Will housing prices plummet in 12 OR 24 OR 36 months?

[Mike Schorah]

In the late 2000s, the housing market stalled. You had a lot of people buying. When all the cheap money goes away and the interest rates start going up, you have less people buying homes. So now what that did by increasing the interest rate is you had fewer people buying homes and so now the supply of buyers started to decline and yet you had these artificially inflated values of homes that now you had less buyers. So what’s going to happen is the homes started going down in value and that just created a domino effect.

What happened was, for new home builders… I remember these new home builders. When they first opened developments, they’d say “We’ve got 600 lots. We’ve got 1,000 lots. Please come to our open house. Bring your buyers. We’ll give you discounts. We’ll do this. We’ll do that.” Then I remember a year later, those same people… They weren’t returning our phone calls. They were having lotteries. So they’re like “Hey, we’ve got 500 lots and we’ve got 2,000 people that want to buy in here. So put your name in and we’ll draw the first 500 names and then you’ll have the privilege of buying those lots. With outside realtors wanting to come in and bring their buyers. The buyers would have to pay the realtors a 3% commission. But because there were so many people in the market buying… They started being very arrogant. “We don’t need you realtors. We’ve got these lots sold.”

But when the interest rates got raised, all of those buyers went away and those same home builders were calling the realtors begging for them to come to their happy hours and their parties because they were desperately trying to sell these homes. And when the homes aren’t selling, you’re going to stop building homes. And if you stop building homes, the people earning money to build those homes, the supply companies that are supplying all the raw materials, and the furniture, fixtures, electrical, equipment, switchgear… All of that stuff that goes into building a home… All of that stuff stopped. And so the people that were living paycheck to paycheck when they lose their jobs, they’re the first ones to default on their mortgages. So you had a high default rate. And because so many mortgages defaulted, it created a domino effect on the economy. And a lot of the lenders that realtors have been working with went out of business because their default rate went so high.

Now the Fed has said that they’re going to raise the rates 4 times in the next 12 months. They’re going to create another economic crash and it’s going to go through and wipe out people. When you look back, it’s like every 10-15 years… the boom and the bust cycle and it’s like that’s what’s happening now. It looks like we’re going into a bust cycle. So because interest rates are going up, you’re going to have fewer people borrowing and therefore fewer loans being created. The money supply is going to contract and when the money supply contracts, so does the economy. So the things that are inflated are going to start deflating. And so it doesn’t look like they’ve learned anything from what happened. It’s all trying to gauge things and guess, but when you raise the rates, you don’t really get the full effect of that interest rate change for 12-24-36 months before you really see the impact on the economy. More than likely, they’re going to raise rates too fast. They’re going to crash the economy again and then we’ll be back in a bust cycle and a lot of people that have already had their lives wrecked financially over the last several years will get wrecked financially again because of the lockdowns.

I thought we were going to be coming out of this, but with the Feds raising the rates 4 times in the next year, that’s not going to be good for the economy. It’s going to crash it again and we really won’t see the effects for about another year-and-a-half to two years, maybe three years. So I’m not happy about that. Things were going great but it is what it is. If more people understood the boom-bust cycle, we could actually elect leaders that were competent in and knew what they’re doing. It looks like they’re doing it on purpose. They’re purposely going to wreck the economy because when people are broke and they’re hungry and the government comes in and says “Oh, I’ve got the solution. Here’s some unemployment. Just vote for me.” So the politicians are able to get more power. So when people are hurting economically… socialism, communism… all of those things sound like great ideas and so the pendulum will swing that way. Politicians will talk about government handouts.

It’s been going on for 100 years. It’s happened so many times since the Federal Reserve came into existence and it will happen again. You’ve just got to understand how to ride the wave. The idea is you buy when nobody else is buying.

Carnegie or JP Morgan said you buy when there is blood in the streets… when there is chaos. The time to buy in real estate is when no one wants the real estate. Oligarchs are going to dramatically increase their fortunes.

The real estate crash was blamed on the real estate appraisers and the evil mortgage brokers when it was Wall Street. It was the banking system.

Great