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Real Estate – the Big Wrecking Ball?
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Real Estate – the Big Wrecking Ball?

Oliver Grah
Aug 4, 2022
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Real Estate – the Big Wrecking Ball?
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Introduction

You might ask yourself, why talk about real estate when this channel has been all about crypto and the digital economy? The reason is simple: Crypto is not a niche asset class anymore that only tech nerds and speculators care about – in the last few years, it has turned into a legitimate asset class, respected and followed closely by investors and “macro experts.” And while crypto is a great “macro indicator” for risk on and off environments, it is also crucial that crypto investors understand the macro environment and how it moves the prices of our precious digital assets.

Thus, today we will look at an asset class of paramount importance to global financial stability: real estate. In fact, real estate is by far the most significant asset class, and every hiccup in housing has serious ripple effects throughout the economy and financial markets. Let’s jump in and look at what a historic and precarious position the real estate market is finding itself in currently and why it matters for crypto.

Twitter avatar for @TheBreadMakerr
TheBreadmaker @TheBreadMakerr
Think about the six major asset classes: - Real Estate - Stocks - Bonds - Commodities - Precious metals - Art The world’s wealth is held in those asset classes. You can now add a seventh asset class: Crypto.
2:00 PM ∙ Jul 30, 2022
51Likes12Retweets

Real Estate: A Global Asset Bubble of Epic Proportions

  • As seen in the graphic below, real estate is the largest asset class in the world (absolute numbers are hard to gauge, and there are different methodologies, but the relative market cap comparison says it all). 

Twitter avatar for @MacroAlf
Alf @MacroAlf
A gentle reminder that the biggest asset class in the world is not bonds or equities. It’s real estate. And by far. Watch it closely, guys - we have just witnessed the fastest ever increase in US mortgage rates and a sharp deleveraging of the housing sector in China.
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11:58 AM ∙ Jun 27, 2022
2,885Likes528Retweets
  • Spurred by monetary debasement and asset inflation, global real estate has turned into a massive asset bubble (see the world’s biggest real estate bubbles below).

Ranked: The World’s Biggest Real Estate Bubbles in 2021

Has the Housing Crash Started?

  • Certainly, we all remember the headlines earlier this year when Evergrande and other large Chinese real estate developers were on the brink of collapse – spreading fear of global contagion in financial markets. While things have been somewhat contained, the Chinese real estate collapse has had BIG implications for the world economy. If China sneezes, the world gets a cold... 

  • It’s important to be aware that China has been leading the world in many aspects in recent months and years: They have been the first to be hit by Covid, and the Chinese economy has been in a recession for months already while the West is still teetering on the edge of a recession. It’s only a question of time until both a recession and housing correction become a reality in the US and Europe.

Twitter avatar for @MacroAlf
Alf @MacroAlf
To put things in perspective, the Chinese real estate market is the biggest single asset class in the world with an estimated market value of roughly $55 trillion (as per Dec 2021). Larger than the US stock market. Chinese real estate output just shrank by 7% YoY in Q2.
6:38 PM ∙ Jul 18, 2022
4,565Likes867Retweets
Twitter avatar for @Barchart
Barchart @Barchart
As China continues to face significant losses from its growing real estate crisis, here are 4 charts to show why the problem could get even worse:
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2:11 AM ∙ Aug 1, 2022
10Likes5Retweets
  • In fact, there are many signs that the real estate market in the US is slowing at an unprecedented speed.

Twitter avatar for @KobeissiLetter
The Kobeissi Letter @KobeissiLetter
Housing Market Update: 1. Avg home price down 12% in 2 months, biggest in history 2. Mortgage demand at lowest since 2000 3. Housing supply up for first time since 2019 4. Home sales down 16% in June 5. 15% of all sales fell through in June The housing market party is over.
10:46 PM ∙ Aug 1, 2022
1,658Likes317Retweets
Twitter avatar for @LG_HALEY
TX_PATRIOT @LG_HALEY
🇺🇸 Real estate crash looms: The number of sellers in the US who have slashed the price of their property has climbed to its highest level in at least 7 years.
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3:10 AM ∙ Jul 26, 2022
Twitter avatar for @LizAnnSonders
Liz Ann Sonders @LizAnnSonders
2-month change in median price of new single-family home has cratered to -11.9% (worst in history; even beyond housing crash during GFC)
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10:08 AM ∙ Aug 1, 2022
1,003Likes310Retweets
Twitter avatar for @EPBResearch
Eric Basmajian @EPBResearch
The volume of new home sales is crashing. Down 43% from the peak. Don't forget that housing IS the business cycle.
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11:24 AM ∙ Jul 28, 2022
568Likes129Retweets
Twitter avatar for @MacroAlf
Alf @MacroAlf
Housing market weakness in 3 steps: A) Additional leverage (e.g. mortgage) becomes unaffordable => ''it doesn't matter, the market is healthy!'' B) Volume of sales drops & housing supply up => ''it's temporary'' C) Price cuts at the lower-end, then at higher-end Today = B.
5:31 PM ∙ Jul 26, 2022
1,073Likes106Retweets
  • No matter if you call it a crash, correction or downturn, the real estate market is going through a sharp slowdown.

