How High Can Interest Rates Go Before Housing Prices Start To Crash? The 2020 Real Estate Mortgage Deferral Bailouts Give us a clue – December 17, 2021,
What I write in this post shouldn’t be confused with the potential realities of that future situation. There are a lot of lies being promoted by mainstream media outlets that claim that Covid-19 is causing economic chaos, this is utter nonsense, a similar argument is made about guns, do guns kill people, or do people kill people?
There are millions of law-abiding gun owners that wouldn’t hurt anyone, even when they have the legal right to, but the illegal gun owners are often trigger happy and the government instead of calling most gun crimes for what they are “criminal activity” will instead argue that for the “greater good of society” the government should have a monopoly on gun ownership.
A similar argument is presented for covid-19, the government wants a monopoly on the response to covid-19 and therefore the words often used by the media and political classes are that covid-19 is causing economic chaos when the reality is the government’s response to covid-19 is causing economic SHORTAGES of labor, finished goods, and services, which of course is leading to economic chaos.
Now that we have the culprit backed into a corner, let’s now investigate what tools the government has to battle SHORTAGES? The only tool the government has to battle shortages is to cut regulations on the economy. I know the first thing in your head may have been that government should and will print money to end the shortages, but what most people are ignoring is what’s causing the shortages to begin with?
The labor shortage is caused by the government’s response to the virus, in many parts of the world, the government demands that even hard to replace HIGHLY-SKILLED workers be vaccinated in the manner the government deems acceptable Well, not even human wants to be a slave to the government mandates and because highly skilled labour was scarce pre-pandemic, it’s not like flooding any nation with new immigrants many of whom will need government welfare will fix a highly skilled labour shortage problem.
The only cure for this problem is for the government to end abusive and excessive regulations on the economy. I suspect the government will drag its feet on the labor shortage problem, already governments all over the world are dying about the labor shortage problem, in their data they’re ignoring the people NOT returning to the labor market.
Inflated job numbers look good on the news, but these fabrications are easily exposed when people are in Mainstreet and notice there’s a decline in what their money can buy. How this relates to the real estate markets is that, the government which is deeply in debt, is going to fight like hell not to raise interest rates, finding any excuse it can to bring rates down, in the event rates are raised and this is going to accelerate INFLATION.
Printing money can’t solve shortage problems, sure it can buy some time, but shortages are shortages and once that inflation genie gets out of the bottle, it’s over, because as we’re already seeing in real estate, prices are soaring, as investors realize the trap the governments are in and are betting big on dollar debasement.
The problem is as many of us like to point out, the economy is actually DEFLATING not inflating, most of the money in circulation is borrowed into existence, meaning that the management of capital is going to be the most important moving forward. You see in an inflationary market, THE COST OF DOING BUSINESS start rising so even if you can manage our mortgage payments, what’s going to hit most people by surprise are the other price hikes.
Prices aren’t going to stop dropping just because Central banks raise rates, rates are going to have to keep rising until the GOVERNMENT taps out. I’ve been writing about austerity measures for years now, but most people imagine austerity measures as a society not growing or expanding, no, austerity measures in this global economy, equates to GOVERNMENTS SHRINKING!
In Europe they’ve been shrinking the size of their governments for decades, their government tax of choice unfortunately still remains regressive, but the writing is on the wall, that government is not suited to handle global economic expansion fueled by ever-evolving technology. Until the world figures this out, I don’t anticipate a real estate crash.
The real estate crash occurs when central banks cut ties with their indebted governments and start raising rates to fight inflation, it’s when the government starts cutting regulations, that we’ll start seeing the true value of things. As of the date of this post, there is no real desire to fight inflation, to fight inflation you have to allow BANKRUPTCIES and malinvestments to be flushed down the economic toilet.
The world is not ready for that as of today’s date, which signals that there will be more inflation, it’s not to say that some prices might not come down, but while some prices come down, other prices will go up. Regulations especially excessive regulations on the economy are expensive and typically the fiscally conservative who have no desire to live lavish lifestyles, will adjust to the new normal, it’s the people who are accustomed to government welfare who will be confused about this new normal.
In Venezuela as an example, people have become accustomed to doing without, lazy people will always be lazy people, it takes hard work to build and maintain a great society, not politically driven words. The most productive of society are rebelling against regulations and this will lead to more inflation, in response expect governments to stage their own rebellion and destroy the purchasing power of their currency, the key player in all of this will be the central banks.
All it takes is for the central banks to start looking out for their own selfish interests and government spending will be forced to get cut. So I’d say once interest rates break the 5% mark you’d be wise to prepare for the economic collapse of our lifetime, because there will come a time, in which society accepts that the zero percent interest rates era is over and the bankruptcies will start happening, that only sounds crazy now in 2021, but a few years ago locking people in their homes was a crazy idea, then it happened and people accepted it.
You have to remember that people are currently imagining owners of real estate as the aristocrats of society, so to see these people fail will actually bring joy to people’s lives, the problem is as of this date, it’s hard to imagine that happening. But once the central banks are forced into a position in which they have to save themselves, they will begin dumping financial junk nobody wants onto the markets and whatever Prime Minister or President dumb enough to be in power during this period is going to be faced with the reality of cutting government regulations and cutting government spending.
In the event the central bank can’t or refuses to raise interest rates, I expect a new financial system, that will likely fail if it’s not backed by Gold and Silver. So what am I getting at here? This could take months, years, or decades to happen? Argentina has been living with inflation for decades because its people REFUSE to shrink the size of government. That is the reality of the situation.
There will come a time when the price of Gold and Silver start to rise because it has to rise based on market conditions, but the rise in Gold and Silver prices are something that quite frankly is hard to predict?
Having a money system backed by Gold and Silver also equates to austerity measures. Government inefficiencies are quickly exposed on a Gold and Silver standard. Even if you’re a believer in a bitcoin standard, this standard would destroy the big government. So here we are, reliant on central banks to decide the fate of real estate, my prediction is if interest rates crack 5% the real estate collapse begins, not even 100-year amortization can save debt payments if interest rates climb to 5%.
Furthermore, savers like the idea of 5% on US dollars, meaning that REITs and other dividend-paying instruments are going to have to compete for capital, meaning that many of these entities will cut their losses and restructure, thereby flooding the market with real estate, because truth be told most owners of real estate have no hopes of paying off their mortgages EVER!
I like to remind people that there are multiple ways to declare bankruptcy, but for some bankruptcies, you need to have a lot of money available at your disposal, small mom and pop real estate investors don’t have this type of money and they’re going to be forced to liquidate, the larger firms will use bankruptcy as a means to restructure. The entity with the most losses with higher interest rates is the government and government dependents, that’s why I can’t give an exact answer as to when the austerity measures will begin.
If you’re a government dependent you’ll welcome draconian measures on society, that’s how this works, this is why Latin America is so poor, this is why socialism is such a silly concept. Big government will always produce poverty. Humans are meant to be free, not to be locked in cages and socially engineered to INVOLUNTARILY serve a small minority. If you make the choice to serve someone that’s one thing, being forced to do it, via government mandates is something else.
I’d say that the 5% interest rate market is the number to watch because 100-year amortizations which will come to the markets if rates keep going up won’t be able to stop prevent the real estate market from being restructured.
Interesting times ahead!