Due to the current volatility in the housing market, a real estate developer has issued a “Black Swan” event warning for within the upcoming calendar year.
What did Former US Marine Sean Terry Say About Market Crash?
The founder of Flip2Freedom and a former US Marine, Sean Terry suggested that the Federal Reserve might purposefully or unintentionally avoid a market meltdown in order to prevent a crash that would result in lower future affordability.
The rate increase from 5.25 per cent to 5.5 per cent announced in July by Federal Reserve Chairman Jerome Powell is the largest in 22 years and the 11th in the previous 12 policy meetings of the U.S. central bank which began in March 2022.
With the potential for further interest rate hikes later this month, the Fed has set a target inflation rate reduction of 3.18 per cent to 2 per cent. Terry said on the Real Estate Disruptors podcast:
“How do you make housing affordable? If you have to raise interest rates, The prices have to come down. Something will crack, and I think…we’re gonna have a Black Swan event probably in the next six-eight months…that’s going to rock the markets.”
Black Swan events happen when conditions may have been predetermined and unpredicted by different forecasters, but in hindsight warning indications of catastrophic catastrophes were obvious all along.
Terry made a comparison between the present market and 2008, the year before the Great Recession and the significant market fall that prompted government bailouts of significant institutions.
He continued by saying that larger banks may merge with smaller ones to strengthen the “too big to fail” banks and make them even bigger including JPMorgan Chase.
The second-largest bank failure in American history, First Republic Bank was shuttered by authorities earlier this year and sold to JPMorgan Chase. After Silicon Valley Bank and Signature Bank failed, the central bank was the third to fail in 2023.
Terry also made a comparison between the present market and the circumstances surrounding the 2006 housing market crisis. The Case-Shiller home price index and real disposable income in 2006 differed by 69 points, which led to a large number of foreclosures and an unbalanced economy.
He said:
“Look where we are at now: there’s a 136-point spread, We are in a massive bubble and I believe it’s going to pop. It’s got to pop and it’s coming soon, next 12 to 24 months.”
The National Association of Realtors (NAR) announced in August that “unfavourable” inventory availability and mortgage rates were to blame for a 2.2 per cent decline in house purchases in July.
According to Lawrence Yun, chief economist at NAR, most homeowners continue to enjoy significant wealth gains from recent years with little concern about home price declines. However, due to rising affordability issues brought on by high borrowing rates, many tenants are concerned.
Limited supply is the current housing market issue that started before the influenza epidemic when there was a shortfall of 4 to 5 million homes in America in 2019. Yun said:
“That came about due to population and job growth that outpaced new-home construction, Then, the shortage worsened during the first year of the COVID-19 real estate boom as many desired to take advantage of the historically low interest rates.”
“The shortage intensified when mortgage rates shot up due to homeowners who have been unwilling to list and give away their locked-in low rates.”
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