Twitter avatar for @RawQuantum
RawQuantum @RawQuantum
We went from calling it a “housing bubble” to an “affordability crisis.” Went from a “housing crash” to a “housing downturn” #realestate #Economics #supplydemand
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6:43 PM ∙ Aug 2, 2022
  • Now that we know that real estate is entering a “corrective phase,” should we worry about an 08-style housing crash? The answer is likely no, mainly for one reason: While before 2008, many homeowners had bad credit scores with subprime mortgages AND relied on variable rates, today, average credit scores are much higher, and fixed yields have overtaken variable yields. This means that while we could experience a 10, 20, or even 30% correction in average home prices, it’s unlikely that we will see a full-on housing crash.

Twitter avatar for @TXMCtrades
TXMC @TXMCtrades
From Q1 2020 to now, a staggering 69.5% of all dollars in new mortgages have credit scores of 760+. This differs greatly from the housing market of the 2000s, where 12-14% of originations were subprime borrowers.
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Twitter avatar for @TXMCtrades
TXMC @TXMCtrades
US home mortgages by credit score. In one graph, we see the end of the subprime boom in 08-09. Also the surge of buying from high scoring applicants in 2020-21, driven in part by vacation home purchases in the wake of stimulus and lower rates. Great chart from @NYFedResearch https://t.co/9IQcJBcP9n
10:08 PM ∙ Aug 2, 2022
54Likes8Retweets
Twitter avatar for @LynAldenContact
Lyn Alden @LynAldenContact
@HodlMagoo @DylanLeClair_ Quite possible, but there will be tremendous variance based on zip code. Cyclical speculative markets vs boring cashflow markets. Sideways chop in nominal aggregate nationwide housing prices (including some dips if the Fed pushes hard enough). But no epic crash, imo. Not 2008.
11:51 PM ∙ Aug 1, 2022
34Likes1Retweet
  • One factor that speaks for a sharper housing correction is the fact that consumer sentiment is already at record lows while housing prices are still printing all-time highs. Once prices drop, bad consumer sentiment could exacerbate panic-selling. Many Americans have their wealth tied up in real estate and don’t want to see their home values drop (after their stock and crypto portfolios have already declined materially this year).

Twitter avatar for @SuburbanDrone
Mac10 @SuburbanDrone
Herein lies the problem: During the last housing bubble consumer sentiment began to diverge from rising home prices. Then when prices tanked, consumer sentiment collapsed. Bulls believe that consumer sentiment will improve when home prices collapse this time.
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7:19 PM ∙ Jul 31, 2022
438Likes87Retweets
  • Of course, in every crisis there lies opportunity, and a housing crash (or correction) will be a much longed-for opportunity for Millenials who have been priced out of the real estate market in recent years. Will they get the price discounts they desire, or will Blackstone and Co. scoop up (see Tweet below) all discounted properties and leave Millenials waiting for lower prices again?

Twitter avatar for @Thomas1774Paine
Thomas Paine @Thomas1774Paine
Blackstone Prepares A Record $50 Billion To Snap Up Real Estate During The Coming Crash
paine.tvBlackstone Prepares A Record $50 Billion To Snap Up Real Estate During The Coming CrashThe past two months have seen a barrage of negative news coverage focusing on the US housing market... Is The Housing Crash Starting? Why The Housing Bubble Bust Is Baked-In The One Housing Chart That
3:02 PM ∙ Jul 27, 2022
41Likes44Retweets

What This Means for Crypto

  • As we stated in the beginning, real estate is the largest and structurally most crucial asset class, with many Americans having most of their net worth being their house (and many taking out loans against it). Therefore, a housing crash or correction should significantly impact both investing and spending behavior. If people feel that their net worth is declining, they will spend less – thus hurting the economy and, subsequently, stocks. 

Twitter avatar for @SuburbanDrone
Mac10 @SuburbanDrone
This is the fastest housing market collapse in modern history (bottom pane, rate of change). The CEO of the National Association of Homebuilders says we are already in a housing recession. Which means ~18% of GDP is now at risk: yahoo.com/video/heading-…
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10:58 PM ∙ Jul 31, 2022
704Likes181Retweets
  • In addition, homeowners will likely not be willing to make risky investment decisions, which could have big implications for the crypto market. A crypto bull market is only possible if we see new money enter the space, and a slowing housing market could be a significant headwind. Therefore, patience will be required for crypto bulls. At the same time, macro factors like a real estate correction could lead to excellent buying opportunities in crypto.

    Twitter avatar for @Pentosh1
    Pentoshi 🐧 (ex macro threadooorrr) @Pentosh1
    As promised an update to the thread from my Nov-Jan thesis. It's nuanced/flawed though An important part of crypto going up is that people are entering the space. People bring new money. New money = number goes up. If people and money are leaving. Numbers tend to trend down
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    Twitter avatar for @Pentosh1
    Pentoshi 🐧 (ex macro threadooorrr) @Pentosh1
    Adding onto 22' thesis this with new and relevant objective data point. Why are monthly users on exchanges not peaking? Why are volumes down? And why are institutions having new (record outflows) as opposed to inflows? If both money + people are leaving but supply is increasing? https://t.co/1VNoQTp3Sq https://t.co/udi6F1t0tR
    11:50 PM ∙ Aug 1, 2022
    877Likes134Retweets
  • On the bright side, crypto and stocks – while being hit hard in the first half of 2022 – could recover BEFORE we see a low in the housing market. Housing prices tend to lag equities and economic drivers by 12 months. This means we could witness the lows of crypto and equities while real estate continues its downturn.

  • Interestingly, JPMorgan strategists have recently stated that crypto has usurped real estate as their “preferred alternative asset class” and that the recent liquidation-induced market crash offered a "good entry point" for longer-term investors.

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