Housing Market CRASH Early Warning Signs
As the housing market teeters on the edge of instability, signs of trouble loom large despite record prices and dwindling inventory. With echoes of the 2008 crash, risky financial practices like 0% down payment loans resurface, threatening to ensnare vulnerable buyers in a web of debt and foreclosure. Against a backdrop of economic slowdown, rising inflation, and banking sector vulnerabilities, the looming specter of a market crash underscores the urgent need for safeguarding wealth with tangible assets like gold and silver.
TRANSCRIPT:
Is the housing market going to crash and if so, when? Despite record home prices and a lack of available inventory, there are many signs that trouble is on the horizon. And before you say there are no indicators of a crash, nothing is going to happen.
Which, by the way, is exactly what everyone said in 2006. There are repeat actions happening right now that directly led to the 2008 housing market crash, such as 0% down on a home. Yes, you heard me correctly.
0% is back and back with a vengeance, which of course brings up bad memories of lending to low-income home buyers against a backdrop of financial uncertainty and a toxic buildup of assets and banks, which you could argue is the same backdrop that we’re seeing today.
Now, let me be clear. I’m all for helping people buy a home if it’s done responsibly. These loans won’t always result in a default, but they are targeted at people who otherwise wouldn’t have any options or wouldn’t qualify for other loans for good reason.
United Wholesale Mortgage, one of the most popular U.S. mortgage lenders who’s spearheading this program, has said that the program is already proving to be wildly popular. Go figure. And people are flocking to take advantage of it. To qualify, you have to be a first-time home buyer and prove eligibility via a credit score or an income that’s 80% or less of the area’s median income.
If these loans are explicitly for people who make 80% or less of an area’s median income at a time when mortgage rates are high, unemployment is ticking up. We’re laying the foundation for a serious problem, especially because these loans have a balloon payment attached to them. The way these are different from 2008 is that these loans are broken into two: the standard mortgage, and then a second one-time loan of $15,000 that doesn’t have a monthly payment but is due upon the occurrence of the first refinance. It feels a bit like semantics to me this time around on how these are different, because ultimately, the bottom line is we’re still setting these buyers up for failure. They’re in a vulnerable position. If home prices start to slip because they don’t have any equity in these houses, they are already going to be under, especially should someone lose a job in this situation.
I mean, we know that the job market is nowhere near as robust as they would make us think. We continue to see revised job creation reports saying that these numbers are overstated and many people don’t even realize that the jobs that are accurately being reported on are being propped up right now through health care spending. Thanks to a boom in medical procedures delayed by COVID-19, there has been a huge increase in health care spending. But this is temporary, which means that all of these jobs that are boosting numbers right now are vulnerable to fall off a cliff next year. And if you don’t believe me, look it up. In the last 12 months alone, health care and social assistance have accounted for half of all new jobs created. And all of these jobs that are created we know have an expiration date on them. This type of growth is not sustainable. Most likely, health care job creation will soon slow down the same way we’re seeing other industries slow down, such as manufacturing. Historically, a key indicator of economic growth. We’re seeing manufacturing slowdown as of last week’s numbers, which is telling us that more companies, rightfully so, aren’t investing right now because the economy is stalling.
Now, despite an underwhelming job market and a slowing economy, it is a seller’s market. There is no denying it. It is what it is. The golden handcuffs of low interest rates have created a situation where we know people are not selling, and it has created low inventory, which means high demand. And again, a seller’s market. But it could be that a shift is starting to occur. In fact, inventory is growing across the country now, albeit at a slower pace. But it’s up 16% year over year in April. An inventory that’s currently out there, 30% of it has seen a price drop, which is more than any time in the last ten years. Take Florida, for example, a state that over the last couple of years has had consistently high demand for housing and therefore high home values. But it’s now being flagged as overvalued as inventory is sitting there longer and prices are starting to come down. In particular, the South Florida area has been pegged as 35% overvalued, thanks in large part to an abundance of overbuild and a rush of motivated sellers and fewer buyers. This, of course, is very different than what the rest of the country is experiencing. But as we start to see Florida and Texas and other markets shift to a buyer’s market, it could be a sign that things are starting to cool across the country, especially as buyers aren’t as willing to shell out high home values during a time with high rates despite limited inventory.
