The Housing Market Crash is Imminent and Has Absolutely Nothing to Do With 2008
By James Lane, PhD, MBA, Founder, American Reveille LLC
The current housing market is about to be on fire. If you're a real-estate agent and reading that last line, you're most likely smirking right now with a smug grin on your face. You're saying out loud, but James, it's been on fire! Not that kind of fire buddy, so sit down and shut up. Let me premice this masterpiece by first saying that I'm not a real estate agent. What does that mean for you? That means you can trust me over a salesman, which is what all real estate agents are at the end of the day, salesmen. I swear on my dead fathers' urn that a real estate agent would care less about helping you into your dream home if there was nothing in it for them, and rightfully so. It's your duty as a homebuyer to walk in the door informed. How do I know this? I come from a family of shiesty real estate brokers, agents, and property managers. Well, I've got some information for you that you may not like. In the meantime, forgive me while I begin to hum 'Ring Around the Rosie," especially that last part about "we all fall down."
The Great Invisible Bubble
Let's start simple and then build upon it. I'm making a call here and believe my researched and experienced opinion is correct so I want you to thoroughly understand where I'm going with this. That way you can give me credit when I'm right. A housing bubble, according to Investopedia:
A housing bubble, or real estate bubble, is a run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase.
This sounds familiar, doesn't it? Your real estate agent will tell you I'm full of crap, you're full of crap, this isn't 2008, the sky is green, the grass is blue, and sea turtles are magically talking now. But you can only spray paint a turd for so long until everyone smells the bullcrap. They are right about one thing, this isn't 2008. In fact, it has absolutely nothing to do with 2008. They use that as their go-to cover story to throw you off their scent. But I can smell a salesman a mile away. It smells like Drakkar Noir, cheap Vodka, and bad decisions. Allow me to briefly explain what caused 2008 in layman's terms and in short order. The subprime mortgage market primarily caused the 2008 housing market crash.
Simply put, this world doesn't run off dandelions and gummy bears. There are many people that not only can't afford a house but shouldn't be able to in the first place. Yeah, I know, I can hear you now calling me heartless, but guess what, I don't give a crap because the truth shall set you free. If you want to talk about fantasy land, talk to the Left about Equity. Equity is a myth, and such a concept will destroy Capitalism if we let it, just what certain people want. But before that twisted concept went mainstream, the US government had the bright idea to sponsor large mortgage lenders like Fannie Mae and Freddie Mac so they could loan money to folks with bad credit and no possible way to make payments if rates ever increased. What does government-sponsored mean to big companies? Free money and subpar loans for subprime borrowers. It's that simple. It was all an illusion. When the crap began to hit the fan, millions defaulted on their payments and lost their homes. You can read about it in detail here. The fact of the matter is that the market will crash again, and no, it has nothing to do with 2008.
So that brings us back to bubbles. Speaking of which, did you ever blow Bubbles when you were a kid? Yes? Well, he's back in town and wants your new number. All jokes aside, real estate agents, brokers, mortgage lenders, investors, and other wiseguys are seeing the problem through big money blinders. They are weaving some mystical mass delusion that they've convinced themselves of. This is itself is one sign that we are at the top of a bubble ready to burst. At the end of the day, a bubble is a matter of psychology. According to Nobel Laureate and Yale professor Robert Shiller:
a bubble is a kind of social epidemic—a period of feedback, where price increases generate enthusiasm among investors, who then bid up prices more, and then it feeds back again and again until prices get too high. During that period, people are motivated by envy of others who made money doing it, regret in not having participated and the gambler's excitement. Stories develop that justify the bubble, they become current and then people think they're right because everyone's confirming the stories. So, that happens. Eventually prices get too high and the bubble bursts.
The Pin Has Already Popped the Bubble
I hope you're strapped in because this rocket is about to fall from space and crash into the Gulf of Mexico with no parachute. And no, that's not a jab at Elon, his rockets land themselves. As you read above, a bubble is psychological, it's a social epidemic. So let's lay out what period of feedback occurred where prices increased and created enthusiasm among investors. Many people scream Covid, but I saw it's a combination of actions and events. Did Covid play a role? Sure it did, but not Covid itself, no, how Covid was handled started the merry-go-round from Hell; the big government coyote stepped in to chase the roadrunner and pushed down the ACME TNT plunger.
