OPINION: “How The 2021 Housing Crash Will Occur” – By Sven Carlin on YouTube

  • EDITORS’s NOTE – Guyanese Online
  • This video focuses on the USA, but Canada and UK real estate have similar problems.
  • At present, about 45% of our readers live in the USA; 22% live in Canada, and 7% live in the UK.

Let’s talk about the 2021 housing crash and what will be the causes of the potential collapse…

By Sven Carlin (Expert Investor) Portfolio & Free Investing Course: 

“I don’t know if you guys remember what happened around 2007, 2008 when it came to the housing market. Put simply, banks became loose with their lending policy, people borrowed a lot to buy a house, house prices shot up into a bubble and eventually that bubble popped. Now the interesting / slightly scary thing is, that something similar is happening today.         

There is a comparable mix of ingredients right now in the housing market as there was almost 12 years ago and it’s about time someone talked about it… So 2008, if you don’t understand what happened then, you need to go watch a movie called the big short. It’ll give you a good snapshot of how things played out. But basically it’s the story of how everything crumbles, people wanted to get rich.

So the brokers were getting rich, by finding as many people mortgages as they possibly could. The banks were getting rich, by selling these mortgages to institutional investor as something called collateralized debt obligations, for short CDO’s. Now the thing you got to know is that a lot of these CDO’s were actually sound investments. They were mortgages that were paid by people with stable jobs and in stable financial situation. But a lot of these CDO’s were terrible. The people paying these mortgages simply couldn’t afford them. So the inevitable happened, CDO’s caved in on themselves, investors lost money, the housing market fell apart and of course CDO’s got outlawed.

But that is until fairly recently when they invented something called the BTO. The bespoke tranche opportunity. It’s basically just a CDO but with a new name and a better reputation to it. Now just like CDO’s some of these BTO’s are good, but are lot of them are risky, and if mixed with the wrong market conditions, things can end badly…. The problem is that the market conditions that we are in today aren’t exactly great.

There are a couple of factors, that make the housing market risky, which I’m going to go over now… First, is interest rates. I want to take you back 60 or so years so that we can get a good overall picture of things. Now what I want you to do with this graph is look for the anomaly. The section that sticks out. Not anytime in this 65 year period has interest rates hit zero, until… 2009, just after the great financial crisis. And again in… 2020. But why has the FED done this? Why have they pushed interest rates as low as they possibly can push them before it gets into the negatives? T

hey did this because they have to. They need it low to stimulate the economy. They need people to be able to borrow as much as possible so they can buy, spend, invest and keep the financial system ticking over. Or else a collapse might have already happened. But there is a range of problems that comes with having low interest rates. What you need to realize is low interest rates have a direct correlation to what mortgage rates are set at. If interest rates are low it becomes cheaper for banks to borrow money.

Therefore they are able to give lower mortgage rates. Currently the interest rate is very low, consequently mortgage rates are very low. Now this is important because if mortgage rates are low, it becomes easy to borrow money. You see the long-term historical average mortgage rate is around 8%. So let’s say you earn $70k a year and you got a nice down payment ready. If the rate is 8% you can afford a house for $250,000. But if the rate is around 3%, which you can get today, with a good credit score on you, you can now buy a house worth $350,000. Aka $100,000 more… Essentially with mortgage rates so low, you are able to borrow a lot more money. And do you think consumers are going to be cautious and not borrow this. Of course not. Generally speaking they borrow as much as they can…

Sven Carlin (Expert Investor) Portfolio & Free Investing Course: http://bit.ly/SvenCarlinPortfolio 📈 How To Invest Course: http://bit.ly/theinvestingacademy-how…

Subscribe Here: https://bit.ly/2Y1kNq8 ___ DISCLAIMER: It’s important to note that I am not a financial adviser and you should do your own research when picking stocks to invest in. These are just some of my viewpoints, by no means would I recommend watching one YouTube video and then immediately buying that stock. This video was made for educational and entertainment purposes only. Consult your financial adviser.

