The current market is a whole lot more like the run up to the last great financial crisis than many are willing to admit.
There are an incredible amount of similarities in the data. Yet, many publications and industry commentators can’t bring themselves to be transparent about it. They think they will win by denying it, and selling poorly positioned investments.
So, what is the same this time around? What is actually different? How can investors make intelligent money moves and actually win in this phase?
How We’ve Re-Created The 2008 Crisis
It’s almost like the 2008 crisis has been replicated play by play. Virtually all of the same moves have been made to set up the economy and its various markets for a repeat.
Many made out so well from that crisis. Why wouldn’t they want to repeat it?
Again and again we are seeing that the numbers are matching that of the run up to the Great Recession. Perhaps only magnified by inflation.
Here are just some of the ways it is just the same:
- Interest rate hikes, and new highs in mortgage rates
- Dramatic increases in house prices
- Rising rents
- Lack of affordability
- Great speculation
- Short marketing times for homes
- Buyers grossly overpaying for assets
Now that the market has changed, we are again already seeing:
- Falling asking prices for homes
- Fewer pending sales and contract completions
- Fewer home sales
- Rising vacancies in commercial property
- A growing amount of negative equity, and underwater homeowners
- Massive layoffs
- Investors, real estate businesses, and lenders going broke
Some are still claiming that the one thing which is different this time is that we haven’t had easy and ‘subprime’ type lending.
That simply is NOT true.
In fact, it may be argued that lending has been even easier and less responsible than pre-2008.
Last time around more sophisticated mortgage loan products focused on those with good credit scores – even if documentation requirements were sometimes minimal.
Since then, government backed loan programs have made up a lot of loans, such as FHA, VA, and USDA loans. These programs offer high LTV mortgages to those with bad credit, and often to those with lower incomes. They can get these loans with credit scores in the 500s, while enjoying down payments from 3.5% down to ZERO.
Bank of America recently announced it will provide no money down mortgages again. While others have increased their promotion of home equity lines of credit.
Business purpose loans have also become a back door for funding real estate deals. Some have required no income, no appraisals, no personal guarantees, and even no credit check. A lot of this money has been plowed into real estate.
What’s Actually Different?
To be honest, not much is different.
Perhaps the one thing that stands out is the recent period of low interest rates. Many are going into this having locked in low long term mortgage rates of just 3% to 5%. They’ve locked in affordability. Even if interest rates on new and adjustable debt go up to 14% or 20% again, they won’t be rocked.
COVID lockdowns and how much remote work has grown may be a factor. Even though remote work and businesses were a thing in 2008, they are much more common now.
Along with this, we may be experiencing some even larger macro cycle rotations which may mean some major cities have peaked after over 100 years of popularity. Others rising for this new phase of the economy.
How to Invest
This is when the money is really made. Those who have made it through the past couple of crises did so with passive income, and multiple streams of income, using sound leverage, and acquiring distressed assets at discounts.
Don’t ignore the data or how it may be repeating history. Instead, use that as your advantage to make smarter investments.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund.