How Much Longer, and How Will It End?
? ?The economic news of late is encouraging for the overall United States economy and housing market. Housing starts are performing better than expected, mortgage interest rates continue to decline, and I expect the home mortgage refinance opportunity to get going again before the end of this summer, especially if the Fed does any type of rate cut. As we all know, however, what goes up must come down, and the real estate market is cyclical.
? ?We are in one of the longest up-cycles of real estate in modern times, but I also know that at some point, it will come to an end. I don’t believe it will end this time the way it did last time due to sub-prime mortgages underwritten by banks that were later able to position themselves as too big to fail. This time I think it will be very different.
? ?This post is going to be a little different, because I am also posting it on my Facebook fan page (https://www.facebook.com/WatsonTSSL/). I want to see your reactions and comments to my theory about how this real estate cycle will end and what the first signs of weakness in the market will be.
? ?? ?I believe the first sign of weakness in real estate will be in the multi-family sector when tenants will be unable to pay their high rents at A-level and B-level apartment complexes due to ever-increasing rents, the cost of living and other debts. Too many consumers are getting squeezed in too many ways, and when they are facing payments for student loans, rents, car payments, credit cards and utilities, something is going to give. I suspect some tenants will try to downsize their living costs. This will lead to bankruptcies, downsizing in housing, moving and other things done by folks being priced out of the market.
? ?Depending upon how the debt on those types of apartments is structured by the various owners, the decline in occupancy and cash flow may pull them down, causing one domino to lean upon another, starting a fall in the housing market.
? ?The foregoing is just my theory without any economic or scientific evidence to back it up. It’s my gut feeling based on my interactions with people all across this country. Let me know what you think by going over to my Facebook fan page and sharing your comments. (https://www.facebook.com/WatsonTSSL/)
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