Housing bust 2023 is underway.
As Darren Winters explains, the US housing market typically falls in different regions, with some areas being more sensitive than others due to spiralling mortgage increases egged on by Fed rate hikes.
So in the 2008 housing bust, the first house of cards to fall was Miami, Phoenix, Santiago, and Las Vegas.
The shockwaves of crashing real estate prices eventually reached San Francisco with ferocity.
But in the housing bust of 2023, the epicenter of the real estate crash, is California, San Francisco.
Silicon Valley is heading first into the real estate crash, bearing in mind tech layoffs in January were the worst since 2008, so it stands to reason that Silicon Valley leads the housing bust in 2023.
The housing bust in 2023 is no seasonal decline
In the 2023 housing bust, median prices are plunging faster than during the first ten months of 2008.
Across the US house prices continue to nosedive, month after month, with the market adapting to higher mortgage rates as lenders pass on the Fed rate hikes.
Property sales tumbled in all regions, with all types of homes across the US falling in price in January for the seventh month in a row, down by 13 percent from the peak in June.
Soon we will see a year-on-year price decline in February or March, which would be the first year-on-year decline across the US since the real estate crash of 2008. Property sellers are sitting on vacant properties, holding them off the market.
The average 30-year mortgage rate went over 7% last year, and then in January, it dropped to 6% as everyone breathed a sigh of relief.
Those in the property market were hoping that inflation would vanish and that the Fed would cut interest rates soon and end the housing bust in 2023.
The changing geopolitical world and US Housing bust 2023
The housing bust of 2023 could have its roots in the waning USD reserve currency status, and de-dollarisation, which is not a cycle but a systemic change.
The global economy is shifting from a US-centric sphere to the East BRIC nations. Both China and Japan continue to reduce their holdings of US treasuries. Moreover, the petrodollar is waning as Saudi trades oil in Chinese yuan. Iraq has also ditched the USD for Chinese yuan. So, the declining global demand for USD could be a macro trend as global economic activity shifts from a US-centric world to the East.
China and India are tipped to be the world’s largest economies in decades, overtaking the US, according to Goldman Sachs.
Soas Darren Winters points out, the writing is on the wall; decades of cheap credit fueled a real estate asset bubble creating paper speculative wealth that spurred consumption. When affordable credit is cut, the system goes into a deflationary debt death spiral.
Here is the takeaway; it will not be central banks who pull the plug on the system. The hostage markets will eventually break free. TINA applies in a unipolar world, but the rise of a rival BRIC system based on production and commodities has more gravity than an insolvent debt system built on a house of cards.
The US public deficit has ballooned to over 32 trillion USD, and that trajectory is likely to grow, the alternative would be a US debt default.
But with the US public debt monetized as treasuries, and its supply set to rise, who will buy all those surplus treasuries? The Fed is trapped in a high yield high-interest rate environment. Sure, the Fed can keep keyboarding USD into existence to buy the debt, but that will create even more inflation, which could eventually collapse the USD.
Housing bust 2023, is on the cards, vacant housing units soar.
Stay tuned as we could hear more about distressed banks.
Average US mortgage rates jumped again by nearly 7%, at the time of writing this piece.
There are 15 million vacant housing units, over 6% of the housing stock
US Property owners have kept 6.6 million properties vacant and off the market because of a lack of suitable tenants, and they are hoping to sell in a better market.
So, if 20% of those homes showed up on the market, it would trigger a glut.
But the housing bust of 2023 could be just starting
The medium real estate price over a 10-month period in 2022 and 2023 has plunged by 35%, which is compared to a 21% plunge for the same period in 2008.
Housing Bust 2023, the soft landing fairytale
With the economy in freefall by a raft of metrics and bank distress waving a red flag, will the Fed continue with its fairytale soft landing narrative and spend what scarce credibility it has left?
But if it admits to the reality, tightening in a sharp economic downturn, that could also be political suicide.
Perhaps there is no way of ending decades of near-zero interest rate policy, which created all that real estate paper wealth, and then attempting deleveraging to pop the mother of all bubbles, the real estate bubble, without making another Lehman Brother collapse.
Buckle up because our boom, bust policymakers don’t have a good track record.