Real Estate Market Crash on the horizon for the next President

 Al Ritter

Everyone remembers the market and housing crash of 2008 where people were defaulting on mortgages they couldn’t afford caused by an over inflated market spurned by the easily acquired loans forced by the feds. Later in this crisis Fannie Mae and Freddie Mac took a tremendous hit and many big banks were bailed out at taxpayer expense.

The market has these cyclical trends every 18 years or so that the government calmly refers to as “market corrections.” The facts usually point to something different, I like to refer to them as the government “shooting themselves in the foot.”

Covid had a devastating effect on every part of the economy, but this time it had effect on commercial real estate. Because a large percentage of the work force was forced to work from home, commercial property rentals were drying up. The largest group of commercial real estate mortgage lenders are not big banks, but rather small banks.

For commercial property owners they are in dire straits now with mortgages due but no rental income. Defaulting the loan back to the bank only exacerbates the problem in the community and the national economy. Now the small bank not only has to absorb the loss of yearly revenue but also the loss in value of the property vs. the original loan value.

This part of the real estate market represents a $1.2 trillion dollar debt for future taxpayers starting in 2025.

We haven’t even addressed the residential housing market which is sure to follow suit. In the first quarter of 2014 the average home in America sold for $275,000. In the third quarter of 2023, not even 10 years later the average home price had ballooned to $417,000 and along with it came a massive increase of mortgage rate increases.

Ever see those ads on TV or social media where offer to “Buy your home, any condition any price?” These are ads for large investment groups such as Blackrock that buy up homes and do only minor renovations then get huge incentives from government to rent out that housing for use as section 8 housing. When the market bubble breaks those investment groups bail out like rats off a ship and flood the market with residential inventory.

Such is the case in Florida right now as these investment groups are bailing out, or should I say trying to bail out. They are willing to place these properties on the market at a loss to contain the bleeding, but here’s the catch. They have to actually find buyers not just list the property.

This all comes in the face of a new plan proposed by VP Harris to build 3 million new homes and offer first time home buyers a $25,000 credit towards that purchase at a cost of $1.7 trillion dollars over a decade and could balloon to $2 trillion if made permanent? Why would you add homes to a rapidly increasing residential inventory that has yet to see the bottom prices?

In the accompanying video you will see that even at the perceived fire sale prices the investment has set, the property has been on the market for 6 months. This signals that the bottom price has yet to be reached and will continue to fall until a final purchaser agreement has been reached.

Watch video on commercial properties here:

https://www.youtube.com/watch?v=7mOWFBip0Wc

Watch video on residential properties here:

https://www.youtube.com/watch?v=Wa5r73qp_-U&t=481s

Harris’s proposal:

https://www.reuters.com/world/us/harris-economic-plan-mirrors-bidens-aims-lower-taxes-prices-2024-08-16/