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Housing Market Crash
With the stock market on a rocky rebound, a 2.2 Trillion dollar Federal aid package, high American wealth, and the confidence of a great nation still in place, is it even conceivable we could see a housing market crash?
Well, a good portion of Americans are hurting, more than usual. The great repatriation of jobs back from China to the US is struggling. China’s power over the US is frightening, and not everyone thinks its bad. Will the coming heated battle be enough to topple the US housing market?
Oil, Tourism, Hospitality, Small Business Decimated
Some cities such as Dallas, Denver, Houston, Tulsa, Fargo, and a few others are likely in big trouble with oil, tourism, and a recession on hand. The Bay Area will be an interesting spot, with likely big price drops.
There won’t be a housing crash this year, but this prolonged recession will keep house prices from rocketing out of control. Sellers won’t be getting rich, but some may have to sell their home. The 3 month housing market looks very active for Realtors, but likely slowing in the fall. If a second covid infection wave hits in the fall, it could be devastating.
Just as the shutdown ends, the US has tens of millions of unemployed workers, some of whom won’t be returning to former jobs, for a variety of reasons. They home search has ended officially.
Demand Will Resume, But Home Prices Will Flatten
What characterizes US housing markets is a severe lack of supply. With new construction starts reported down (-15.4% in March — Kiplinger report; and will be down 60% at least in April), it is difficult to find homes to buy. Home prices keep rising, and now with paychecks resuming, and more motivated buyers, the market can’t crash. There is too much demand, and most home buyers still have a good amount of money to buy.
To crash a housing market takes a lot since the government can spend to revitalize it. President Trump and the Fed have said they will do anything to support the US economy. The coming tariff and cold war with China will create some market ripples, but overall, the return of business to the US will be good for the housing market.
Zero interest rates, $2.2 trillion stimulus, a pro-business President may lose the election because of his personality, rock bottom oil prices, and a travel industry decimated for at least this year are unusual factors. There is concern as these Google searches indicate.
However, it seems the hunt for homes is on across America.
There is still a lot of interest in the possibility of a recession or at least, a crash of many housing markets across the US and Canada (Alberta Canada is in free fall right now). Given the VIX is registering the highest volatility of all time on the stock markets, and hyped media reports seem to send shock waves throughout the world, the specter of a housing market crash haunts us all.
Major Crash Factors for the US Housing Market:
- Democrat blocking of Trump policies and stimulus during and after the pandemic
- pandemic is slow to pass or comes back in October
- home prices ridiculously high given that we’re in a recession
- stock market at peak volatility
- bankers quickly anticipate trouble and begin tightening mortgage lending
- the Fed has to raise interest rates too quickly in 2nd half of 2020 to cover debt, and given the size of the loans, a 1% increase would create defaults and panic selling
- global economic failing impacts US economy
- key housing bubbles in NY, Boston, Los Angeles, San Jose and San Francisco collapse
- Trump loses election in November (Democrats are anti-business and previously allowed the China trade imbalance
- cold war with China escalates
- a return to globalism which would wipe the US dramatic gains of the last 3 years
- “America First” dream dies followed by dramatic drop in purchases of China products
- China’s debt ridden, export dependent economy topples
- single-family housing construction permits decline
- homeowners too fearful and dumping overpriced homes and condos while the getting’s good
- massive student loan and personal debt defaults
- investment tax breaks end
- stimulus spending ceases
- yield curve inverts again thus scaring the financial community
Cities such as Austin, Dallas, Houston, Los Angeles, San Diego, Los Angeles, Baton Rouge, Bismarck, Anchorage, Casper, Midland, Lafayette, Bakersfield, are at risk. The price of oil dropping is jeopardizing the whole state of Texas and Miami / Florida’s tourism industry is being wiped out. If people aren’t driving or flying, and it’s spring, low energy prices aren’t much of an economic boost.
Will Home Prices Plunge at Any Time?
People are asking whether home prices will fall? NAR Realtor Survey reports that home prices are already falling and some
We’d have to agree there has been significant housing development, but never quite enough. Trump tried to end the regulation that has been and still does strangle housing construction in California, Florida, Arizona, Illinois and other states.
