Today, the average home mortgage rate reached 6.02%...according to Bankrate.com. This rate could increase (again) later this month if the Fed increases the Fed Funds Rate at their next meeting. What is now happening is that sales are declining, refinancing has dropped to nearly zero, and inventories of unsold homes are skyrocketing.
What is the problem? It's called AFFORDABILITY. The vast majority of potential buyers can not AFFORD the prices which sellers are asking for their homes. Most buyers need a mortgage to acquire a home. As rates increase and prices are slow to decline, affordability makes buying nearly impossible (for many). Are problem today is this concept called 'affordability'!
Yes, sales will continue for those with CASH. Some buyers are still selling at record prices in various cities and this makes it possible for the FEW to use CASH to buy a new home. Cash buyers will eventually dry up as prices drop. My sense is that home prices will drop by 20% in the next six months. This will help buyers to some degree but if interest rates trend higher (in the interim) affordability will still be the BIG problem.
Real Estate sets the table for the general economy. As sales decline, durable goods will decline, home furnishings will decline, and retail sales will suffer. The CYCLE of change is now starting within the real estate sectors of our economy. This will magnify by year end. 2023 could be a difficult year for our general economy as a recession will start and then turn into a depression.
Our problems are historical DEBT which is much in the excess. Private sector debt is at a record. Public sector debt is at a record. To eliminate debt will be the next big issue for our governments. My sense is that a DEBT Jubilee will be needed later in 2023. As defaults and liquidations increase, relief must come from the authorities which HOLD all this debt. All this will make a DEBT Jubilee the coming mantra.
We are now at the end of a major economic CYCLE. The winter cycle is here and this will continue for years. You can witness all this debt here: https://usdebtclock.org/
The end of a CYCLE is what is emerging for our national and our global economy. All our commerce is now interconnected and interdependent. What happens in the USA will happen globally. Europe is now in DEEP trouble with their economy and their relationship with the EAST (Russia and China). I would assume that Europe could implode in the next few months.
The Ukraine War is not ending and energy prices are going up for Europe. This will explode into an implosion of the economy by 2023. Watch what happens in Europe and the Emerging Nations as our economy implodes from the higher interest rates and excessive debt. All this reveals that we are at the END of a major business cycle. The WINTER cycle is here!
Stock prices will also continue to be volatile given the implosion in our general economy. I don't think a new BULL market is coming for stocks. All these changes will cause an implosion in confidence and general political sentiment will turn negative. But all of this is positive for meaningful CHANGE. We need change and nothing really happens until people sense that the economy is the problem.
The elections in November could reveal the sentiment of American voters. We are nine weeks from this election (called the mid-term elections). Will Biden and his progressives prevail in November? Will the voters support the regime of Biden and his Deep State? This will be the big issue in a few weeks. Much depends on what happens with our economy.
If our economy turns around and starts to grow, then a positive response is likely for Biden and his policies. But if the opposite happens, then my sense is that Biden and his Deep State operators will be rejected BIG time. Our economy is KEY to what the sentiment will be in nine weeks. Watch the economy for evidence of a PIVOT by our FED (this Central Bank holds all the cards IMO).
If POWELL pivots and starts to reinflate our economy with QE stimulus, then my scenario may not be valid. Money is key to sentiment. As I write the FED is applying QT (tightening). This policy is reducing liquidity in our economy and this will also reduce demand. Demand management (tightening) is now creating a decline in liquidity for our economy.
The old saying is: It's the Economy stupid! I would agree. As the economy goes so goes sentiment and confidence. So watch what happens the next six weeks as this will set the tone for the November elections. We could be witnessing MAJOR change by the END of 2022. That is my perspective. Think for yourself!
I am: Donald B. Swenson, Economist/Philospher, donaldswenson.blogspot.com. Also, http://kingdomecon.wordpress.com.
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