Housing is an unavoidable and critical economic metric. In the US and other Western economies, it’s a massive money maker. Vast amounts of money are plowed into it every day. The news about these housing markets is now looking truly hideous, and that’s just in the short term.
In the boom times, housing was the absolute economic benchmark. It was also a trustworthy single image of the real economy. A minimum wage was made for a single-income earner to buy a home and raise a family. You could actually do that.
Now, you couldn’t even raise the dust with minimum wage.
Housing is one of the primary reasons for that. Constantly increasing prices have devalued real wealth, however small. Even the rich aren’t immune. Property markets are becoming a hail of mag bullets aimed at the macroeconomy. Housing costs are downright irrational now.
Ridiculously low-interest rates created a boom in prices. Those prices weren’t just “unsustainable”, they were insane. Anything would sell. People were buying cupboards for millions. Global media spinelessly sold these prices through every available orifice. Skank City, literally.
The risk of rising interest rates was inevitable. Those rates were so low they had nowhere else to go but up. Now, everyone’s “surprised” that they went up. Like the finance sector, where the banks accumulated oceans of debt, the property market is way out of its depth. Insolvency is the default.
The nutcase prices have led to bizarre levels of unaffordability in all parts of the market. The big numbers are now truly dictating to the market. The market is too indebted and too scared to argue.
Prices have to go down because nobody can afford the higher rates. People can’t afford to lose that sort of money, though. This is where the big future trouble starts for the world.
People are trapped in a price structure that can only ensure big losses. They’re naturally trying to maintain prices, but the debt is devouring equity even if they can. Worse, due to the big prices, even if they sell, they have to buy back into an understandably paranoid and unstable market.
Case in point – In my own country, Australia, everyone plays Monopoly. Typically, it’s a pretty trustworthy market. Tax laws are fairly generous. 2008 more or less bounced off; it was just a bit bumpy for a while.
This property market is a huge pool of capital, and now things are starting to look grim. A lot of credit is involved, and the prices are historically very high. Lenders are just as locked in as borrowers. According to the IMF, large numbers of defaults are expected before a global recession and economic downturn. We already had about 30% of buyers on “interest only” payments. That’s a very expensive form of rent, in fact; it is definitively not home ownership, because there’s no way of paying off the loans. Now, the rates have tripled, and those people are not going to like it. Sound familiar?
This is only the short-term picture. There’s way too much more involved:
- If prices stay at current levels, fewer people will be able to afford them. Incomes have been going backward in real terms.
- Younger people are already shut out of the market. It’d take a decade or more to save a deposit.
- Future employment is unlikely to be as stable as in the past, making even qualifying for a loan a lot harder.
- Constant full-spectrum cost of living increases is also sabotaging their chances for saving.
Capitalism is like a coke addict. You can go broke for a fizzy feeling and some tacky glitz. Well, twinkle, twinkle, you idiots.
Poverty is the best measure of economic failure. The market is enforcing macroeconomic failure, while cutting its own throat by destroying capital.
Capitalism doesn’t work if everyone’s broke. It’s that simple.
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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.
