by Michael
Higher interest rates are absolutely strangling the real estate industry, and there is no relief in sight. The sudden shift from a very low interest rate environment to a much higher interest rate environment has paralyzed sales. As I have discussed previously, very few homeowners that are currently locked into a mortgage at a low interest rate want to sell, because buying a home to replace the one that they are selling would mean taking on a mortgage at a much higher rate of interest. And millions of potential home buyers have been chased out of the market because of the exceedingly high mortgage payments that they would be facing if they pulled the trigger on a purchase right now. So sales of previously-owned homes have dropped by more than 32 percent over the past two years. In other words, about a third of the entire previously-owned home market has already been wiped out.
When home sales crash, everybody that works in the real estate industry suffers.
And it turns out that home purchases by investors are falling at an even faster rate. Wall Street Silver posted the following to Twitter earlier this week…
I was stunned when I first saw that, but I also knew that I had to confirm if this was true or not.
And I discovered that it is true…
45%
That’s how much investor purchases of homes have fallen since last year, as of the second quarter, according to data from Redfin, as homebuying looks less profitable than during the pandemic housing boom.
Investors, just like private buyers, think it’s a bad time to buy a home.
We have got a major crisis on our hands, and it is not going to go away any time soon.
Things are even worse on the commercial real estate side.
The Wall Street Journal just published an article entitled “Real-Estate Doom Loop Threatens America’s Banks”, and that headline does not exaggerate the current state of affairs at all.
Commercial real estate prices are plummeting all over the nation, and our banks have trillions of dollars of exposure…
The WSJ analysis put total bank exposure to commercial real estate at $3.6 trillion, which it estimates is 20 percent of their deposits. Holdings of CMBS and loans to nonbank lenders accounted for $623 billion of that total at the end of last year.
In the past decade, regional banks went to town on commercial loans, never expecting how quickly the tide would turn against them. Today, losses on loans are leading banks to cut back on lending, furthering the drop in property prices and more lender losses — in other words, a doom loop.
Banks are already pulling back. Debt origination fell by 52 percent for the second quarter year-over-year, according to Newmark; lending volume among banks fell by 48 percent. M&T Bank said it would reduce commercial lending as nearly 1 in 5 of its loans to office landlords was in trouble.
So many of our financial institutions are going to be in very serious trouble because of this.
If the Federal Reserve were to push interest rates all the way to the floor immediately, that would help.
But instead, Fed officials continue to insist that rates are going to go even higher, and that is going to escalate this crisis into a full-blown real estate apocalypse.
And higher rates will also do an incredible amount of damage throughout the rest of the economy as well. This is a point that the Shark Tank’s Kevin O’Leary made very well during a recent interview with Fox Business…
In a recent interview on Fox Business, Kevin O’Leary, the “Shark Tank” investor slammed so-called “Bidenomics” for leaving small businesses behind. He warned that chaos is about to kick off for the “little guy”, which are the 33.2 million small businesses in America, due to the Federal Reserve’s aggressive rate hikes.
“They’re struggling because the Fed has raised rates up to 5.5% in a matter of months,” O’Leary said. “You’re going to hear a lot of people crying about this in the next few months because they can’t borrow anything anymore and they can’t run their businesses.”
He is right.
Small and mid-size businesses all over America are really struggling right now.
Economic activity is slowing down all around us, and they are starting to lay off workers.
In fact, in just the past two months the U.S. has lost a whopping 670,000 full-time jobs…
Well, one look at this month’s adjustment and it’s literally a shocker: you will not hear anyone from the Biden admin or associated economist cheerleaders mention this, but the BLS reported that in August the number of full-time jobs dropped again, sliding by 85K to 134.2 million, and followed the whopping 585K plunge in July which brings the two-month total drop in full-time jobs to a whopping 670K, the biggest 2-month plunge since the covid lockdowns in early 2020 when 12.5 million full-time jobs were lost in one month!
When the official numbers that the government gives us start looking this bad, you know that the hour is late.
And the job cuts just keep on coming. On Wednesday, we learned that Roku will be conducting a third round of layoffs…
Video streaming company Roku shares spiked Wednesday after it announced plans to lay off more than 300 people, or about 10% of its workforce, and pull certain content from its streaming platform to ease operating expenses.
This is the third round of layoffs from Roku in recent months after the company let go of about 400 employees total between November and March. The company had roughly 3,600 full-time employees across 14 countries at the end of last year, according to its annual report.
I actually really like Roku, and so I hope they can turn things around.
But the reality of the matter is that everyone is going to have to deal with the very hard times that are now upon us.
Hordes of middle class Americans are being pushed into poverty, and hordes of impoverished Americans are being forced into the streets.
So far this year, we have actually seen “the biggest ever spike in homeless people living on the streets”…
The United States has seen the biggest ever spike in homeless people living on the streets – as preliminary figures showed a record 11 percent increase in one year.
There are nearly 600,000 rough sleepers across cities and towns in America, and the jump from 2022 to 2023 so far is the highest since the government started tracking the data in 2007, according to the WSJ.
Places like Oakland and San Francisco in California have become hotbeds for homelessness, as people living on the streets are like ‘drug tourists’ who arrive to have easy access to narcotics.
But this isn’t supposed to be happening.
The Biden administration told us over and over again that “Bidenomics” was working.
Of course the truth is that we have now entered the very early chapters of a full-blown economic nightmare.
Things are going to get a whole lot worse for the real estate industry.
And things are going to get a whole lot worse for the economy as a whole.
So I hope that you have been getting prepared for what is ahead, because most Americans are going to get completely blind-sided by what is coming.