May 17, 2023
By now, you’ve probably heard about the possible coming commercial real estate crisis due to how it’s entangled with the ongoing banking crisis.
Office buildings across the country sit empty or half-occupied thanks to a shift to work-from-home for many companies. Alarm bells are ringing that this could be a massive issue in the next few years because companies aren’t renewing leases and the property owners holding those leases are hurting.
That kind of downturn spreads to sectors like construction activity, and then it becomes another argument that recession is more likely.
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That is still playing out and likely will over the next few quarters, but another crisis related to real estate could be coming to the surface right alongside it.
You’ve no doubt seen the headlines about Congress and the debt ceiling fight. The Republicans want cuts, the president refuses to budge, and the country teeters closer to not being able to pay its bills.
It’s so bad that Janet Yellen, former Fed chair and current Secretary of the Treasury, has come out to speak against the issue. Last week, she said the country only has the money to pay its bills through May. More recently, she said that a debt default could undermine the country’s position on the world stage and lead to a global economic downturn.
Those are just two of the headlines that have covered the topic in the past few weeks, but another interesting one just emerged. One that says the ongoing debt ceiling fight could lead to another crisis in residential real estate.
Ever since the pandemic, we have been facing a cost-of-living crisis with rents and mortgage rates skyrocketing. Now the warning is out that a debt default could cause home buying costs to go up 22%.
That’s according to a new analysis by Zillow, which says that kind of spike could see rates go up over 8%. The housing market was already hurting thanks to high rates and lower sales, and a default would make that even worse.
Expected sales wouldn’t happen, with the percentage of estimated sales dropping by double digits later this year. So it’s another notch in the tightening of America’s belt as a recession looms.
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There are, of course, a lot of factors that have to come into play for this worst-case scenario to unfold. Like I said, Secretary Yellen says the country has money for debt servicing until May 1, so that gives the two sides a few weeks to come to their senses. But with how divided the country is now, that may come down to the wire more than many are comfortable with.
And if there is a default, there is no telling just how long the resulting turmoil would last before our country’s leaders did their jobs and came to an agreement.
But it can be said that the longer it drags out, the worse it will be for both the economy and the average American, whether they’re looking to buy a home or not.
This is another example of why long-term preparation for market volatility is so important.
With the right guidance, it’s possible to build the kind of investment strategy that will be able to withstand downturns caused by events like the debt ceiling fight.
It’s been clear for a while that those in power will do what they want, even when it goes against the will of the people or common sense itself.
So protecting your wealth means taking control of your investments and safeguarding your accounts from the decisions of those whose actions actively work against your best interests.
Editor, Daily Profit Cycle