My personal work background has been finance, economics, mortgage lending, and valuation of hard assets. I earned my MAI designation in 1974. This designation is difficult to earn and it signifies that I am an expert in finance, valuations, and real estate.
Based on my 53 years of experience in finance and real estate, I can say with confidence that the coming REAL ESTATE CRASH will be historic. What I learned from prior real estate cycles is that when this cycle turns down, it signifies that the general economy will also turn down.
The two BIG downturns in real estate that were significant were the 1979-80 Savings and Loan Crash and then the 2009-2011 housing crash. These two events were major catastrophes for our general economy. As valuations go down, lending and growth also goes down. This happens quickly and it changes our economy quickly. We are now within the crash cycle again!
Some 30-35% of our economy is tied to mortgages, commercial real estate, and residential real estate. The key to valuations within this industry are: INTEREST RATES. Low interest rates produce HIGH valuations. High interest rates produce declines in valuations and potential crashes in the general economy.
Since early in 2022, the DEMAND for assets within real estate have turned DOWN. Cap Rates for commercial properties have increased (doubled). This change produces huge DECLINES in valuations. The Big issues in residential real estate is this concept called AFFORDABILITY. This concept is KEY to this industry. Affordability and interest rates are KEY to trends within this economic industry.
We are now at the point where I can PREDICT a huge coming crash in most areas of real estate in 2023. Commercial real estate is in trouble and residential real estate is also in trouble. Valuations are coming down quickly as the FED has increased our interest rates to nearly double +. This change produces valuation DECLINES over time. My sense is that the BIG declines are on the horizon.
Big cities like San Diego, Los Angeles, Phoenix, San Francisco, Chicago, Miami, etc. will soon become aware that PRICES have dropped significantly. I expect a 50% decline in most major areas by the summer of 2023 (say August). The ONLY salvation for this industry is a FED pivot to LOW interest rates (say 2% of lower). A panic pivot by the FED might delay this coming CRASH! Don't expect this, however!
I do not expect this to happen as INFLATION in other sectors of our economy continues unabated. Food inflation is continuing. Farm crop inflation is continuing. Energy inflation is continuing. Restaurant inflation is continuing. Overall, we could witness some DEFLATION in many sectors by mid-2023. Car prices will decline, House prices will decline. Lumber prices will decline. Many durable products (like furniture and appliances) will decline.
We should experience DEFLATION and INFLATION in 2023. The stronger trend will be deflation later in 2023. All this suggests that a huge economic CRASH is on the horizon. I have followed the real estate cycles for over 53 years. My best understanding is within this industry. But I do sense that the entire economic horizon is BLEAK. The war in the Ukraine is another issue of concern.
The war issues could produce more INFLATION and/or DEFLATION depending on what happens. I am hoping that some type of negotiation will happen soon. The war situation is producing a polarization within politics, economics, and philosophy. My sense is that a DUAL polar world is emerging. The WEST against the EAST. Russia, China, Iran, et al, against America, Europe, and the West.
All the distortions in our economy are now becoming transparent to discern. Our Central Planners are trying to prevent a big CRASH but my sense is that it is too LATE to stop this outcome. Digital markets produce quick changes in prices and valuations. Economics is based on this concept called VALUE. As valuations decline the entire economy declines (with a lag).
Prepare for a BIG CRASH in this real estate industry in 2023. The global economy should be somewhat stable until later in 2023 (say June/July/August). It takes time for valuations to affect the general markets. But the trend is now in motion for a HUGE decline later in 2023. That is my SINGLE most confident PREDICTION for 2023! Think for yourself on all these issues!
I am: Donald B. Swenson, donaldswenson.blogspot.com. Also, http://kingdomecon.wordpress.com.
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