With no facts to back me up

[Jkca1]

In the early summer of 2007, I believed the economy would combust soon and urged my wife to sell our new home. We had purchased it three years earlier for $365K. Its value had risen to $505K over the three years since we had bought it. My wife loved the house and the neighborhood, and nothing I could say would convince her that the end was near. So we stayed and watched our home value drop a few months later to $225K.

Eleven years later, we sold it for 430K. Sigh.

Today, I have the same gut feeling I had back in 2007. There are too many financial balls in the air being juggled and so, before the EOY, the proverbial crap is going to hit the fan again. I hope I am wrong.

 

[Mycroft]

In the early summer of 2007, I believed the economy would combust soon and urged my wife to sell our new home. We had purchased it three years earlier for $365K. Its value had risen to $505K over the three years since we had bought it. My wife loved the house and the neighborhood, and nothing I could say would convince her that the end was near. So we stayed and watched our home value drop a few months later to $225K.

Eleven years later, we sold it for 430K. Sigh.

Today, I have the same gut feeling I had back in 2007. There are too many financial balls in the air being juggled and so, before the EOY, the proverbial crap is going to hit the fan again. I hope I am wrong.

I think you'll be wrong.

The fact is, there isn't anything going on now that compares to the sub-prime lending mess back in 2007.

 

[Jkca1]

I hope you are correct but I think the long-term big picture is not good:

"Delinquency rates on various consumer debts, including mortgages, auto loans, and credit cards, are rising. This trend indicates increasing financial stress among consumers, a factor that played a significant role in the previous financial crisis."

In the first quarter of 2025, total U.S. consumer debt reached an all-time high of $18.2 trillion, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit. This is up from $17.68 trillion in February 2025. Mortgage debt, including home equity loans, accounted for $13.05 trillion, making up 73.8% of the total. Non-mortgage debt, including auto loans, student loans, and credit card balances, totaled $4.64 trillion.

The U.S. Department of Education today announced its Office of Federal Student Aid (FSA) will resume collections of its defaulted federal student loan portfolio on Monday, May 5th. The Department has not collected on defaulted loans since March 2020. Total student loan debt in the U.S. is estimated to be $1.77 trillion, making it the second-largest consumer debt category after mortgages. Federal student loan debt makes up the vast majority, totaling $1.64 trillion.

• As of the first quarter of 2025, nearly 8% of total student debt was reported as 90 days past due, a significant increase from the previous quarter.
• Around 5.3 million borrowers are in default on their federal student loans.
• An additional 4 million borrowers are "late-stage delinquent," meaning they are more than 90 days behind on payments

For defaulted federal student loans, the U.S. Department of Education covers the losses, meaning taxpayers ultimately foot the bill.
Credit card balances have risen by $412 billion since Q1 2021, when credit card debt bottomed out at $770 billion during the pandemic. That’s a 54% increase in four years. The average credit card interest rate is currently around 21.95%.

In early 2025, auto loan delinquency rates have been on the rise, with subprime borrowers experiencing the highest levels in decades. Specifically, as of January 2025, Fitch Ratings reported that 6.56% of subprime auto borrowers were at least 60 days past due, the highest since they began collecting data in 1994. While prime borrowers are faring better, their 60-day delinquency rate also increased to 0.39% in January 2025, up from 0.35% in January 2024.
The estimate for U.S. real GDP for Q1 2025 is a contraction of -0.3% at an annualized rate. This marks the first negative quarterly reading since Q1 2022.

In 2025, the US debt to GDP ratio is projected to be around 122% of GDP. This means the total US debt is expected to be approximately $36.2 trillion, which is greater
than the country's GDP. The ratio is expected to continue rising in the coming years, with projections suggesting it could reach 124.40% by the end of 2025 and potentially 126.80% in 2026,

The Advisor Perspectives Buffett Indicator, which compares market capitalization to GDP, is currently at 209.6%, suggesting an overvalued market. Warren Buffett's Berkshire Hathaway held $334 billion in cash reserves at the end of 2024. This was a record high for the company.

In the first half of 2025, several major American companies have announced layoffs or workforce reductions, including Meta, Microsoft, Amazon, and Google. Other companies that have announced layoffs include Panasonic, Blue Origin, and Intel.

In 2025, the automotive industry is experiencing significant layoffs due to various factors including EV demand shifts, tariff impacts, and restructuring efforts. Several major automakers have announced plans to cut thousands of jobs, including General Motors, Ford, Stellantis, Nissan, Volkswagen, and Porsche."

