I think I finally know what’s going to cause the next major financial collapse. Crypto. Ignore the fact that the word “cry” is part of the word.
For the record, I don’t have anything against crypto, I just believe it’s a classic case of something climbing too high, too fast.
Don’t believe me? Look at silly meme coins like Doge and Shiba Inu coin, which rallied because Elon Musk recently acquired a Shiba Inu puppy.
Over time, the crypto industry could resemble something like the Internet, but similar to the Internet, growing pains will accompany its upward trajectory.
And because more and more investors are piling into cryptocurrencies, it’s just a matter of time before it all comes crashing down. The question is will it take housing with it?
Staples Center Becomes Crypto.com Arena
In the latest piece of ominous news, the long-named Staples Center will become known as Crypto.com Arena in a 20-year deal.
Apparently, Crypto.com shelled out more than $700 million for the naming rights, which makes it one of the most expensive deals in sports history.
The arena’s new logo will debut on Christmas day when the Los Angeles Lakers host the Brooklyn Nets.
And all of Staples Center signage is expected to be replaced with the new brand by around June 2022.
When I saw the news, it just kind of hit me that this whole crypto thing is getting out of control. Even my wife shared the news, and the tone was decidedly dubious.
There’s just something that smells off about the whole thing, even if the company is perfectly sound and a long-term winner.
If you remember the dot-com era, the toys.com, the pets.com, and so on, you might be feeling similar vibes today.
As noted, this doesn’t mean the whole idea is wrong or destined to fail, it’s just that a major correction will probably take place.
But what’s interesting is the concentration of investment in crypto, which is also probably super leveraged, has the ability to take down the entire financial system.
This could mean that crypto inadvertently stops the housing market bull run in its tracks, even if housing is otherwise sound.
Risks to the Housing Market
I started compiling a list of risks to the housing market a few months ago because I expect things to cool off in a couple years.
While I don’t think real estate is going down anytime soon, I do believe it will at least begin to face resistance in late 2023 and more so in 2024.
As I wrote yesterday, investors are still super bullish on real estate so chances are everyday Joes will also be buying for some time.
But if and when that takes a turn, we could see home prices flatten and eventually fall.
The crypto piece is definitely interesting, and before this Staples Center name change a friend told me another interesting trend.
He’s a real estate photographer who keeps a close eye on who’s buying real estate in Southern California.
I forget all the different “phases” of buyers he mentioned, but I believe there were the regular folk, the Instagram/YouTube and all-around influencer people, and the latest the crypto investors.
So the individuals buying the expensive homes of late are the crypto winners. That gave me pause knowing how fickle this nascent industry can be.
Other than a hypothetical crypto bust, I see these other potential risks:
- Forbearance ending (COVID-related job losses)
- Big increase in unemployment rate
- Lots of mom-and-pop short-term rentals (STRs)
- Single-family home investors selling all at once
- A spike in mortgage rates
- Eventual overbuilding (zoning changes and pent up building)
- Climate change
- Contentious presidential election
There are plenty of potential dangers lurking in the housing market’s path, and it could be a combination that leads to the next housing crash.
Other than crypto, there are a lot of mom-and-pop investors out there that have leveraged pretty aggressively in a short period of time.
And many have done so via short-term rentals (STRs) that they rent out for days at a time via companies like Airbnb.
Individuals operating quasi-hotels doesn’t sound good, especially if they’re in over their head with multiple properties.
These residential units could land back in the available supply if things go sideways in a hurry.
As I’ve said before, I see the next housing crash happening around 2024, or at least beginning around that time.
Sprinkle in a U.S. presidential election that is likely to be a real barn burner, and well, it starts to make a lot of sense.
Why is doesn’t happen earlier might be a celebratory year related to us getting through COVID, hopefully.
How Bad Will the Next Housing Crash Be?
While I do see another financial collapse on the horizon, it may not actually be that bad. And housing could actually hold up pretty well.
If you look back at the dot-com bubble, Bay Area home prices fell about 10% after the technology stock market rout.
Of course, the pullback was pretty short-lived and eventually home prices were back on their merry way in 2002 and beyond.
Back then, it wasn’t housing’s fault, and this next time around that could be true as well.
While home prices are a lot more expensive than they were just a few years ago, or heck even last year, the housing market still mostly makes sense.
There is a short supply of homes available that exceeds demand. And mortgage rates are super low, which drives prices up but keeps mortgage payments affordable for buyers.
Sure, home buyers don’t want to spend this much on a house, but most can afford it and weather any storm that comes along.
Back in 2008, this wasn’t the case, which explained the massive real estate market collapse.
In other words, if you’re sitting back waiting for that next big opportunity, you might be disappointed.
Home prices will probably come down at some point relatively soon, but the discount might not be worth the wait.