However if the Dems won the 2020 election, and shipped jobs back to China, vast amounts of investment capital would flee the US. The job loss, defaults, and lack of lending would indeed be part of an epic type housing market crash and stock market crash. This possibility darkens the 6 month and 1 year projections considerably.
Housing Market Crash Timeline
What would a timeline for a housing crash look like? Here’s a guess: a 5% drop in home prices in May, 7% in June if everything holds economically. If the Corona Virus is held at bay, home prices could stay flat for July, and then begin a slight 1% increase in August and September.
If President Trump is elected, and that’s a big worry now given his handling of the Corona Virus emergency. We’re at Easter now and in no way can people go back to work or kids go to crowed classrooms. The drain on the economy is huge and the housing market will see a slide.
45 economists surveyed by NABE expect the economy to shrink by a 26.5% rate in the second quarter, after a 2.4% decline in GDP in the first quarter. In the second half, they expect growth to turn positive, with an increase of 2% in the third quarter and 5.8% in the fourth quarter — from a report from CNBC.
Consumers are expected to resume spending once the pandemic is over, but everyone can see how dependent the economy is on US consumers.
The Democrats are persistent in their media assaults on the President, believing that at some point they can haul him to the ground. But as voters ready to vote, Trump will warn them about capital flight, international supply chain dangers, dangers of foreign dependence, government spending pullbacks, lost jobs, lower wages, and foreclosures.
He could make a case for his bullish approach to running the country, because an ineffectual President would get railroaded for sure. It will be very interesting to how US voters react in the Presidential election.
Threats to the Markets
Number one threat now: The endless continuation of Corona Virus infections. With no cure on the horizon, no one can say when the economy can get rolling again. However, it does appear that China is rolling again. It’s a wild card because medical experts simply don’t know what havoc it will wreak on the economy.
Another open trade deal with China is very risky. It might push jobs back out of the US and devastate business investment here. Investors are confused about where to put their money and are simply holding on to it.
If President Trump accepts a poor trade agreement with the Chinese, it could crash US stock markets and push us into recession, even if multinational corporations breathe their own sigh of relief. I don’t believe any trade deal would be signed and the two are miles further apart now. America First, means the Chinese are gone.
How Vulnerable is Your City?
Yet, investors and homebuyers should still be concerned about a housing bubble in their cities. Not all states have recovered from the last recession, nor benefited from any Obama era Federal government policies. There really are cities at risk of crashing.
In late 2020, could the Fed ratchet up interest rates to pay for all the stimulus? In fact, almost every recession, housing crash, or major catastrophe has been aided by fast rising interest rates. These rate spikes kill off business and put extreme pressures on mortgage holders. Markets crash quickly then interest rates are quickly lowered.
This transition to a US centered economy over many many years, still puts the country into a vulnerable period of uncertainty and GDP risk. Will companies build factories here or instead hold off and hope for a Trump loss in 2020?
Unfortunately, “soft landings” after rate hike cycles are as rare as unicorns and virtually all modern rate hike cycles have resulted in a recession, financial, or banking crisis. There is no reason to believe that this time will be any different — Forbes report.
But what happens when Malinvestments in Europe and Asia become visible and crashes begin to happen there?
“Don’t we learn from history?” Perhaps history can only tell us whether the housing market 2020 is headed on a downward path, but can’t really say when or how it will happen, which cities might crash.
This recent chart from Case Shiller shows the volcano like shape of the last collapse. What’s different about this new rise is the unsteady, less steep climb, upward. Those halting steps could show the fear of investors and homeowners and how panic might be bigger factor this time. Alternatively, it could show housing market resilience.
Subprime mortgage default started it last time, but will something else launch the avalanche for the next one? Will a global recessionary tsunami rocket to US shores?
Zillow polled 100 economic experts about the economy and they believe a recession is coming in 2020. It’s amazing that they saw it coming, but it took a non-financial agent to start the recession.
