Op-Ed: House of Cards – End of low interest rates will push investors down, but housing will still be unaffordable for generations to come
The low-rate fueled real estate market has already excluded many children from the future market. Rising rates can decimate many portfolio investors. It’s a perfect storm of potential losses. A rate hike is certainly expected, on the cards for next year.
The odd, if not socially suicidal, surge in house prices has been a very sore point and rightly so for Millennials. Houses that used to cost a few years’ pay now cost a few decades. Generation Renter has been a rather tired buzzword for over a decade. Nothing has been done about it.
Global home ownership is declining unequivocally. Keep in mind that “property” doesn’t necessarily translate to “paid” either. You own a mortgage, not a house, in practice. This is not a very secure range of statistics, and it gets worse with each decade.
(To note: Commercial property isn’t exactly that great either; this article deals with the general subject of real estate ownership in a broad context.)
These next generations are In reality be deprived of a critical asset base. Like the silly shift from a one-income family to everyone working like maniacs just to pay the bills, the social success has been gigantic. The likelihood, and it is appalling, is that these children will not to be able to own their own home.
The manic ideal of house prices has also been unnecessary in many other ways. Rising prices simply devalue incomes. For example – In Sydney in the 1980s, you could have bought about four decent houses for less than a million dollars and you would do pretty well. Now a million buys you about 2/3 of a house in an old-fashioned suburb and lets you live precariously on the edge of values.
Add to that stop / start employment, the odd-job economy and the end of many traditional job categories in the near future. Where is your market? Buried. It’s been a thoughtless process all along. How to get a mortgage on a CV full of holes and without money? You don’t, that’s how it is.
The point being – This huge future market has already been caught off guard and is left with few realistic buying options. Homeownership is likely to be an antique in the future. Any kind of ownership, in fact, seems quite uncertain to most young people. It is a true inexcusable atrocity.
During this time back to the slaughterhouse – Investment? What investment? Was that a minute ago …?
The investment would have been at the origin of this dismal scenario. In practice, investment has been stimulated by low interest rates, fueling the rise in prices in an untenable and dangerous position. The cost of money goes up, the margins go down. All it takes is a drop in prices, and wallets will become nozzles for some investors. Just about anyone can expect to see a serious burn in their book value.
This well-known situation is already quite common, even with low interest rates. Many people fall in love with the avant-garde of book values, costs and profit margins as they are. Any rise in interest rates can be easily predicted to gradually bury investors. You can literally set your clock for hundreds or even thousands of crash-and-burns for every 0.25 point increase in interest rates. The margins are really that tight, and if you have enough leverage, you’re in trouble.
The macro-environmental crisis
This can be pretty obvious to professional investors. (To be fair, many industry pros have been predicting a slump for years, based on the ridiculous price hikes.) Less obvious, and perhaps just as good, but just as deadly, however, is the inevitable strike. of asteroids on macro investment.
The monster problem here is the scale of the capital involved. Book prices are one thing – The global real estate market, however, has been paid for with real money. This real expense is at very real risk.
To give an idea of the amount of money involved, Biden’s current budget would not dent the US real estate market at all. There are tens of billions of dollars of hard money in this market. The real estate market, in fact, is to a large extent the cornerstone of capitalism.
This almost unthinkable amount of real capital is well established and has been doing well on paper for a very long time. Inevitably, given decades of performance, banks, lenders, brokers, and large real estate companies have moved in. They borrow and lend on the basis of these portfolios.
If portfolios go down because of interest rates or price movements, they are screwed to the extent of those movements. Enough movement, and it’s 2008 again, but this time with real titles, not just trash subprime.
Subprime mortgages were a kind of junk bond market for real estate securities. This is one of the reasons they have completely withdrawn. These properties, related titles and debts, however, are bona fide AAA assets. If they are compromised by real values, they have serious problems.
The Stupid Factor – Does anyone know how to be so stupid? Hard to say.
The worst problem here with rising interest rates in an “indecent haste”. If rates move too fast, a lot will collapse. Central banks know this too well. The market, however, tends to overexploit anything it touches with deadly predictability.
Panic would indeed be very stupid but may be inevitable. Acting quickly makes sense if you are at serious risk of default, loss of capital, etc. However, adopting viable positions is not easy in a busy environment. People jump overboard quickly, and not necessarily with a lot of thought about positioning.
Stupidity, and much of it, however, is the hallmark, deadly mark of this period in history. Bad calls, misinformation, thoughtless dogmas and worst of all, no forward looking views at all, have ravaged this world.
The same people who think breathing toxic waste is a good idea are also driving the real estate markets. The same idiots who think that making their children and grandchildren homeless is a good thing aren’t exactly geniuses.
Political leadership, there is none. Since some of the “leadership” goes back to the Middle Ages with social policies, one cannot expect much insight from it. Political thought tends to be per second, not generations. Most animals raise their children with more forethought.
Progressive thinking can at least address some of the critical issues, including future housing. As usual, not much is done from a practical point of view. Affordable housing for everyone should be a given; in practice, this is now one of those hazy ideals, not solid equity.
“Stay with you? »Maybe because you will need a home
A good result would be a slow rise in rates to something like normal. Low rates were historically unnatural, anyway. Whether the market can do it remains to be seen. Market moves are often reflexes, wrong moves at the wrong time for the wrong reasons.
The real estate market is relatively heavy, compared to stocks, futures, etc. It is usually not fast. However, when he moves, a lot of money moves with him.
The problem with this situation is that it can push a lot of top bracket buttons at the same time. There are real vulnerabilities at scale; there are real uncertainties. This is the “fight or flight” criterion in many investment environments. Rational thinking comes later, not before.
So – Want to buy a DIY cave?
Like the market, you can dig your own holes. Unlike the market, however, you can survive. All you need is a pick and a shovel, and if you’ve got a brain in your head, some modern prep instincts. Pick up a piece of dirt and start digging. You can be a lot more secure than this market can be for a while.