Key Indicator Hints America Is Headed For Its Worst Real Estate Crash In HistoryA shockingly large price bubble appears to have formed in the real estate market.
By Justin Haskins
February 16, 2022
Although it’s impossible to predict economic crashes with certainty, a key economic indicator suggests the U.S. housing market is on the verge of an unprecedented crash, one that could end up being the biggest in America’s history.
Following the 2008 stock and real estate market crashes, the Federal Reserve, Democratic-led Congress, and the presidential administrations of George W. Bush and Barack Obama began an unprecedented effort to pump new dollars into the financial system — and, to a lesser extent, the economy at large.
The strategy behind the flood of quantitative easing, government takeovers, stimulus checks, and government welfare programs that followed was that the Fed, working in conjunction with Congress and the White House, needed to prop up the economy to keep it from sliding completely off the cliff.
One of the primary tools the Fed used to accomplish its goals was to keep interest rates at near-zero for years on end. From 1980 to 2000, the Fed’s federal funds rate — the primary driver of interest rates economywide — rarely dropped below 4 percent, and it was common for interest rates to be 5 percent or higher.
However, from 2009 through 2016, interest rates were consistently much lower than 1 percent. Beginning in 2017, the first year of the Donald Trump presidency, the Fed began to more aggressively raise rates, but it only briefly topped 2 percent in 2018 and 2019 before the Fed once again slashed rates to near-zero as part of its plan to address the effects of the Covid-19 lockdowns.
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As a result of these policies, a shockingly large price bubble appears to have formed in the real estate market. The average sales price of a home in the fourth quarter of 2021 was $477,900, compared to $403,900 in the fourth quarter of 2020 and $384,600 in the fourth quarter of 2019. That’s a $93,300 increase in just two years, by far the biggest increase ever recorded in just 24 months.
Further, the 12-month home sales price increases for the second, third, and fourth quarters of 2021 were all above 17 percent, the highest hike recorded over a three-quarter period since at least 1963, the earliest date in the Fed’s data made available online.
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Determining the size of a market correction is extremely difficult, but if the 2008 crash is an indicator of what’s in store for us today, then if the current real estate bubble pops soon, as all bubbles inevitably do, it could end up being the largest real estate crash in history.
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Source:
https://thefederalist.com/2022/02/16/key-indicator-hints-america-is-headed-for-its-worst-real-estate-crash-in-history/
