A Main Street price crash could be dead ahead in the second half of the year, 2023.
Last year saw 32 trillion dollars slashed off the value of portfolio asset prices as central banks tightened monetary policy and burst the everything bubble from stocks and bonds to cryptos.
Darren Winters anticipated that 2022 would be a rough year for investors, particularly with the escalating war in Europe contributing to higher inflation for global food and energy prices. That prompted Darren Winters to write a piece, entitled Uninvestable Markets, posted May 2022.
Could the main street price crash be the next chapter in the economic downturn?
The spotlight has moved from financial markets to the highly leveraged housing and auto market.
Tighter liquidity conditions are starting to feed into the main street as US mortgage rates hit 7% in June. Mortgage applications to purchase a home tumbled to their lowest level since 1995. Refinancing deals also collapsed as the cost of servicing a home loan has almost doubled since Fed tightening.
Put simply, the traditional spring house hunting season has been a dud and real estate prices are starting to tumble. “Investor home purchases fell a record 49% year over year in the first quarter,”
“Widespread economic uncertainty and recession fears are prompting investors to pump the brakes,” said Redfin.
Main Street price crash in auto and real estate could grab headlines as a tsunami of loan defaults breaks in the second part of the year
If so, that could wreak havoc on tangible leveraged assets, particularly real estate and autos. More bank downgrades could be ahead as loan defaults soar.
US auto repossessions and home foreclosures are rising as the world’s largest consumers are living on a financial cliff.
A growing number of people are struggling with financial hardship.
Do not be surprised to see charities requesting food parcels in grocery stores. The worst cost of living crisis since the great depression is underway as people struggle to pay for essentials.
The coming main street price crash could slash trillions of dollars off autos and real estate prices
Escalating auto prices experienced during the 2020 global lockdowns, which disrupted supply chains and the rationing of semiconductors needed for autos, are in the rear mirror. Semiconductors remain an issue due to geopolitical concerns.
Autos prices are starting to cool, for many that is good news
Since 2015, the average price of a new car across France, the UK, Germany, Italy, and Spain has risen from US$36,037 to US$44,769. Similar price rises were evident in America. Data cited by Bloomberg shows from 2019, the average price of a new car increased by 30 per cent to $50,000.
The average used car price fell to $29,000 in January 2023 (-7.6 per cent year-on-year), and the declining auto prices trend continues.
Home prices are also beginning to decline
As explained above, the traditionally busy spring period for house hunting has failed to materialise.
The median existing-home sales price declined 1.7% to $388,800 in April compared to a year ago, according to the National Association of Realtors (NAR). This is the third consecutive month of year-over-year national home price declines after a 131-month streak of record increases.
“Home sales are bouncing back and forth but remain above recent cyclical lows,” said Lawrence Yun, chief economist at NAR, in a report. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
From price correction to main street price crash
But is the current price cooling in autos and real estate just part of a market experiencing a healthy correction after the lockdown stimulus of 2020?
The main street price crash could be more than fear porn for several reasons.
The worst cost of living crisis in a generation shows no signs of abating, Central bank rate hikes will do little or nothing to avert price rises in food and energy because it is supply driven.
The ongoing war in Europe is pushing up global food and energy prices. Moreover, monetary contraction is adding to price hikes as producers respond to waning demand by cutting output. Darren Winters explained previously, how OPEC would cut output to maintain high prices and profits, in response to the Fed rate hikes. The headlines today, OPEC cutting production, come as no surprise.. Central bank tightening policy has reached the law of diminishing returns.
Main Street prices crash in a backdrop of spiralling unemployment, underemployment
We could see more than cyclical unemployment unfolding during the boom-bust economic cycle.
Technological advancements, which displaced humans from the economy are likely to lead to long-term structural unemployment and a systemic crisis.
Darren Winters wrote, don’t worry about AI’s impact on the labour market until it can power autonomous trucks on public roads for logistic businesses.
That time has arrived with California banning self-driving trucks since legislators are concerned about the elimination of jobs.
Indeed, even the heavily pampered US unemployment rate showed a sharp spike in May’s unemployment rate as the number of unemployed persons rose by 440,000 to 6.1 per cent.
Here is a chilling thought; at least 90% of jobs could be eliminated today with AI robotics technology.
Is this the paradox of capitalism, where the quest for ever-increasing profits kills the system? The technological advancement of this century is different because it doesn’t aid humans, it displaces them from production.
So standby for main street price crashes as technology makes humans redundant.
54% have three months of expenses set aside in their account.
But 13% can’t pay for a $400 emergency expense.
Can you see a debt tsunami wave in the Great main street price crash? Cash could be king.