There are many Americans that are going to painfully realize that the Fed does not necessarily love housing. Their focus is the overall economy and when housing is juiced up by low rates, we realize that creating a housing bubble as a consequence of low rates has repercussions. One of those is that once the low-rate spigot is off, you have a bunch of industries that get slammed because of this, including those in the housing cheerleading section. Another industry is the mortgage sector and banks like Wells Fargo and other brokers have seen traffic completely dry up. New home buying is being impacted and builders are now needing to give incentives and cut prices. Potential buyers with the economy slowing and high rates are unable to squeeze into crap shacks at inflated bubblicious prices. Does this story sound familiar? It should because housing bubbles are simply a reflection of artificial rates and easy money – this can be with absurdly low rates as we saw this time around or subprime debt and lax lending in the Great Recession. Same book, different chapter. Let us look at some data first.

The market has hit a rather significant wall in the last few months as the Federal Reserve has decided that there is no longer any containing inflation from the public, no matter how much economist and financial wizards try to massage the data. The correction was largely inevitable as the US economy fell in love with artificially low rates that were injecting insane amounts of money into the economy because of the pandemic and even before it. There was so much money injected including wasteful spending on PPP loans from corporate welfare recipients that suddenly go on Twitter to lambast the “poor” for a few thousand dollars while they were taking millions in dollars in a raid under the cover of the pandemic. Remember the banking bailouts from the last crisis? Sounds very familiar from pointing fingers to “subprime mortgages” when there were larger reasons why the market imploded. Yet the repercussions today caused wild inflation and the Fed has no choice but to tighten debt and housing is going to take it on the chin for the short-term given housing is the biggest line item in the CPI. Even the conservative rating agency Moody’s is forecasting a market correction. Where is housing heading?

The pandemic while being hard on many industries, created a boost and flood of capital into the real estate market. Housing has been one of the hottest sectors since Covid-19 came on the world stage. Now that we are overheating with inflation, those juicy low mortgage rates are no longer here. People are now maxed out on easy credit and the bill has come due in the form of inflation – we now need to tame it. The Fed has nearly no choice now but to boost rates as more in the public start realizing the challenge of using funny money to jack up home prices to crowd out young buyers. In fact, nearly 30 percent of young adults now live at home with their parents. This is a record in our modern era and speaks to the current housing market. Higher rates are cooling the market down at a time when Americans are debt strapped.

Housing is always the last sector of the economy to turn when the market enters into a recession. It should also be noted that the past is not prologue to the future but at the end of the day, people pay their housing or rent payments via income that comes from somewhere. Case-and-point is that the Great Financial Crisis of 2007 to 2009 did not lead to a housing bottom until 2012. It is worth noting that out of over 7,000,000+ foreclosures during that period, only 1,000,000+ were of the subprime flavor. The rest of those foreclosures came from vanilla 30-year fixed rate mortgages that went into negative equity situations and high unemployment made it where people could not pay their monthly mortgage. We are already seeing the layoffs starting and this time around, inflation is out of control and the Fed is running out of ammunition to curtail the price increases. I want to be very clear here, Democrats and Republicans are both responsible for this since they both enjoy spending and tax cuts when they are in power. From my vantage point, we have a day of reckoning that is going to take a few years to unwind here. Here is why I think the housing pain is only starting.