One of the biggest concerns we can anticipate is Americans struggling with their mortgages. And we’ll talk more about everyday Americans and their mortgages again as this economic backdrop. But first, I want to focus on a mortgage crisis that’s brewing with people who specifically got an ARM, an adjustable rate mortgage. In 2019, about 1.7 million homes were purchased using an ARM. Most of these were a 5/1 loan, which means five years at a fixed rate and then a conversion to the market-based rate. In 2019, interest rates were 3.5% or lower, whereas today they could be double that, which is not going to be pretty for all of those homeowners who have the conversion happening this year. In fact, by a recent poll done by Bloomberg, 10% of these owners said they most likely will be delinquent, while another 70% said that they were seriously concerned about how they would meet their obligations.
And you might be saying to yourself, well, these ARMs only represent a fraction of total mortgage holders in the U.S. and you would be right. But this crack that’s appearing of people struggling with their mortgages, these ARMs also applies to homeowners who have done significant refinancing. As the cost of goods and services have continued to rise with inflation and home values rose with it, many of these homeowners found themselves with new equity, so they took out a home equity line against which their property is the collateral. These home equity lines of credit have variable interest rates, which are now double what they were in 2020. So while many of these mortgage holders might have a fixed rate mortgage, it doesn’t mean that there still isn’t significant exposure and risk. Many people are just hoping and waiting, hoping that these rates are going to come down. But with inflation continuing to persist, there aren’t any signs that rates are going to come down in the near future. And while home prices might be showing the first signs of cooling, other costs of living are continuing to be sky-high. With inflation not coming down anytime soon, especially with the amount of government debt that continues to rack up, which means that Americans are going to be struggling and defaults and foreclosures are going to be on the rise. In fact, foreclosures are up 22% from this time last year. These rates are hurting everyone. And it’s not even just on an individual level. We are seeing these cracks happen throughout the entire system, including the banking system.
Just this past week, the FDIC, the Federal Deposit Insurance Corporation, released their quarterly statement letting us know that the banking sector is experiencing over half a trillion dollars in unrealized losses. The majority of which are coming from mortgage-backed securities. This is putting tremendous pressure on banks who are already struggling. Like I said at the start of this video in 2008, these banks held tremendous toxic assets, which we are seeing again today. Just last week, I did a video on commercial real estate, which, if you haven’t seen, be sure to check it out because these banks are holding tremendous amounts of commercial real estate loans in a sector that we know is struggling, which is creating a ton of exposure for these banks. We know that as these banks struggle and fail, or almost fail and are consolidated with another bank that’s going to take on their assets, the toxic assets don’t disappear. They just transfer over. It’s essentially kicking the can down the road. And this is exactly what happened just earlier this year with New York Community Bank Corp, NYCB. If you don’t remember, they almost collapsed because of how many troubled commercial real estate loans they had. How did they find themselves in this position? They acquired $40 billion worth of assets from Signature Bank, the same Signature Bank that failed last year when NYCB came in and acquired their assets. What they acquired were toxic assets that then almost brought them down. And this is what we’re going to continue to see happen. An unsustainable consolidation of banks.
So we have a situation where the economy is slowing, but rates are staying up. Inflation is marching forward. Banks are treading water. And all of these toxic assets and the average everyday American is struggling trying to keep up. This is finally being represented in consumer spending. We have been told time and time again that the consumer is strong. But we knew it was temporary. We knew that wasn’t the reality based on what we’re seeing. And now U.S. household savings are at a 16-month low. Credit card utilization is continuing to break records, and people are falling further and further behind on their payments, which is now being reflected in a slowdown of discretionary spending. We’re seeing these big box stores like Target and Best Buy coming out and saying that they’re experiencing losses, and it’s not a surprise.
