Currently, the financial risks facing the United States are intensifying, with the potential for a crash at any time. The Federal Reserve's continuous interest rate hikes have already led to a sharp drop in the U.S. stock market. Now, the U.S. continues to raise interest rates, and may even push the terminal rate up to 6%. The next market likely to face a plunge could very well be the U.S. real estate sector.

The latest data from the Federal Reserve has already indicated that in the last quarter, the total value of U.S. housing experienced its first decline in recent times.

It appears that the risk of a crash in this $45 trillion asset is drawing ever closer.

01, Subprime Crisis

The current situation is reminiscent of the subprime crisis that rocked the United States in 2008. In fact, as early as the year 2000, the U.S. had already gone through an economic crisis. In order to climb out of the crisis, the U.S. devised a strategy, which was to first lower interest rates to the extreme and then allow a large amount of money to flow into the market.

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At the same time, to promote the development of the U.S. real estate economy, U.S. financial institutions invented subprime loans, which allowed ordinary people to apply for such loans.

At that time, the interest rates in the overall U.S. environment were quite low, so even subprime loans were offered at relatively favorable rates.

Many people applied for subprime loans to buy homes, and the repayment of these loans did not require the payment of a lot of interest, resulting in relatively low loan pressure.However, after 2005, the federal interest rates rose again, and the American public who had applied for subprime loans inevitably encountered an economic crisis, eventually having to sell their homes, which triggered a collapse in housing prices.

02, The Crisis Strikes Again

The current situation is very similar to that of the past.

After the subprime crisis erupted in 2008, until 2021, the United States used round after round of monetary easing policies to flood the market with large amounts of cash. However, the United States has now halted the printing press and is implementing a contractionary monetary policy that can better harvest the dollar.

But the truly unexpected situation is that, without the strong support of a large amount of liquidity, even during the upward economic cycle in the United States, the real estate bubble will be immediately punctured.

U.S. property sales in 2022 have noticeably declined compared to the previous year, which is greatly related to the faster increase in mortgage interest rates following the continuous interest rate hikes in the United States.

The U.S. federal interest rate has not yet reached 5%, but the 30-year loan interest rate has already approached 7%, which is nearly three times higher than the average loan interest rate of 2.3% at the end of 2021.

An increasing number of ordinary American families will find it increasingly difficult to repay their loans.

Many houses were bought over the past decade or so, and the low interest rates at the time were very attractive, so many Americans chose to buy homes. After the interest rates rose, the debt burden of these homebuyers also increased.

Soon, Americans will have to start selling their homes, just like before 2008, to avoid the pressure of high mortgage payments.By that time, the U.S. real estate market, valued at 45 trillion, is likely to experience a significant downturn.

03, Chinese Buyers

A sharp decline in property values will undoubtedly lead to crises in some financial institutions.

The continuous interest rate hikes by the Federal Reserve have not attracted more people to deposit money in banks. On the contrary, for various reasons, the American public can only continuously withdraw their savings from banks.

Nowadays, with increasing inflation and rising prices, the consumption of ordinary families has also increased, naturally leading to a corresponding decrease in savings.

On the other hand, it is believed that the number of mortgages that cannot be repaid on time in the future will continue to grow.

Under such circumstances, U.S. financial institutions may face a wave of bankruptcies similar to what happened in 2008.

This phenomenon has already begun. Just a few days ago, an American crypto bank announced that it would cease operations. Then, on Friday, Silicon Valley Bank in the United States also declared bankruptcy.

It is clear that the best solution to this problem would be for someone to take over. As long as there is sufficient capital to continue purchasing U.S. real estate, the housing bubble will not burst.

However, it is evident that Chinese buyers are not willing to be the ones to take over. Not only that, but Chinese buyers are also accelerating the sale of their U.S. real estate holdings, which contrasts sharply with the situation over the past decade or so.Although in the past period, buyers from China have been very willing to purchase various types of real estate in the United States, starting from last March, these buyers have been continuously selling off, with the total amount sold exceeding $12.6 billion within just half a year.

It seems that a real estate bubble burst in the United States is inevitable.