June 1st, 2023 11:02 AM by Gregg Mower
Here we are in the middle of 2023, had to believe. This year has been one of the slowest Real Estate Markets we have seen since 2009. We are experiencing record inflation for the 21st century of the like we have not seen since the early 1970s. This tells us that the cost of goods and services has risen faster than most people’s income streams have. What does this mean for Real Estate now and into the second half of 2023?
Based on the history of inflation you see the Stock markets go up due to the fact that the valuations of companies tend to go higher with inflation. We have seen this throughout history and this time is no exception. What you must be cautious of is when companies’ costs rise so high and the demand for those goods or services decreases thus income for those companies will also decline. After this companies will have to lay off salary-based employees to keep up with the rising costs and when this starts to happen you will see the economy fall into a recession or worse depression.
Inflation is such a killer of economies in many ways not just with the higher costs of goods and services but also with the availability of money with higher interest rates. Over the last year and a half now we have seen interest rates move from historic lows for 30-year fixed-rate mortgages from the 2%-3% range to now a 7%-8% range. What this has done is cut out a whole segment of the population’s ability to qualify for a new home loan. In California, we have starter home prices hovering around $500,000 on average for the state. What the higher interest rates have done is cut the people that could have qualified for this house. For example, the payment on a $500,000 house with 5% down at a 3% interest rate is $2002.62 principal and interest at 7.5% Interest rate the payment would be $3,321.27. At the 3% rate, an average borrower would have to make right about $7,000 a month to qualify for the mortgage. At 7.5% the borrower will have to show around $11,500 a month. This shows you the power of interest rates and buying power.
That said you would assume that Real Estate prices would have to come down to accommodate the higher interest rates. We saw this occur in some markets but not nearly enough to make up the difference. Today we see Real Estate prices staying relatively steady. The reason for this is interesting. Since so many people refinanced or purchased their homes with lower interest rates, they are reluctant to sell their homes as the can’t qualify for a move-up home, and in some cases, people couldn’t afford the house they are living in if they had to do it all over again. So, we are seeing people holding on to the lower interest rates and not selling their homes as they would have to qualify for a new home under the higher interest rates. With people not selling their homes, we are experiencing a supply shortage of homes on the market and with that low supply of available housing prices have remained steady even with the higher interest rates.
The next hammer to fall, unfortunately, is going to be employment layoffs. This is going to happen due to inflation and government spending that fuels inflation with an oversupply of money. In the second half of 2023, I see consumers holding on to their hard-earned money as the average consumer feels that something is going to happen, they just don’t know what. There are many factors that could fuel inflation, but the biggest unreported issue will be the worldwide devaluation of the dollar. When the world drops the US Dollar as the worldwide reserve currency, all the goods we buy from overseas will cost more and more. This is something that no generation of Americans has ever seen, the closest we got to this was the great depression. The way America got out of that was World War 2 by producing Ships, Planes, Autos, Guns, Ammunition, and such. The largest difference between then and now is that we produce very little in the US, we outsource to China and other countries. History tends to repeat itself, so shouldn’t be preparing for a war? If you are paying attention to the world and not preoccupied with all the social issues going on in our country, you will see how close we are to this prophecy coming true.
I don’t like to be negative, and I truly believe in America and the American way of life, however, I must be a realist with what I know and have seen with history. As the US Dollar becomes less valuable in the world markets this will cause further inflationary pressures on our economy. The only way out of this at this point is to figure out a way to re-set America’s debt to the Central Bank or get rid of the Central Reserve Banking system altogether and start with something new. How this could be done I would not know, but I do know it will be a very painful process to every American. With the BRICS nations and a new world reserve currency on the horizon, America is going to have to do something fast, very fast as that is supposed to launch in August of this year, and over half of the world’s nations have agreed to sign on this new asset-backed currency. Our central Bank is going to try and compete with this with a new Central Bank Digital Currency (CBDC). The problem with this is that even our own citizens don’t like the idea of this as Americans don’t like the idea of being watched or controlled in the name of some made-up government issue like climate control. For more on this please I urge you to do research on this as this CBDC is supposed to come out in July of 2023.
What will a CBDC do to interest rates, housing, and inflation? This is something that remains to be seen but rest assured it will be a rocky ride going into the end of the year. I always say if you can own Real Estate do so as Real Estate will have value. I believe that once people see the changes happening there will be a flight to quality investments like real estate. I will bet the Stock Markets will struggle, to say the least. Interest rates will be dependent on how much inflation we have as interest rates will rise as inflation rises. So, if you are looking for advice as to when to buy Real Estate my advice would be to buy as much as you can now, if you can find it, and hold those properties that you hold currently. Keep an eye on the world and what is going on, and research other sources other than your mainstream media that most of us have grown up on as we are not being told the truth to keep the masses under control for as long as they can. Not that one individual can do anything, but the power of the masses can make changes.