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Crash Ahead?

This blog is about the consequences of the sudden lurch into the digital world that we have seen during the lockdowns, and consequential absurdities forced upon us by crackpot governments.

So far in this short series about the hectic march of digitalisation I have concentrated on what has been going forward rather than what has been left behind.

Since i run the Unique Property Site I see at first hand what is happening in the world of real estate. The way the world goes is reflected in what happens in the world of real estate.

In the seventies there was a massive spike in interest rates, and the value of money fell through the floor. Naturally this had a serious affect on prices in real estate. As interest rates rose, so the ability of people to meet their mortgage payments came to the fore, and people decided that renting was the better option. They either sold up and moved into the rental market, or were forced out by the real owner of the house, the mortgage company, and had to seek shelter elsewhere.

Naturally this led to a slump in house prices. Mortgage rates went through the roof, and people did their maths, or the mortgage companies did the maths for them, and reality came back with a vengeance. Suddenly people became aware of one simple and crucial fact of life: it isn't the price of a house that counts, it's the cost of the mortgage.

I always counter the stupid things people say about house prices by reminding them of that fact. House prices have nothing to do with the number of people wanting to buy a house. I want a top of the range Ferrari, but I won't be buying one any time soon because I don't have the money that I would be prepared to pay for such a luxury. Ergo (that's latin), I shan't be buying one any time soon.

People only buy houses if they can afford not the house but the mortgage. If lockdown has put them out of business they won't be keeping up the mortgage payments if (or shall we say when?) the mortgage rates rise.

That's one side of the situation. Whether you like it or not, one of two things is going to happen very soon; either interest rates have to rise to counter inflation, or there has to be more massive money printing which will trash the value of currencies. Either way the average household suffers a massive loss in wealth. And we have just seen that a loss in wealth, or an increase in mortgage interest rates, leads to a failure in the housing market. It's what is often called a knight's move, from the game of chess. Place your pieces on the chess board in such a way that one move by your knight will land it on a square from which it can threaten two pieces of your opponent's team. It doesn't matter which piece your opponent moves, one of his pieces is going for the chop.

In short, whichever financial option comes into play over the next two or three months, the housing market is going to start suffering.

I suspect the answer will be money printing because governments can't handle current debt levels, and with an increase in interest rates they will go under.

Let me remind you of one grade A debt coming due within weeks: the US government needs to refinance (if my memory serves me) three trillion dollars in securities. They cant do that. The US government is already broke. If interest rates rise, then the level at which they borrow will be even more painful than the current negligible rate. Ergo (that means 'therefore') rates are not going to rise for at least for the next two months. But, after that?

So we are about to see the end of house price rises, and gradually that will translate into falls. I suspect there will be a rather nasty crash, but, as I keep saying, I do not have a crystal ball, but anyone buying right now needs their head examining.

Now let's look at the other side of the equation.

The last time there was a crash certain properties became unsustainable. At the moment high rise apartments are not very attractive. As readers of this website know you can buy one bed apartments for as little as 2,000. And the prices of larger apartments are on the skids also. After all, who wants to live in a two-bed or three-bed apartment on the fourteenth floor when you have two or more kids in the middle of a lockdown. That's a recipe for marital breakdown, revolution, suicide, whatever. It's certainly not something you want to take on a mortgage for.

But look at this week's members' bulletin. The properties for sale are starting to include some very interesting items. A couple of month's ago we had a glorious large country house that was trading as a hotel on the market for the price of an average house in a nice quarter of London. Hotels are going bust, especially mid range hotels; the ones that cant easily adapt back to house plus rentals, and cant survive because they are part of a chain. If the lockdowns come back, those hotels which haven't already gone under will go bust. Expect to see a lot more on this site.

We are also featuring a bust cinema and a bust night club. Expect more of them to come on the market.

Religion is in steep decline, hence the deluge of churches and chapels we already see on the site.

With more and more work from home situations we will be seeing more and more office buildings coming onto the market.

In short, ladies and gentlemen, the shape of the real estate market is beginning to undergo a serious change. Be prepared for even more, and faster, change than previously experienced. We will, of course, be ahead of the game here on the Unique Property site.

I will be continuing my look at the digital future but next month I will also be doing my usual look ahead to another year. I suspect 2022 is going to look very messy from the window that will be January 1st.



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