the 17th-century tulip mania, everybody has got to get on the road to homeownership.
Now, even first-time buyers without a down payment can get in on the action. That means no skin in the game — just like the good old Great Mortgage Meltdown days.
No down-payment loans are available for up to $1.25 million so long as the primary wage earner has at least a 700 middle FICO credit score.
Should you not show enough income from your day job or your self-employment income to qualify, you can document your income with bank statements, averaging the most recent 24 months of personal bank statement deposits.
Pricing is nasty on this so-called 80/20 piggy-back mortgage. But beggars can’t be choosers.
There is a 4.5% minimum “floor rate” on the 30-year mortgage. It is subject to an initial rate adjustment after the first 5-years. The second mortgage has a floor of 9.99%, fully amortizing over 15-years.
This will not end well.
As Chinese speculators are now discovering (from ZeroHedge):
China’s “Lehman Moment” Arrives On 13th Anniversary Of Lehman Bankruptcy: Beijing Tells Banks Evergrande Won’t Pay Interest
The implosion in the Chinese financial system was as easy to predict as the ghost cities being demolished when the rapid economic expansion could not fill the empty buildings throughout their vast nation:
This is a potential 1Bn Yuan of residential RE that is wiped off the face of the earth in China. This couldve made property values just a bit more affordable had they finished these units. But let us remember this is a feature of fiat not a bug. Not wise to dilute nominal wealth. pic.twitter.com/teZwGYNNjE— Sunny Po (@sunny051488) September 13, 2021
Unlike America, China will not tolerate their citizens attacking or protesting their financial institutions like Evergrande:
中共出动大量警力人力，帮助恒大进行大型维稳 。社会主义的铁拳已经准备好了pic.twitter.com/9l035lRsWq— Inty (@__Inty__) September 14, 2021
So just what happens when the next housing and economic crash hits soon in the United States?
The Federal Reserve member banks will be bailed out again by the taxpayer, the average person’s mortgage, if unable to be paid on time or in full, will be converted into a new public-private partnership and restructured for 50 to 100 years in length at 3%-5% interest, and the citizens fall from the ownership class and become renters with the Federal government and IRS acting as landlord and/or property manager.
The neighbor who was responsible and paid their bills or did not buy something they could not afford will take a larger hit as their property values will crash and burn some 50% to 70% depending on which region of the country. As the “responsible” owner looks for a recovery of his equity as that family nears retirement or has to move due to other circumstances, the Federal government or a Blackrock type partnership consortium becomes the buyer of last resort paying fifty to sixty cents on the dollar.
The era of the middle and lower-middle class home ownership is now coming to a close. And per the World Economic Forum, you will own nothing and like it.