The real estate industry is being severely impacted by higher interest rates, causing sales to plummet. The sudden shift from a low interest rate environment to a higher one has paralyzed the market. Homeowners are reluctant to sell because buying a new home would mean higher mortgage rates. As a result, sales of previously-owned homes have dropped by over 32% in the past two years. Even investors are staying away from the market, with purchases of homes falling by 45% since last year.
The situation is even worse in the commercial real estate sector. The Wall Street Journal recently published an article indicating that commercial real estate prices are plummeting across the country, putting banks at risk. Total bank exposure to commercial real estate is estimated to be $3.6 trillion, which is 20% of their deposits. Losses on loans are causing banks to cut back on lending, further depressing property prices and causing more losses.
The Federal Reserve has not provided much relief either. Fed officials insist that interest rates will continue to rise, worsening the crisis in the real estate market. This will also have a negative impact on the rest of the economy. Small and mid-size businesses are already feeling the effects, with economic activity slowing down and layoffs becoming more common. In just the past two months, the US has lost 670,000 full-time jobs.
The struggles are not limited to businesses. The number of homeless people in the US has increased by 11% in the past year, the biggest spike ever recorded. Cities like Oakland and San Francisco have become hotspots for homelessness, with people arriving there to have access to drugs.
Despite claims of success by the Biden administration, the reality is that the country is facing an economic nightmare. The real estate industry is expected to worsen, along with the overall economy. It is crucial for individuals to prepare for the hardships ahead, as most Americans are likely to be blindsided by the worsening situation.
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