Illiquid Real Estate Market

An illiquid real estate market is currently in play as home buyers dry up and prices spiral into a nosedive from dizzy heights. 

The catalyst for an illiquid real estate market is skyrocketing cost of mortgage payments  

House prices are declining and, in some cases, falling to their fastest pace on record.

In this illiquid real estate market, prices are taking the elevator down.

The average thirty-year fixed mortgage rate has more than doubled in the last year from 3% to now over 7%, which is the highest in 20 years since 2002.

So the real estate bubble is bursting, the plunge has just begun, and it could last several years. 

The Illiquid real estate market is caused by boom-bust cycles created by erratic central bank liquidity policy

Illiquid Real Estate Market

This real estate crash could be worse than in 2008 because property prices have a higher cliff to fall off. 

The last decade of interest rate repression and central bank currency creation fuelled the mother of all real estate bubbles. 

Put simply, real estate prices have shot up to monopoly money highs. 

In the last 20 years, home prices have quadrupled. 

In the last two years alone, home prices have spiked from 30 to 60%, which is ridiculous and destabilising. Miami metro home prices have jumped by 60% in two years.

How will the illiquid real-estate market end

Markets become illiquid when buyers and sellers withdraw. Eventually, illiquid markets crash as sellers capitulate, accepting lower prices. 

So with the mortgage rate more than doubling in two years, demand has collapsed, which has created illiquidity problems. Sales have plunged, and if transactions are occurring, it is at lower prices. Buyers are pulling back because they cannot afford the 7% mortgage payments. 

Illiquid real estate market, the absence of institutional investors

Even cash buyers and institutional buyers are pulling back faster than regular buyers because they can see a cliff edge in home prices.

Professional investors don’t want to buy at the top and ride the whole market down.

The collapse in home sales is unprecedented

Mortgage applications have collapsed by 42% compared to a year ago. The declines started in February this year as mortgage rates were rising 

The peak of the housing frenzy was in early 2021

The collapse in mortgage applications in October, the lowest since 1995, indicates foreclosure home sales.

Home sale sales in September plunged by 24% compared to a year ago, and 30% from October two years ago.

Home sales are at levels not seen since the lockdowns of 2020, since then it has deteriorated.

An illiquid real estate market is being made worse due to professional investors pulling out of real estate

The housing market freezing is the result of a standoff.

Sellers are waiting for the Fed pivot.

Meanwhile, inflation is moving into services, which is two-thirds of spending. So with inflation becoming entrenched, the interest rate could go higher and stay higher than most people expect. 

From the real estate bubble to the illiquid real estate market

The many years of interest rate suppression and QE created the bubble of everything as those higher up the food chain received a large share of the free money cake and poured the excesses into financial assets.

These dynamics price the average Joe out of everything from decent return on cash accounts to dismal bond yields and ludicrous housing prices. So this made it impossible for an entire generation of young to own their home unless they were fortunate to have wealthy parents to give a sizable deposit.

The dam broke 20 months ago, and the war in Europe was also the catalyst to food and energy hyperinflation, likely to worsen in 2023 unless war gives way to peace and energy food suppliers return to normal. 

Underlying inflation is unlikely to back off despite rate hikes which will create more homeless and desperate people.

The illiquid real estate market is different from other assets

The housing bust isn’t like crypto trading, which has instant gratification, and the previous housing bust in 2008 took a few years to mature. 

The housing bust accelerates as sellers give up on higher prices and the snowball in price declines continues. 

Will a Fed put save the illiquid real estate market?

The real estate bust won’t take down the banks.

If mortgage credit blows up, another wave of foreclosure won’t hit the banks, it will affect taxpayers, and create more homeless people and investors to a lesser extent.

Why?

Because unlike in 2008, the government today guarantees the loans 

Fed put comes only when there is a systemic crisis. It is a banking system for the banks, and the debt-serfs can eat cake.  

The average cost of a loaf of bread in 1920 was 12 cents in 2022, $2.19, an 18% YoY increase. 

A car in 1920 was $260, and in 2022, $50.000, a 188% YoY increase. 

A home in 1920 was $6.296 in 2022 was $428.700, an 66% YoY increase. But the average pay increase for a middle-class American was just 3% YoY. 

If the American people ever allow private banks to control the issue of their currency first by inflation then by deflation the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers …”, Thomas Jefferson President of the United States (1801-1809) ver-allow-private-banks-to-control. 

Two centuries later, living in a pod and eating bugs are normalized.

Serfs with pitchforks at the gates could make an illiquid real estate market liquid

A systemic crisis for the bankers could also be when the bankers fear the serf, fear a peasant uprising. What comes next public housing?

In these turbulent times investing in food, and energy housing is politically explosive. Army can occupy farmland, price freezes could force food retailers and energy companies into nationalization. Those at the apex of the human food chain will throw investors under the bus to save their necks. 

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