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"Rising Mortgage Rates Trigger A Housing Market Crash:
Prepare Your Self For The Worst!"
by Epic Economist
"Housing prices all across the country have surged at the fastest pace since 2014, but wages haven't keep up with that growth, and all of these determinants are affecting people's ability to buy new homes. The housing bubble has become so unsustainable that demand is already significantly collapsing and further increases in interest rates could push the entire market to the brink of housing market collapse just as well. That's what we're going to analyze in this video.
Last week, mortgage interest rates have unexpectedly soared, throwing cold water on already cooling demand. Consequently, the total mortgage application rate has flat-lined, increasing by just 0,5%, according to the Mortgage Bankers Association’s seasonally adjusted index. The median contract interest rate for 30-year fixed-rate mortgages with conforming loan balances registered a significant hike, having increased to 3.23% from 3.08%.
The latest housing rally has been fueled by several different factors, in addition to historically low mortgage rates, there was an unprecedented demand for suburban homes as city-dwellers fled urban centers to escape the harsh effects of the health crisis and mounting social turbulence. But low inventory has sent prices to sky-highs and formed a splendid price bubble that never ceased to grow.
However, rising borrowing costs could not only jeopardize the rally but also burst the housing price bubble and push the entire housing market to a secular correction. Higher rates are also bad news for lenders who have managed to collect huge gains ever since we entered a low rate environment at the beginning of the recession last year.
These developments outline that the Fed's attempt to offset the devastating impact the health crisis caused to the economy by lowering rates and pumping trillions of dollars into the markets in order to create an artificial "wealth effect", has not only enabled the formation of a massive housing bubble, as it could suddenly pop it due to the unsustainability of its policies. That's why investors and bondholders are already running for the exits not to see their gains irreversibly wiped out in face of an imminent crash. Moreover, in the process of artificially fueling the bubble, policymakers have ended up worsening wealth inequality and housing affordability issues.
The spring housing market is on track to become the leanest, most expensive, and most competitive ever. As the supply gets tighter and tighter, home prices soar even higher, and increasingly fewer Americans can afford to have a home of their own. In January alone, prices increased more than 10% year over year, according to CoreLogic. But wages are not keeping up with the rising costs of housing.
According to a 2020 report from the National Low Income Housing Coalition, workers need to make $21.10 an hour just to afford a market-rate 2-bedroom rental. The massive gap between wages and housing prices is the reason why millions of families are evicted every year, ending up in shelters or on the streets and oftentimes being pushed to a poverty spiral that is incredibly hard to recover from.
People in middle and lower-income segments being are increasingly priced out of the market for homeownership. And the situation will likely get worse, as legislators are considering a number of bills this session that will significantly increase the cost of new homes. With the passing of a new fiscal relief package, although payments may help to ease the economic struggles of renters and landlords in the short-term, it also means our money supply will increase by $1.9 trillion dollars.
As soon as the economy reopens and consumer spending resumes to pre-lockdown levels, we will see a major spike in inflation, which is the most frequently mentioned trigger to the burst of the current asset bubbles. In that way, a dramatic housing market crash is now more imminent than ever, and that will cause enormous financial pain to homeowners as they see the value of their properties sharply collapsing. As our leaders and policymakers seem to remain unbothered in face of so many warnings, eventually, we will all be witnessing an astronomical explosion occur across financial markets. Needless to say, we will be the ones paying the price for this tragic housing crisis made by design."
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