What do I mean by this title? Well I think we really need to look at real-estate. Real-estate is about 30% of the economy. No I'm not just talking about flipping homes, I am talking about the builders and every trade that helps create new homes.
I talk a lot about inflation, disinflation, and then inflation. Sounds like a normal cycle, but in financially controlled markets which should be 'free' we will have massive distortions. It's charting those distortions that make things more difficult.
As an example, you could have gold mines collapsing killing supply but you have paper prices controlling it's movement. Remember trade of a year supply of anything happens in a day when it's just paper (not real). Can this be done with the housing section?
In part no. We can see the GFC (great financial crisis) was caused by banks giving out mortgages people couldn't pay back. The scenerio in this world is no different. In Canada alone we have seen a - 9% slump in prices from last year. Canada's real-estate market is ridiculously overleveraged and it just banned foreign buyers from getting into the market. This should kill even more demand. Perhaps people waiting to buy a home will finally get into the market. Then basic products are still higher in price.
So what do I forsee in the next 6-9 months? Disinflation or cooling off of inflation, housing prices going down another 5%-10% but not completely crashing. The reason for not seeing a price crash is simply because materials and commodities will not be free. They will still be inflated putting some extra buffer on housing.
Of course there are the black swan events where everyone and their mother defaults on their loans. This would be another GFC and would incur more money printing. We will wait and see. I often come back to my own blogs to see what I researched and wrote about.
What say you?
