Artificially low interest rates blew up a big housing bubble. In a podcast, Peter Schiff explained that it is actually a bigger bubble than the one preceding the 2008 crash. But this time, it is combined with an overall bubble in the entire economy that dwarfs ’08. Peter said all of this has the makings of another massive financial crisis.
As the Federal Reserve continues to push up interest rates, the air is slowly coming out of the housing bubble. That leads some people to believe CPI will begin to drop because shelter costs are ostensibly falling. But Peter pointed out that just because housing prices are falling doesn’t mean shelter costs are falling.
Shelter costs are still going up. Even if it’s cheaper to buy a home, what’s important is how much it costs to own a home. And those costs are going up. Because even if you pay less, you’re still going to end up paying more in your mortgage.”
A 30-year fixed-rate mortgage is now above 7%. That means that even if you pay a little less, your financing cost is much higher. On top of that, you have higher insurance prices, higher property taxes, and higher maintenance costs.
All of this is increasing the cost of owning homes, and it makes it more likely that some of the people who borrowed money to buy homes aren’t going to pay, and they’re going to go into default.”
Peter pointed out that there is some incentive to strategically stop making mortgage payments because it takes so long for banks to foreclose and actually kick people out of their houses. Meanwhile, people don’t pay property taxes and don’t maintain the property. By the time the bank completes the foreclosure, its collateral has drastically decreased in value….