July 30, 2023, 9:01 pm
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This is the housing market in 2023. Everything is falling apart.
The past two years represented the most unprecedented events in history. The government first printed trillions of dollars and has now decided to retract trillions of dollars at an unparalleled rate. Interest rates are rising at a pace that is faster than at any other time in history. That’s right, there has literally never been another period in history like now. The part of the economy that will soon take the biggest beating from this is the housing market. This is going to go in the books as one of the most serious housing crises in history.
Some people are in disbelief at the idea that the housing market will crash. Skeptics will ask: how is it possible that such a stable industry will fall apart? Home prices have been increasing year after year for the past decade. People have been predicting a crash for years, but prices only kept going up. That’s exactly what everyone said in 2007 before home prices crashed by 33%. People like Michael Burry and Steve Eisman from the Big Short saw the data and knew that housing prices were going to fall. They were able to make hundreds of millions of dollars, but nobody else saw the data until it was too late.
Our situation is no different from the 2008 recession. People say that history repeats itself and that’s exactly what’s happening. Just like in 2007, the current data about the housing market is horrifying. For instance, take a look at the US national association of home builders’ housing market index or the NAHB index in short form. The NAHB index tracks the confidence of home builders in the United States, which will help us obtain an inside look into the industry. According to the index, homebuilder confidence has dropped for 12 consecutive months in a row to just 31 out of 100. The last time we had such a large decrease was during the pandemic when shelter in place was active. There are several reasons why this is the case, but ultimately there is one main reason. Home buyers simply can’t take out mortgages at an affordable interest rate. Even if someone wanted to get a mortgage at a higher interest rate, they would have difficulty getting a loan approved by the banks, who know that the market is doomed to fail. Because of this reason, there is simply no demand for homes right now. Home builders that bought into the housing bubble are now stuck holding the bag. Imagine you were a home builder in 2020 and you saw massive amounts of demand for homes. The logical decision would be to build more homes. So you start building thousands of new homes in anticipation of high demand. But by the time you start to finish those homes, demand has already disappeared. You see, home building took off to all-time highs in the past year due to unprecedented demand. But that’s because the Federal Reserve cut interest rates to 0%, which created a huge buying frenzy. Now that the Fed is raising rates and there’s no demand, many homebuilders are running into financial issues. Even the homes that are selling are being sold at huge discounts. Not only that, but many homes are being sold with extremely low quality control. Because home builders can’t finance high quality control, it’s not uncommon to see doors fail to close or for walls to start falling apart upon moving in.
There’s a common saying that when a crisis comes, corporations are the first to leave. This leaves the middle and lower class left holding the bag with their life savings invested. Well, that’s exactly what’s happening right now. Banks know that the housing market is collapsing and they are getting out of the market as fast as possible. The undisputed number one player in the mortgage industry is Wells Fargo. As you might have guessed, Wells Fargo is currently backing out of the mortgage industry. Wells Fargo recently announced that they will be downsizing their entire mortgage division worth $1 trillion in loans. That’s right, $1 trillion in loans. Wells Fargo has now decided that it will only offer home loans to existing customers and minority communities. The bank will also be shutting down all purchases of loans from third-party lenders. The last time this large of a step down occurred in the mortgage industry was in 2008. During the 2008 recession, Bank of America and JPMorgan Chase slimmed down their mortgage businesses, causing them to lose market share that they never gained back. The captain is the first to leave the ship when the ship is sinking. If you see the captain jumping out of the ship, you know something’s horribly wrong. All the captains are no longer on the ship. For instance, remember when Fannie Mae had to be bailed out in the 2008 recession?
Content Creator – Casgains Academy
