Posted on 04/16/2022 8:22:08 AM PDT by Browns Ultra Fan
The book and movie “The Big Short” revolved around the 2005-2007 housing bubble driven by lending to borrowers with subprime credit (and little or no underwriting). As we know, Bear Stearns, Lehman Brothers and other investment banks too large positions in subprime asset-backed securities (SABS) that became highly toxic once the demand for high-yield subprime ABS dried up.
Fast forward to today. Mortgage originations by credit scores of 620 or less have shriveled while home price growth YoY is even higher than the subprime mortgage crisis of 2005-2007. So, is the US facing another “Big Short” scenario? Yes and no.
Look at the affordability gap during the Subprime Bubble of 2004-2006 and then the Fed Bubble of 2020 to today. Both bubbles show a disconnect between REAL home prices and REAL wages. REAL Zillow home rents are not as high as REAL home price growth, but still how a huge gap in rent affordability.
The Fed’s whipsaw approach helped crash home prices during the subprime mortgage crisis by dropping rates too fast at first (helping to ignite a housing bubble) then raising rates too fast (helping to crash housing prices).
Now, Michael Burry of The Big Short fame (portrayed by Christian Bale) thinks that The Fed has no intention of fighting inflation meaning that he doesn’t think The Fed will raise rates all that much. “The Fed’s all about reloading the monetary bazooka. So it can ride to the rescue & finance the fiscal put,” Burry added.
Yikes! Time for investing in cryptocurrencies like Bitcoin and Ethereum?
This scene from the film “The Big Short” won’t be happening again. But I agree that no one is paying attention … again.
(Excerpt) Read more at confoundedinterest.net ...
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More likely both...Inflation rages to the point that no one buys anything but the basics and then the market crashes as no companies can maintain current income let alone expected growth.
Consumer Staples, utilities, and select commodities seem like the only thing with less risk.
I lived though jimmy carter. Our 1st house in 1980 cost $60k and we got a low interest rate of 12% with 3 points. It was a bidding war. After we closed, interest rates went to 21%. That was a mess. You young people have no idea whats coming our way.
Mondays benchmark for 30 yr fixed was 5.02%, up from 2.5% in January. At the rate of increase we will repeat JC.
A hard crash is sorely needed.
Anything else is criminal negligence.
just curious, did your house lose value following the surge in interest rates after you closed?
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