Artificially low interest rates have blown the big housing bubble. In a podcast, Peter Schiff explained that it’s actually a bigger bubble than the one before the 2008 crash. But this time, it’s combined with an overall bubble across the economy that overwhelmed 2008. All of this, Peter said, contributed to another major financial crisis.
As the Federal Reserve continues to push interest rates higher, Air slowly comes out of the housing bubbleAs such, some believe the CPI will start to drop. But Peter pointed out that just because housing prices are falling doesn’t mean shelter costs are going down.
Shelter costs are still rising. Even if it’s cheaper to buy a house, what matters is how much it costs to own a house. And those costs are rising. Even if the payments are less, your mortgage payments will increase. “
30-year fixed-rate mortgages are currently over 7%. That is, no matter how much you pay, the cost of financing will be much higher. On top of that, insurance premiums are higher, property taxes are higher, and maintenance costs are higher.
All of this increases the cost of owning a home, and makes it more likely that some of those who borrow money to buy a home will not be able to pay it back and default. “
Peter pointed out that it takes a very long time for banks to foreclose on mortgages and actually kick people out of their homes, so there is an incentive to strategically stop mortgage payments. Meanwhile, people don’t pay property taxes and don’t keep their property. By the time the bank completes the foreclosure, the value of that collateral has decreased significantly.
So all this is creating a massive crisis. “
On the other hand, as home loan interest rates continue to rise, more and more people are hesitant to sell their homes because home loan interest rates are kept low. They can’t afford a new mortgage.
Mortgage cannot be transferred from current home to new home. Also, the home buyer cannot take over the mortgage. They have to get a brand new mortgage. And because mortgage rates are so low, so many people are deferring their mortgages and trying to stay home as long as they can. “
This will further slow down the housing market. And that’s a problem for lenders.
Now with rising interest rates they are plagued with deficit mortgages but they are collecting these low interest rates on these mortgages. But banks will suffer losses again for those who are too under the water to pay their mortgages. Anyone who buys a home will have to pay higher interest rates, so real estate prices will be more reflective of current high mortgage rates than lower mortgage rates in the past. “
The fact that many people are unable to sell in this market will reduce the supply of available housing and in theory will push home prices down. would be low.
Ultimately, the price will be a function of how much the buyer is willing to pay. High interest rates also prevent buyers from paying too much. Low interest rates allow buyers to pay more because they are buying monthly payments rather than price. “
These issues were part of the 2008 financial crisis. Peter said it would be an even bigger problem this time.
Interest rates have been low for a long time. The real estate bubble is even bigger than it was then. “
Even more worrying is that the real estate bubble is now combined with the overall bubble across the economy, making it smaller than it was in 2008.
So this is a much bigger financial crisis on the horizon. Again, that’s why I don’t think the Fed will just sit back and watch this whole thing unfold. We plan to postpone it as long as possible to try to maintain as much credibility as possible. But that quickly changes the moment you sense that things are about to implode. “
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