Schiff is an optimist!
Based on the experience of other countries who have undergone similar economic circumstances, housing prices will fall 90 percent or more in real terms when we begin to experience more of the effects of serious inflation / hyperinflation. Here are some of the reasons why:
- Few buyers. Massive unemployment (much greater than today's), plummeting real incomes, and soaring taxes will greatly diminish the ranks of those who can afford to purchase housing.
- Exploding number of units for sale. Many individuals, especially those on fixed incomes and those who have lost their jobs, those whose incomes are falling in real terms, will be forced to place their homes on the market. ARM's (adjustable rate mortgages) will reset with greatly increased payments causing many to default. Many more will simply walk away from their dwellings for some of the many reasons listed below.
- No financing. There will be no money with which to buy housing. Few, if any, lenders will be willing to make long term fixed rate mortgages. Those who do will demand extraordinarily high down payments, short loan terms, and huge interest rates. In jurisdictions where they exist (or where lenders anticipate they may be enacted), usury laws will kill the mortgage lending business altogether.
Fannie, Freddie, FHA and other government programs and guarantees will become worthless and thus ineffective. The Feds simply cannot afford to pay off in the event of default.
- Soaring ownership costs. Real estate taxes will undergo staggering increases. Local governments will face enormous cost hikes and will simply have no means of raising money. Additionally, as more and more people walk away from homes they own and into rent subsidized units, the number of persons paying taxes will plummet. Expect a double hit for people who must also pay neighborhood association fees.
- Rapidly depreciating investments. Vacant homes quickly deteriorate in value. The quality of neighborhoods diminish as home owners are replaced by renters (especially those living on government subsidies). Crime soars as local governments scale back essential police services. Local areas frequently become war zones with the only real protection coming from gangs who collect protection money.
- Limited returns on investment. Rent controls and a crashed real estate market limit the upside potential. Meanwhile investments in commodities will realize enormous real gains. And commodities are liquid assets that can be stored overseas. Dirt simply can't compete.