So if you ask me, now is possibly the worst time to offer 0% down mortgages at a time when risk is on the rise. I don’t think one of these things on their own is going to bring down the housing market. In fact, we could continue to see it go the way it’s been going for a while. I do think a cooldown will start, but who knows exactly how that will all play out. What I think that we need to be focusing on here is the big picture. Bank failures, job losses, households that need to sell but people can’t afford to buy. That’s going to be what creates the crash.
Now, when that happens, I don’t know. If I knew, I would be Michael Burry. But what we do know, what we can tell are the signs and the puzzle pieces that are in place right now. Again, seeing some of the same instruments that were used in 2008, whether that’s the 0% down, whether that’s the banks with the toxic assets, whatever it might be, the adjustable rate mortgages. Those are all signs that things are building.
Now, the good news for our clients is that they’ll say let it happen. Because if you’re in a position of power, if your wealth is protected with tangible gold and silver, then you are going to be in an opportunity to take advantage when this happens. I know personally that a lot of our analysts were positioned so that in 2008, in 2009, they were able to snatch up real estate at record low prices, setting themselves up for future success.
Which is why if you’re on the sidelines watching, it’s important to make sure that your wealth is protected with gold and silver because you want to be able to jump in when the dip happens. And if it happens and everything you have is tied up in dollar-denominated assets, then you might not have as much wealth. It might not be worth as much. But if you have gold and silver and things start to crash, well, now you’re in a position of power, which is where we want to be. And listen, I see you asking the right questions. I know that you want to get educated right now, and that is why we do what we do. And I read your comments and I appreciate you all so much. But if you think that I’m good, you should talk to one of our analysts who have been here for 15-20 years.
And if you haven’t already, please be sure to like and subscribe. Share this with a loved one. It really helps to get the word out. As always, I’m Taylor Kenney with ITM Trading, your trusted source for all things gold, silver, and lifelong wealth protection. Until next time.
SOURCES:
https://www.newsweek.com/florida-house-market-placed-very-high-risk-1907893
https://www.cnbc.com/2024/05/01/florida-real-estate-struggles-as-motivated-sellers-flood-market.html
https://fortune.com/2024/05/01/is-south-florida-housing-market-bubble-real-estate
https://www.wsj.com/economy/housing/florida-texas-home-sales-american-housing-inventory-4d937ed3
https://fortune.com/2024/06/02/housing-market-outlook-home-prices-supply-demand-imbalance-economic-growth-warning
https://thehill.com/changing-america/respect/poverty/4693171-possible-mortgage-crisis-looms-for-millions
https://www.bloomberg.com/news/articles/2024-05-29/rich-us-homeowners-with-adjustable-rate-mortgages-are-about-to-get-whacked
https://www.ft.com/content/db8999cb-166d-4596-911f-b137ae88fb73
https://www.prnewswire.com/news-releases/manufacturing-pmi-at-48-7-may-2024-manufacturing-ism-report-on-business-302161049.html
https://www.businessinsider.com/home-prices-drop-us-housing-market-outlook-mortgage-rates-gfc-2024-6#:~:text=Home%20prices%20could%20start%20falling,since%20the%20Great%20Financial%20Crisis
https://www.aol.com/finance/buyers-gaining-upper-hand-housing-182034512.html
https://www.newsweek.com/florida-housing-market-warning-1906262
https://www.independent.co.uk/news/world/americas/zero-down-mortage-subprime-loans-crash-b2556073.html
https://finance.yahoo.com/news/key-engines-us-consumer-spending-140000015.html
https://www.globest.com/2024/06/04/a-new-worry-consumer-spending-slowdown/?slreturn=20240605173831
https://www.newsweek.com/florida-house-market-placed-very-high-risk-1907893