 

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Comments

  • kamtanblog  On September 3, 2020 at 3:59 am

    Simple Simon says

    Federal reserve
    European Central Bank
    Bank of England

    Have been printing $€£ 24/7 for over a decade.
    Gold standard abolished…gold to back up
    currency. Usd$ is still world reserve currency.
    Q will this remain so forever ?
    Nothing is forever in the never ever market……
    Q will there be a “crash” or “adjustment” in market and if so when ?
    Q will crypto replace or compete with $
    for world trade ?

    Three major trading blocks USA EU UK
    with “protectionist policy” in trading.
    BRICS another….
    Brazil Russia India China South Africa.

    Q will BRICS expand its spheres of influence
    in trade ?

    Q will USA EU UK follow ?

    Sorry more questions than answers !

    You decide

    My jury out !

    Kamtan UK

  • Clyde Duncan  On September 3, 2020 at 9:03 am

    Millennials will Pay the Price for their Parents’ Luck and Self-indulgence

    Opinion: TIME TO START BLAMING THE BOOMERS

    Author of the article: Professor George Athanassakos | Special to Financial Post

    Baby boomers, myself included, are the children of “the greatest generation”, the generation that grew up during the turbulent years of the Great Depression and World War II.

    The boomers’ parents, many of whom had been raised in straitened circumstances, worked hard, saving and sacrificing for their children. Most did so gladly. They wanted their children to have it all — including what they themselves had missed or given up. And baby boomers took advantage of everything they could.

    Boomers were lucky in another way, too. The Western world was stable. There were no widespread wars. As a result, most boomers did not have to serve in the army. BUT NEITHER DID THEY LEARN THE DISCIPLINE MILITARY SERVICE IMBUES.

    There were plenty of jobs to go around. There was easy credit. A proliferation of banks competing for their attention and business helped them buy large houses, big cars and have a comfortable living. Sharp rises in house prices and the stock and bond markets benefited them, too.

    BOOMERS HAD IT ALL. BUT THEY BECAME VERY COMPLACENT. THEY BEGAN TO FEEL THEY WERE “ENTITLED TO THEIR ENTITLEMENTS.”
    BOOMERS WANTED LESS WORK, LONGER VACATIONS AND A GOOD LIFE.

    BOOMERS WANTED IT ALL NOW. THEY WERE THE INSTANT GRATIFICATION GENERATION.

    Boomers did not want to wait for future consumption. Instead, they loaded up on debt. No wonder debt per capita has skyrocketed over the past 30 years.

    THE CHILDREN OF THE BABY BOOMERS, THE MILLENNIALS, WILL PAY THE PRICE FOR THEIR PARENTS’ LUCK AND SELF-INDULGENCE.

    MILLENNIALS will have more trouble getting the good job, the cheap education, the large inexpensive house, and the other perks that their parents have enjoyed. Moreover, they will have to pay higher taxes and enjoy much less government spending, benefits and services. They will have to live with less.

    GIVEN THE CURRENT QUALITY OF MONETARY AND POLITICAL LEADERSHIP, THE ONLY WAY TO GET THE ECONOMY RESTARTED AFTER COVID-19 WILL INVOLVE FURTHER GOVERNMENT SPENDING, MASSIVE AMOUNTS OF DEBT AND THE PRINTING OF HUGE AMOUNTS OF MONEY — AND MOSTLY THE LATTER.

    Hard work, perseverance, risk-taking and sacrifice may be only a minor part of the equation — reflecting baby boomers’ sense of entitlement. Politicians will not dare to antagonize them or deprive them of their entitlements because they represent such a big voting bloc.

    As boomers would wish, the response of central banks and governments to the COVID-19 crisis has demonstrated that these institutions will do whatever it takes to prevent markets from being disrupted, whether it be by printing unfathomable amounts of money or by putting in place massive stimulus programs and unheard of budgetary deficits.

    Where in decades past central banks and governments intervened to smooth out the business cycle, they now completely block the markets from functioning properly. Thus, central bank governors, many of them boomers themselves, have pledged to provide monetary stimulus for an extended period to support the recovery. We have heard this before — every time a crisis has arisen over the past 30 years, in fact.

