Prepare for the “Cycle of Blight”
by Justin Spittler, Casey Research:
Wall Street is sitting on a pile of toxic assets…again.
A decade ago, the U.S. housing market was a complete mess.
Housing prices were falling. Americans were falling behind on their mortgages at an alarming rate. Banks were foreclosing on homes left and right.
In 2008, the crisis came to a head.
The U.S. housing market imploded. But it didn’t stop there.
Eventually, it hit the banking system…the insurance industry…and the stock market.
• Now, I didn’t write this issue to give you a history lesson…
I wrote it because I think we’re on the verge of another major real estate crisis.
Before I explain why, you have to understand why the last housing crisis in the United States turned into a global financial crisis almost overnight.
For one, the housing market was built on a sea of debt. When the market turned, this debt acted like dynamite.
Investors were also wildly optimistic back then. They thought housing prices would never fall. This led to excessive risk-taking.
Wall Street also played a huge role in this crisis. They packaged mortgages into instruments known as mortgage-backed securities (MBS). These securities derive their value from mortgage payments.
When the housing market was strong, banks made a killing off MBS. But the exotic instruments quickly turned to toxic sludge when people stopped paying their mortgages.
• I’m telling you this because the MBS market is about to crack again…
When it does, Americans could see the worst real estate crisis since the last housing crash.
There’s just one thing you have to understand about this coming crisis. It won’t begin in the housing market. It will start with shopping malls.
Regular readers know where I’m going with this. After all, I’ve been pounding the table on this retail crisis for weeks.
If you’re new to the Dispatch, here’s what you need to know:
Americans aren’t spending money like they did in the old days. They’re visiting malls less and doing more shopping online. This is killing brick-and-mortar stores.
Traditional retailers are shutting down stores in droves. The industry already plans to close more than 3,500 stores this year.
U.S. shopping malls are going dark. According to real estate research firm Green Street Advisors, one-third of America’s malls are now at “high risk” of shutting down.
In short, the retail crisis has already hit the real estate market.
Next up is the banking sector.
In a minute, I’ll show you three easy ways to protect yourself from this crisis. But let’s first take a closer look at the commercial mortgage market.