Housing crash warnings have been sounding for many years both here and in China, which means the pressure for a big crash has been building. China is in trouble and so is Canada. With pressure, the human element, the human reaction, built on expectations built up by obsessively negative anti-Trump propaganda, could be sufficient to launch a panic-induced collapse. A panic meter might be the most significant crash signal.
A small statistical event then might only be needed to spark a crash event (like an ember at a California summer campfire).
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What Are the Key Housing Crash Factors to Watch?
There are numerous housing crash factors discussed below from geopolitical events to trade related to rising interest rates, the end of stimulus spending, and excessively high home prices. A trade war with China could be crash factor #1. Will debt, deficits, and tariff barriers be the issues that start bursting housing bubbles? Will it be political opposition by the democrats and meddling within the US?
Certainly the recent comments of the President that “Trade Wars are Good” don’t help settle the panic. Trade tariffs, strong inflation and cost of living rises, along with high mortgage rates and the adjustment to new protected market economies are serious threats.
Even Trump supporters are worried about the transition ahead to 2020.
In this post we try to take an objective look at the unthinkable. At least, it’s unthinkable for some that booming markets in Los Angeles, San Fransisco, Sacramento, San Jose, Seattle, Denver, Las Vegas, Dallas, Charlotte, Boston and Miami could possibly collapse.
Others can’t wait for the bubbles to burst so they can finally buy a home. Irrational thinking that can create strange events.
Is the Toronto housing bubble (worst in world now) the future for US cities? If the China housing market crashes, will the reverberations hit the US markets? What an interesting but scary phase of US history this is.
When Will Local Market Bubbles Burst?
If you look at the forecasts for all the bubbled up city markets such as San Francisco, San Jose, Los Angeles, Miami, Houston, Seattle, New York and Boston you’ll likely think back to prices before the last crash.
Check the state of the US housing market forecast
The recent stock market correction gives us pause for thought about how volatility can factor into a housing crash. However, the housing market is healthy with home construction rising and it will be a long time before demand is satisfied.
Mathematicians have studied housing bubbles, such as The University of Pennsylvania, and their HOUSING BUBBLE STRUCTURAL MODEL AND HYPOTHESES models couldn’t figure it out. The factors they studied do play a role, but housing bubbles and crashes are likely a cultural phenomenon (outside of major recessions). It comes down to values, attitudes, dreams and panic emotions.
There are some financial market players who make their fortune on crashes and if consumers are miffed about the direction of the market, it would be fertile ground for crash talk.
As long as Americans are employed with rising wages and growing GDP, housing crashes aren’t likely. Yet, a few experts such as Harry Dent are convinced a housing market disaster looms in the next few years. Even Anthony Robbins spoke up about it in a video below.
But no such housing market crash has happened. More like wishful thinking on the part of some.
A growing number of homeowners and buyers are talking housing bubble. With prices stable, economy strong, and demand persistent, why would so many feel the market could crash? Is buyer and seller pessimism enough to launch a sudden collapse?
Neil Kashkari talks extensively about false prophets (Alan Greenspan) and the sources of market bubbles such as $100 barrel oil, and other uncontrollable situations. He says market bubbles and crashes are very complex and the source is often completely unexpected. Could the oil sheiks take the US economy down again? Could China do it? Is the $20 Trillion debt a threat? Or is just the end of a bull run in the stock market?
“However, in those cases where debt is fueling the asset value increase, a correction could trigger financial instability, because banks might take huge losses and potentially fail.” — Neil Kashkari.
Check the stats and 2020 forecasts for the Denver housing market, Chicago housing market, Boston housing market, Los Angeles housing market, San Francisco housing market, Philadelphia housing market, and New York housing market.
Top 10 Cities Most Likely to Experience a Housing Crash
From a report in AOL.com here are the top ten US Cities most likely to experience a crash:
- Portland, Oregon
- Charleston, SC
- Buffalo, NY
- Fresno, CA
- Los Angeles, CA
- Dallas, TX
- Salt Lake City, UT
- Austin, TX
- San Jose, CA
- San Francisco, CA
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Are you looking for the best cities to invest in real estate or to avoid those metros most likely to crash? The top 80 cities to buy rental properties gives you a peak at the potential of rental property investment.
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