    BABY BOOMERS do not let the markets settle. They do not want to suffer or sacrifice; they want their lunches free! But by taking this approach, they are setting up their children, the millennials, to pay their bills.

    DRIVEN BY BOOMERS, MARKETS AROUND THE WORLD HAVE BECOME ADDICTED TO LOW INTEREST RATES. This has created bubbles in the stock and bond markets, in real estate — in all sectors of the economy that depend on leverage and feed on cheap capital.

    When rates rise, markets tumble. Monetary authorities respond to the markets’ anxiety by forcing interest rates lower. THE BUBBLES KEEP GROWING, MAKING BABY BOOMERS RICHER.

    In Canada, the federal government has announced that the fiscal deficit will be upwards of $350 billion this year — more than the federal program spending was last year. The U.S. fiscal deficit is projected to be over US$3 trillion. Already there are US$23 trillion of U.S. government bonds outstanding. That will not be repaid by pushing the delete button or by wishful thinking.

    NO ONE SHOULD EXPECT ALL THIS TO END WELL. Had monetary and fiscal leaders accepted higher interest rates and a recession in previous years, and allowed the economy to reset, we may have been in better shape now. But the longer the pain and sacrifice are delayed, the sharper the economic and financial fallout. Record high and rising gold prices likely reflect this fear, as they so often have in the past.

    • kamtanblog  On September 3, 2020 at 11:36 am

      Share your sentiments but beg to differ.
      It’s not “doom or gloom” that will be the
      outcome … am sure next generations will
      find a solution…yes a political one for any
      economic disaster. Remain optimistic !
      There will be more loosers than winners …
      a fact but am sure if there is a solution
      …more political than economic next generations will find one.
      Political “reformation“ …
      not political “revolution“ !
      Remain optimistic for the future.

      Will wait and see how things develop.
      Not speculate !

      My two cents

      Kamtan.uk.

  • Clyde Duncan  On September 3, 2020 at 8:46 pm

    Zav Patel wrote:

    The main reason Interest rates are kept low by Central Banks is that Government debt has to be financed.

    With 27-trillion US Government Debt, a 1% increase in Bond rates would increase the annual deficit by $270-billion.

    When Obama left office, the deficit was less than $500 billion. IT IS NOW OUT OF CONTROL. 5-year Bond rates are 0.5% a year. If the rates went up to a normal 4% to 5% – without additional spending – the deficit would go up $1 trillion just from paying additional interest. DISASTER!

    The Fed will do everything to keep interest rates artificially low. They will have to go to MMT – Modern Monetary Theory – (just print money without issuing debt).

    Right now, all the extra money pumped into the economy is not being spent because 30 million workers in the USA are unemployed (they claim it is only 10 million). Velocity of money is the lowest it has been since they started measuring it. In uncertain times people hoard money and food (chest freezers are out of stock in the USA) since they suddenly realize they may not be able to put food on the table……..

    Once the pandemic is under control, 6 to 12 months from now? Velocity will pick up. USDs will come flooding back from overseas as the USD loses its reserve currency status due to trade wars and unreliability of the USA as a NATO partner and that will cause phenomenal inflation.

    • kamtanblog  On September 3, 2020 at 9:07 pm

      A bit of inflation is not as bad as it is made
      out to be ! As long as it is not allowed to
      spiral out of control.
      Interest rates used to control/stabilise it.

      Eg 2% inflation 2% interest rate which is
      fixed/controlled by central banks.
      Raise interest rates to curb inflation
      if not stagnation/hyperinflation follows.
      In my opinion

      • kamtanblog  On September 3, 2020 at 9:14 pm

        Suggestion
        Google stagnation / stagflation FMI

        Kamtan

  • Clyde Duncan  On September 3, 2020 at 9:31 pm

    There’s a whistling-past-the-graveyard quality to this front-page, above-the-fold headline in today’s Wall Street Journal…

    U.S. DEBT HITS POSTWAR RECORD

    To be specific, figures from the Congressional Budget Office show the national debt is on track to reach 98% of U.S. GDP this year… and top the 100% level next year.

