With the FED opening the easy credit spiggot (again) in the aftermath of the last financial crisis, a lot of assets has seen valuations skyrocket. Again we see real estate prices being pushed up around the world thanks to; 1) Record low interest rates for many years 2) Record low expected returns on fixed income 3) Degrading lending standards (again) 4) People having forgotten past lessons 5) Negative real rates 6) And finally a US stock market trading at ridiculous valuations, to name a few reasons.

The result:

 

Housing bubble

Housing bubble 2.0

 

The chart above speaks for itself. It should be said that not all areas of the US have seen such atrocious price ramps, but if we learned anything from the “great recession” it is that bubbles that pop will spill over to the rest of the economy in stark contrast to the statement from the then head of the FED Ben Bernanke who said it was “contained”. Yeah… We all know how bad that statement aged.

Below is a snapshot of what it can look like when a blazing hot house flipping market suddenly turns sour:

 

us-miami-condo-sales-inventorie

US miami: Condo sales & inventory

… Sales are trending lower fast along with skyrocketing inventory build up. Ergo, more and more “home owners” are lining up to sell, while fewer and fewer buyers seem willing to strike a deal. This is what a death spiral looks like. Add in a Federal reserve (FED) that seem eager to raise rates an additional three times this year. If it is this bad now in Miami, imagine what credit set to be become more expensive will do

Stay up to date

Subscribe to email updates!

Leave a Reply

Your email address will not be published. Required fields are marked *

Name *
Email *
Website

%d bloggers like this: