As the COVID-19 coronavirus has provided a political lever to for all purposes stop the economy, there will be an ongoing impact with many other industries.
Since a recession has started, I warned that housing would be hit very hard, with results as potentially bad or worse than what happened in 2007 and 2008. Now GeekWire reports that major real estate companies are refusing to buy more houses, out of fear of an impending crash in housing value.
Seattle-based real estate company Redfin announced Wednesday that RedfinNow, an arm of its business that buys homes directly from homeowners and resells them to homebuyers, will temporarily pause making offers on homes. The move comes as the coronavirus outbreak and social distancing have severely cut into home-buying demand across the United States.
Redfin’s announcement showed up in a Form 8-K filing with the Securities and Exchange Commission. CEO Glenn Kelman also published a blog post on Wednesday in which he said the housing market had taken a “turn for the worse.”
Kelman said that home-buying demand took a significant hit over the past seven days as cities instituted more stringent guidelines around social gathering. The Northwest Multiple Listing Service, based in the Seattle area, also suspended in-person public and broker open houses until March 31. (source)
This is not limited to any kind of housing, but the market as a whole.
The last eleven years were a “bull market”, bolstered only by the constant money printing from the Federal Reserve under various names (quantitative easing, Operation Twist, etc.). However, the effect has always been the same- either to manipulate purchasing or outright print money so to give the illusion of prosperity and increase credit access so more spending could happen.
However, the “gains” made were not real. Basically, the government gave a lot of money at low or non-existent interest rates to rally stock prices and increase confidence without actually solving the problem, which is debt levels. If debt is too large, one will default. It is a constant of history regardless of the country, and the US is the most debt-laden society in history, no exaggeration intended.
Inevitably, there is going to have to be (a) a major economic crash and (b) a currency reset because the dollar is only as good as the government’s ability to service her debts, and if she can’t service her debts, who will buy the dollars? This has happened before in other nations, and is not a new thing. However, when it happens in the US, it is going to destroy a lot of wealth and cause a lot of chaos.
I suspected and wrote that it is possible the US would try at some point to crash her own economy before it naturally would and then to blame it on China. You can read this in the Shoebat archives. I said this because the US does not want to lose her position as the world’s reserve currency, and she will go to the point of nuclear war if need be to preserve it. China is in a losing position because no matter what she does, she is going to be blamed and will likely find herself isolated and left to fend for herself with no real help from her allies.
If you are a common man, now is the time to work, and historically is a time to preserve one’s assets through transferring wealth into things that preserve value (such a gold, silver, other metals, or minerals). It is also a time to pay attention to the markets, and to be wary of false hope of “recovery”, which may happen.
What is of concern here are fundamentals. The economy has fundamental problems that can only be fixed by a reset, it is completely natural, and it is going to happen. What matters is not how to “stop” them, but how to deal with the inevitable.
The housing market is falling apart, which may mean an increase in defaults. But the people who are rentors (not rentees) will likely fare well, as people will need sources of quick, clean, affordable housing, and those who are able to provide such for the masses will find themselves not seeking people, but having people seek them out for accommodations.