    The last time that happened was 1946 — the consequence of massive spending to win World War II.

    Remarkably, the Journal tells us it’s no big deal: “The surge in borrowing so far isn’t creating angst among investors or hampering the U.S.’ ability to borrow more.

    “Investors have gobbled up U.S. Treasury assets, drawn to their relative safety.

    Moreover, interest rates are expected to remain low, suggesting the government still has plenty of room to borrow.”

    All of that is true… and totally beside the point.

    The problem is all that debt will prove to be a lead weight on the U.S. economy’s leg in the years to come.

    Some relevant figures from our macro maven Jim Rickards: Going back the last 40 years, the typical post-recession recovery produced 3.2% annual economic growth.

    But something changed drastically after the 2008–09 recession. Thanks in large part to the debt run-up by Bush before the crisis… and Obama afterward… average annual growth after 2009 was only 2.2%.

    “It was a real recovery, yet the output gap between the former trend and the new trend was never closed,” Jim explains. “The U.S. economy suffered over $4 trillion of lost wealth based on the difference between the former strong trend and the new weaker trend.

    “The new recovery will only produce 1.8% growth, even worse than the 2.2% growth before the pandemic.”

    Result? “HIGH UNEMPLOYMENT will persist for years, the U.S. will not regain 2019 output levels until 2022 and growth going forward will be even worse than the weakest-ever growth of the 2009–2020 recovery.”

    The good news is that the 881,000-new jobless claims for the week gone by were the lowest since the lockdowns hit in mid-March. The bad news is that the number is still far higher than the pre-pandemic record set in late 1982.

    THE POINT IS, THERE IS A DIRECT LINK BETWEEN SKY-HIGH LEVELS OF GOVERNMENT DEBT AND SLUGGISH ECONOMIC GROWTH.

    Jim has long spotlighted research by the economists Carmen Reinhart and Kenneth Rogoff. They found that once government debt reaches 90% of economic output… WELL, that’s the point of no return.

    As Jim explained it in his 2019 book Aftermath, “The debt itself causes reduced confidence in growth prospects partly due to fear of higher taxes or inflation, which results in a material decline in growth relative to long-term trends.”

    Yes, the debt-to-GDP ratio fell after World War II. But that was an extraordinary circumstance: The United States’ industrial base emerged from the war unscathed, while the rest of the world’s was devastated.

    No such consolation this time. Now we’re just in the same high-debt company with developed-world basket cases like Japan, Italy and Greece.

    Which is exactly the fate we’re looking at now: “THE END POINT IS A RAPID COLLAPSE OF CONFIDENCE IN U.S. DEBT AND THE U.S. DOLLAR,” Jim recently wrote his Strategic Intelligence readers.

    “This means higher interest rates to attract investor dollars to continue financing the deficits. Of course, higher interest rates mean larger deficits, which makes the debt situation worse. Or the Fed could monetize the debt, yet that’s just another path to lost confidence.

    “The result is another 20 years of slow growth, austerity, financial repression (where interest rates are held below the rate of inflation to gradually extinguish the real value of debt) and an expanding wealth gap.

    “The next two decades of U.S. growth would look like the last two decades in Japan. Not a collapse, just a slow, prolonged stagnation. This is the economic reality we are facing.”

    AND YOU DIDN’T SEE THAT PART OF THE STORY IN TODAY’S WALL STREET JOURNAL…

    [Ed. note: How do you make financial arrangements for 20 more years of slow growth and crazy-low interest rates?

    The 5-Minute Forecast

    • kamtanblog  On September 3, 2020 at 9:41 pm

      Stagflation !

      Central banks use interest rates to curb
      inflation. How do you curb stagflation ?

      USA EU UK debt is unsustainable !
      Bubble will pop sooner than later
      …more loosers than winners !
      Few winners.

      Quotation
      For the few not the masses !

      QED

      Kamtan

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