Source: AsiaMarkets.com —
The ‘reverse wealth effect’ caused by the escalating housing market crash in the United States will have a profound impact on the nation’s economy.
That’s according to best-selling finance Author and former Wall Street analyst, John Rubino.
“People depend on their image on the value of their house and if the house drops from $2 million to $1.2 million, then all of a sudden they’re not going to take that exotic vacation next year, they’re not going to upgrade to the next Tesla model, and spending plunges,” he told WT Finance.
“We’re looking at that in a big way going forward, not just in housing but also in a lot of other things going on in the economy.”
Rubino’s comments came after Redfin research revealed US$2.3 trillion, or 4.9%, had been wiped from the total value of U.S. housing in the second half on 2022.
The decline in the U.S. housing market over the period is the sharpest recorded since the 2008 financial crisis.
Breaking point in the U.S. housing market crash
The house market plunged during the same period the Federal Reserve approved four 0.75% increases to the benchmark interest rate in 2022, before a 0.5% increase in December.
The rate increases have continued into 2023, taking the Fed funds rate target range to 4.5%-4.75% and sending borrowing cost to the highest level since 2007.
John Rubino points out the rate increases have simply taken the U.S. back to “normal levels” of interest rates historically, yet he says they are “breaking the system”.