First, the stimulus checks from Trump and then Biden created a false sense of security among Americans. This made the math look good on paper. However, the printing of money has its consequences (as many of us are feeling at the moment). That's just one part, you see, people were content to ride out the storm under Trump, but then everything changed. I will try to make this short and as sweet as can be.
When Biden 'took the office' he made many radical changes to American life. He locked us down federally and most states followed suit, many of which kept us under the government gun for months and even years. Some states are still fighting to keep you from living your life. He opened the border and let millions of criminal illegal aliens into our country unvetted, allowed radicals to run our schools and harm our children, and did everything in his power to inflate our currency. Wealthy people began to leave their states and run for the hills, literally. This was the feedback loop that caught the attention of investors big and small, the warning came early in the pandemic as the wealthy began to leave their states for actual safe spaces.
Any savvy investor who's not lying to you will tell you that they knew major inflation was coming, this stuff takes time to trickle down to the general public and when you print Trillions of dollars in fiat currency in a short period of time, it ALWAYS inflates the currency. Many people will tell you that this isn't true and they are all full of crap. This inflation, coupled with crime, lockdowns, school closures, and an array of other events, caused a mass exodus in the United States. Millions upon millions of people fled their states for greener pastures. In fact, as of September 2021, almost 9 million people left their states and relocated to cheaper, less restrictive areas and the bidding wars began. Again, refer to the quote earlier in the article that calls out bubbles in general, we are following the pattern. But wait, there's more!
As people continued to flee and inflation continued to rise, the Biden Administrated seemed to do everything in their power to make things more difficult for low to middle-income American families. I don't need to explain this to you. That would be insulting because you already know. Here's where the real estate agents try and trick you. It's at this intersection they say "oh, it's a supply and demand issue and there's nothing to worry about, this market will rise forever!" Houses are running out, so people are flocking to rentals (companies knew this would happen and took advantage, just lookup Blackrock). What does this mean? Everyone began bidding for homes. Again, that quote from the Yale professor should be screaming in your ear right now. The price of homes went through the roof and average folks couldn't afford to buy a house anymore. Now, rent is skyrocketing.
The demand for rentals became ridiculous due to a combination of rising home costs, a low supply of affordable houses, and a basic need for shelter as opposed to being homeless. The news, the real estate companies, and everyone else saying that everything is going to be fine is the last piece of the puzzle, the icing on the cake. Pop goes the weasel. Don't believe me? Let's throw a chart in here using data from the Bureau of Labor statistics so you can really crap your pants. See the below comparison of the US National Home Price Index, the Consumer Price Index of Rent, and Employed weekly earnings across the country:
Look at it, even if you can't read graphs and charts just look at it. The spike in house prices between 2019 and 2022 is absolute insanity, and rent prices are the highest they have ever been. Meanwhile, earnings are being killed and dropping drastically. Let's couple that with the highest inflation we've had in 40 years and a federal government seemingly wanting us all homeless and it doesn't take a rocket scientist to see what comes next. Damnit, Jim, I'm only a doctor, but even I can see the writing on the wall!
At this point I've presented my case to you, my fellow American. Hard times are only going to get harder over the next couple of years and I strongly advise you to do everything you can to bring your family together and avoid any foolish decisions like buying a 3 bedroom house on a half-acre for 800k. The bubble is already begging to jiggle, just go on any housing website and see the litany of overpriced houses, suddenly reducing their price by small amounts, hoping to attract new buyers. The signs are here so please heed my warning.
Remember, no one saw 2008 coming either. Get your crap together and hope your balls are screwed on tight, we're about to be tested even harder.
Pop goes the weasel...
[Note: Our bloggers are independent writers with their own constitutionally granted opinions, viewpoints, interpretations, and feelings. Their views do not always represent that of American Reveille LLC. Regardless, we support their right to free speech and a medium to express it! Got a problem with that? Go somewhere else!]
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