I am not a financial adviser. In fact, I have no credentials in investing, trading, or any of those types of things. So you probably should be wary of what I am about to say.
I am an economics major from UCLA. But that also means nothing.
The following is merely my opinion, my thought process based on my experience in business and markets.
Trading cryptocurrencies is a sham. Or shall I say, the current iteration is a sham? I am not talking about money laundering or criminal activity of stealing/hacking cryptocurrency. I am talking about a Ponzi scheme. Ponzi schemes work for those who get in early because more money keeps flowing in. until it doesn’t. Think, “Bernie Madoff.” [Note: hat tip to one of my clients who explained this to me.I didn’t come up with it on my own].
I know “sham” and “Ponzi scheme” is a little harsh. Let me explain more what I mean.
Crypto exchanges are spending millions, or maybe billions, on branding their exchanges via naming rights on stadiums, advertisements (see the previous post on this), etc. The following news story has made my accusation loud and clear, at least to me.
The crypto exchange Binance announced that it made a $200 million investment into the Forbes media company. The latest thing investing in the oldest thing – Forbes magazine has been around 104 years. Why would Biinance make that investment? The founder Changpeng Zhao ( C.Z. to his Twitter followers), said the following:
“.’How do we help traditional businesses come into crypto faster so we can speed up the adoption of crypto?’ By investing in traditional businesses and helping them to integrate with crypto, it’s an interesting play for us.”
Interesting play = more people trading = more revenue and profits.
You and I don’t trade dollars. We earn dollars and we spend dollars. No one makes money on our transactions, except the credit card processing companies – but that’s a whole other conversation.
Most of us don’t earn and spend in cryptocurrencies. In this country, we transact in U.S. dollars. For example, I don’t know too many people that want to sell their $700,000 home (or more) and be compensated for that home in Bitcoin, or any other cryptocurrency. People want U.S. dollars. Maybe someday they won’t want U.S. dollars, but for now, 999 out of 1,000 people want dollars vs. Bitcoin.
So these exchanges and values of cryptocurrencies keep going up because more money keeps coming into those environments, in terms of trading and owning crypto. What happens when the money stops flowing into them? What happened to Bernie Madoff when the money stopped coming in.?
“Oh, but that won’t happen,” is the reply. Too many people and companies are out there exploring this. This is the future. Hence the investor taking a stake in Forbes.
I am not so sure, and again, I am NO expert in this area. I have no horse in this race. I don’t even care that I didn’t make money on crypto’s rise. I really don’t. And, I am not saying cryptocurrency or blockchain transactions are bad. There is probably a very bright future ahead. I don’t know what it is, but that’s not my point.
This is my point: People are going to freak the heck out when “this thing” starts to turn. “This thing” means the investment market in general, but probably more focused on stocks and crypto. My bet is people make very rushed and bad decisions when stuff starts to go a little off the rails. My experience is also that most people are unprepared for uncertainty, and trading crypto and meme stocks are not much fun when the prices and values go the other way. Remember March 2020? I also remember 2008.and 2001.
What I am talking about are “market corrections”, which I am not so sure we have had yet. What we have had so far is that the stock market indices have a “correction”, then jump back up to where they corrected from – although crypto still seems to be off its highest peak. So I don’t know (I really do not, I am merely speculating) that not too many people have had to deal with real and sustained losses.
I am also asserting that many of the people heavy in crypto (and likely meme stocks and other day trading) are predominantly males in their 20’s and early 30’s. Whether I have the genders correct is irrelevant, because my real point is that none of them remember 2008 (they were in high school), and were barely alive during the dot com bust. I am saying that many, many people are simply unprepared for any downturn.
So if I am not an expert on investing and financial markets, why have I been blabbering on about crypto and stocks?
What I am suggesting is that it feels like the peaks are upon us, and they could have an indirect impact on people and their housing decisions. Here are my thoughts as we come back to real estate:
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Inflation is still not going away anytime soon.
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The Federal Reserve will be finally ending its bond purchases, including mortgage-backed securities
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I think we will see mortgage rates in the mid-4’s, despite what other “experts” say. Heck, in the last week that I have been writing this article the 10-Year Treasury hit 2%, which many “experts” said would take all of 2022 to hit.
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The housing market comes screeching to a halt.
Wait, what did you just say? Housing market coming to a screeching halt?
Screech is a relative term. Summer is a slower season for real estate sales, and I am suggesting that it will be exacerbated by the fact that buyers will have fatigued, prices and costs will be significantly up, and buyers will feel more strongly that the housing peak has arrived and hence a little hesitant to make a purchase.
Sellers and many of their agents will NOT have realized this, and hence will be over-pricing their properties, which will lead to homes being on the market beyond the “few day window” that has been the recent norm. People will “panic” that their home isn’t selling, but won’t know what to do about it.
If we end up this summer with interest rates at an “exorbitant” 4.5%, buyers will be freaking the heck out. “What?!?!? 4.5%? What happened to 3%???” They just lost 15% of their purchasing power (1% of mortgage interest = 10% purchase price in terms of the monthly payment), on a spring selling season that will likely have seen 15%+ in price increases. So, here they are in summer, looking potentially at a 30% increase in the monthly cost to buy a home compared to the summer of 2021. How confident and eager do you think buyers will be? Especially if all the other market fluctuations are happening? I say, not so much.
By the way, this is on top of home prices in the Denver area more than doubling over the last decade. Some lower-priced neighborhoods will have tripled since 2010. Yes, tripled.
Does anyone see how this is a HUGE problem.!? (Yes, I know I am like the boy who cried ‘wolf’.I have been saying this for a while)
By the end of the summer, and most certainly by the fall, I am saying we will be in a very different housing market. The insanity of this current market might be a distant memory.
Sure, there will still be an inventory shortage, but not like it’s been. The biggest reason: fewer buyers will be able – and willing – to buy. Conversely, real estate is still local, and some areas, like those impacted by the Marshall fire, will likely have their own ecosystem to process the loss of those 1,000 homes.
But otherwise, I am going on record as saying, the peak will have arrived this spring.
So does that mean you shouldn’t buy a home? Not necessarily.
Real estate prices do not fall quickly if they are going to fall at all. Even if what I have said comes true, prices would likely be down only a few percent in the fall.
Come spring 2023, prices will almost certainly stay firm because real estate prices don’t typically fall during the spring – prices didn’t even fall during the springs of 2009 and 2010. We simply don’t see lots of price weakening in the spring selling season. It’s quite possible that the first opportunity we could see for reduced home prices: summer/fall 2023. That is 1 1/2 years away! And that’s a lot of “if’s”!
This is my story, and I am sticking to it. I see three things happening this year:
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Crytpo will have some sort of reckoning that wipes out/severely impacts a bunch of people who “thought” they had money. A lot of those people left jobs – trading crypto has become their job. (BTW: pure speculation on my part)
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Inflation will stay strong and continue to work its way through the economy, and will finally force the markets to price it into interest rates. (Also speculation, but at least I have some local data points)
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Housing will peak this spring. I am not saying it will crash, but the days of high single-digit or double-digit price increases year after year are behind us (Final BTW: 2022 already has double-digit price increases in the Denver area. so I am saying this starts in the second half of the year).
This is what I see for this year. And..who cares? Whether I am right or wrong makes no difference to what we do every day. For me, I still need to help people navigate the real estate market regardless of the circumstances. Whether the market is red hot or ice cold, people have real reasons and needs to transact in real estate. My job is still to help them regardless of the circumstances, but not ignore what I see happening and prepare them accordingly to make the best decisions they can for themselves.
All the best,
Steven
