Every day that life goes by and there’s no disruption I consider that a bonus. – John Embry
We are currently sitting on the edge on another housing and commercial real estate market disaster. The financial system was never “fixed” or “reformed.” The banking sins which led up to the big housing bubble crash were merely erased with taxpayer funds and printed money. The laws passed were not designed to protect us from them but to better protect their ability to hide the continuation of the fraudulent banking activities that serve to transfer wealth from the general public to the elitists.
The Fed and U.S. Government have successfully succeeded in reflating the housing bubble. Housing prices have been fueled by low to no down payment Government sponsored mortgages and by the Fed’s near-zero interest rate policy. Go ahead raise rates, Janet, let’s see how quickly you explode the current housing bubble your people have blown.
The financial media heralded the announcement of Wells Fargo’s 3% down payment mortgage program like it was a new way to split to the atom. Lost in the hoopla was the fact that Wells Fargo’s program is just now catching up to the times. Fannie and Freddie have been sponsoring 3% down payment mortgages since early 2015. The Government agencies also signficantly reduced the required monthly “insurance” payment on low down payment mortgages. Same with the FHA, which has been doing 3.5% down mortgages since 2008. Th Government has become the new version of Angelo Mozilo’s Countrywide Mortgage company.
It’s nothing more than a reconfiguration of the exact same types of mortgages and the associated derivatives that took down the financial system in 2008. The “use your house as an ATM” programs have been reinstated. Need to pay for your wife’s full body plastic surgery makeover? Do a “cash out” refi and pay for that plus redo your kitchen and finish out your basesment. Leverage that “home equity” to the max.
After our conversation with John Embry about the silver market, the discussion wandered into the housing and mortgage market on an ad lib basis. Below is the Shadow of Truth’s bonus footage with John Embry about the forthcoming systemic debt collapse led by mortgage and auto leverage.
I sold my house in 2011 and moved my equity into PMs expecting a real estate crash. Since then the house has doubled in value and silver has gone down 50%. Sigh…. I clearly under estimated the government manipulation of both markets. Real estate prices are out of control where I live and I missed it to get into PMs. Sigh…
Dan, thanks for sharing your experience. Forget making great profits, the best that us uninformed(lacking insider knowledge) regular folks can hope for is to hedge our investments and hopefully stay at break even.
In 2011 I thought housing had another couple of years of correction left but thanks to the “buy before the Chinese buy it all for cash” narrative, housing has risen above 2006 peak levels now. Rents have also risen at the same time, shooting up as much as 80-90% in the area where I live(California). Just today I read an article about young professionals paying $600 or so to live in 160 sq ft shipping containers. Some of these are highly educated and working in the technology industry – the kind of demographic that is supposedly driving rents higher and higher. After witnessing all the drama over the years, one thing is clear to me – the vampires of wall st(aided and abetted by their trojan horse the fed) NEED a bubble all the time! How else are they going to finance their extravagant bonuses and “growth” plans?
Regarding precious metals – I don’t think gold’s recent run is done and that it will rally 40-50% from current levels.
Where are you seeing empty rentals in Downtown Denver? My firm has invested in multiple new developments in Denver, all of which have done very well. Two are in lease up now, one which is near Cherry Creek and the other in a transitioning area in Englewood just off the “Green Mile”. The latter is a subpar product and is still 70% leased at our pro forma rents. I agree that mid priced homes are selling off the charts, which I’ve confirmed talking to our partners that live there. In fact, I’m told you will lose out on a house if you don’t see it the day it is listed. Furthermore, they are mostly all cash closes as investment properties.
Similarly, Dallas is on fire, which is due 100% to large corporations relocating their offices from California and other states (e.g. Toyota, JP Morgan, State Farm, Liberty Mutual, etc.). Housing is so hot in North Dallas that Toyota and others are buying everything they can at 10-20% over asking just to have a place for their employees to live. If you drive through Plano and Frisco (north of Dallas), you’d think they discovered gold. There are so many cranes there you can’t believe it. More interestingly, their culture has improved and I’ve eaten at restaurants recently that rival that of San Francisco. I think Dallas is going to be just fine.
As for Nashville, I do not cover that market, but I believe their growth is due to technology jobs. In fact, that has been the driver in any market where there is economic activity, including such previously boring markets as Portland Oregon and Raleigh, NC. Google and others have branched out to many markets seeking to broaden their reach for talent, while reducing their operating costs with physical operations outside of Silicon Valley.
Catherine Austin Fitts talks about this disparity between the haves and have nots quite a bit, which I certainly see living in Northern Cal. Until technology rolls over, these markets will remain hot, and particularly those like San Francisco and Portland that through their liberal land use policies artificially constrain supply.
All that said, it is still going to be painful for these places as the many illusions come to an end. However I don’t see the 2008 crash coming from this malinvestment for at least a couple more years, primarily because the home lending has just started to get back to its riskiest of lending policies. I think a near term problem is more likely to be triggered by the monetary madness as countries finally turn on one another and the money printing gets out of control.
I’m betting on the latter, which will of course will accelerate the former given all the interconnected parts. I think the Fed June meetings kicks off the beginning of the party.
Great discussion guys – I love John Embry. His voice inflections always make me chuckle.
A lot of smart people have been sucked into the PM market and
lost quite a bit of green paper. If it is any solace to the PM holders
it is that while tangible assets like real estate, collectable art and auto
mobiles have increased in dollar term, it is truly evidence that the dollar
has depreciated. It takes more dollars to buy those assets.
I was speaking to a friend who looks at cash value or the cost of money.
The reality without going thru all the math is that 1mm in 2008 value is
now worth $850k. So I would not worry about what gold or silver is priced
at in dollars, other than how many ounces you can purchase with your existing
green paper. There is going to be a serious revaluation coming a lot sooner
then people think. Those who hold PM will be rewarded for being early.
Great show Dave, that story on ZH about hi end RE..very insightful…the only unencumbered asset class in the world is PM’s when a couple of birdbrained billionaires who got lucky in the credit bubble..realise the next stage will all be about collateral & at this point the only collateral not bogged down in debt is Gold& Silver, it will be over..it’s not that funny because we know most billionaires are know alls but first there was 2 or 3 thousand & then there was 2 or 3 🙂 JMO
Could Brexit be the event that triggers a panic driven collapse in the stock market? As of now the odds seem to favor the Brits remaining with the EU. But what if the UK voters are frustrated as the US voters and spring a surprise? A few months ago no one thought Trump would end up as the Republican party nominee, so you never know.