The Great Real Estate Crash: Is History Repeating Itself?The chart shows that in February 2007, the Real Estate market reached its peak, experiencing a slight decline until June-July 2008. Starting from September-October 2008, a crash occurred, leading the FNER index to a -75% decline over a period of 790 days.
It seems that around March 2022, we reached a new all-time high (ATH) in the real estate market, creating a situation very similar to 2007-2008. The chart looks almost the same. Applying the same measurement as in 2008, a -75% decline would indicate a target price of around 240 from the current 740.
If the time for the collapse follows a similar pattern to 2008, we can expect the price decline to begin around September, with the end of the crisis occurring around June 2024. This indicates a significant crisis.
Applying Fibonacci Time Zone to 2008, point number 8 falls precisely in June 2024. In a dual scenario, we can expect June 2024 to be either the end of the real estate collapse or the beginning if it proves to be more resilient than anticipated.
FED NOTE
Some important notes to consider: The Fed has explicitly expressed its view on the inflation issue. In order to lower inflation, it is necessary for the real estate market to give way, as it influences 30% to 50% of the overall inflation. Currently, the real estate market has shown enough strength to not be affected by rising interest rates, and the Fed needs to see its effects as soon as possible.
RUSH FOR NEW HOMES
Another aspect to consider is the rush for new homes in the past two years. The availability of used homes has significantly decreased. However, the market for new homes, especially new contracts, is starting to experience downward fluctuations. There are fewer new contracts and, consequently, less work in the sector (maybe last quarter could be a dead cat jump? Parents often purchase new homes for school changes during the summer months, typically between June and August, before the start of the new academic year. This allows families ample time to transition and settle in before their children begin the new school. Summer provides a less disruptive time for children as they are not uprooted mid-year.).
In terms of costs, in many areas around the world, the cost of a used home has become very high, almost comparable to a new home from a few years ago.
NEW HOME CONTRACT
USA HOUSE PRICE INDEX
RENTAL ROOM APARTMENT SECTOR
Finally, in the rental room/apartment sector, the high investment risk should be taken into consideration. Many people have considered buying a second home for bed and breakfasts or short-term rentals. The cost incurred for the restoration or purchase of the new home through a mortgage may not be adequately offset by tourism in the long run. Many hotels are already lowering prices due to decreased tourist influx, leading to room rates lower than those found in vacation rentals. This creates a significant gap, shifting the demand from vacation homes to hotels. The increase in these accommodation facilities also means that what was previously divided among a few properties is now divided among more properties. A tourism market that can no longer afford the expense has more options, but maintaining an average annual occupancy rate of approximately 100% with a 30-50% increase in rentals results in a significant loss of income. Investors who expected to repay their mortgages quickly will be forced to sell to cover mortgage costs, which, with variable interest rates, will become unmanageable.
FINAL SCENARIO
The final scenario will be that the real estate market, primarily driven by retail investors, will suddenly be flooded with vacant homes, with the urgency to generate cash flow to cover mortgage costs. However, the prohibitive mortgages will block the possibility of purchasing even used homes until the balance between excessively high mortgages and very low housing costs is sufficient to equalize everything with the cost of living.
DISCLAIMER
Note: This information is provided for general informational purposes only and should not be considered as financial advice. The analysis and predictions presented are speculative and should not be solely relied upon for making financial decisions. It is important to conduct thorough research and consult with a qualified financial professional before making any investment decisions.