 

[JohnfrmClevelan]

I think you'll be wrong.

The fact is, there isn't anything going on now that compares to the sub-prime lending mess back in 2007.

trump just started a trade war against the rest of the world.

Ports are doing way less volume already. There is less for truckers to move around, and there will be less on the shelves to buy. Small businesses that count on Chinese goods are in trouble. Jobs will be lost. That's in addition to the many thousands of government jobs lost to DOGE.

People that have lost their homes due to storms are being denied help by FEMA. People are going to lose their Medicaid benefits. It's hard to come back from those kinds of losses.

2008 was a money crisis; the problem was fairly easily fixed with Fed bailouts and increased deficit spending. This is different - trump has created a worldwide supply shock. Even if trump were to completely reverse course on tariffs, it would take months to get trade back to normal, and a lot of companies - and jobs - would go under in the meantime.

Worst of all, trump is still an idiot, and there is nobody in his cabinet that is both competent enough and brave enough to tell him that he effed up and to change course. Republicans in Congress are probably more competent, but just as scared to say anything. They couldn't even manage to reclaim their tariff powers. So I don't see this lunacy resolving itself anytime soon.

 

[Ahlevah]

In the early summer of 2007, I believed the economy would combust soon and urged my wife to sell our new home. We had purchased it three years earlier for $365K. Its value had risen to $505K over the three years since we had bought it. My wife loved the house and the neighborhood, and nothing I could say would convince her that the end was near. So we stayed and watched our home value drop a few months later to $225K.

Eleven years later, we sold it for 430K. Sigh.

Today, I have the same gut feeling I had back in 2007. There are too many financial balls in the air being juggled and so, before the EOY, the proverbial crap is going to hit the fan again. I hope I am wrong.

Unfortunately, no, you’re not wrong. Home prices have been driven relentlessly higher due to cheap Fed money through various reflation cycles. But we’ve hit a wall due to the fact that homes have become unaffordable in many areas of the country, especially previously hot markets like Florida where people fled during the Covid-19 pandemic. Real estate is a local phenomenon, so areas that are highly coveted by prosperous households will hold their own. But overall housing demand is a function of income, and home prices in these pandemic markets, especially, got driven into bubble territory. Incomes will not rise fast enough to address the imbalance, so either long-term interest rates need to drop a lot—not likely—or prices themselves reset down. All of those folks with floating-rate HELOCs who went on remodeling spending sprees back in 2020-‘21 or who were shoehorned into homes they could barely afford by developer incentives or 5/1 and 7/1 ARMs will begin feeling the pinch soon if they aren’t already.

FHFA Director Pulte calls on Powell to lower interest rates

There are three factors that explain why the the Trump administration is doing a full-court press on Powell to lower rates.

www.housingwire.com

 

[Ahlevah]

I think you'll be wrong.

The fact is, there isn't anything going on now that compares to the sub-prime lending mess back in 2007.

Back in 2004-‘05, developers and home flippers were selling houses to young families under the FOMO (Fear of Missing Out) spell: “Honey, we need to hurry up and get our piece of the American Dream while we still can! There’s a housing shortage, and prices are only going to keep going up!” That logic appeared again during the Covid-19 buying frenzy, thanks to record-low rates.

This time around, there isn’t anything on the surface that compares to the subprime lending mess, but that also came to a head following a credit tightening cycle:



In the graph above, we see a Fed tightening cycle preceding the Dotcom crash and recession. Next we see the tightening cycle preceding the GFC. Then we get to the Mother of All Tightening Cycles, the one which started when inflation peaked at 9% in June, 2022. It resulted in an increase of 525-550 basis points in two years. Notice that it started from a lower base following a roughly ten-year period in which borrowers received essentially free money or were even paid to borrow in real terms, since the inflation rate exceeded their nominal rate of interest. THAT is a new dynamic. I mean, people bought inflated assets at record-low rates for a decade. Next they did what they do at the end of every credit cycle, which is get greedy and borrow money up to their eyeballs. Then when a recession shows up, which it usually does following the deflation of an asset bubble, they get creamed, and the patient people with cash clean up buying distressed assets. It happens just about every cycle. I see no reason why this one will be any different.

The current cycle began in 2022, and it peaked two years later. Home sales are at multi-decade lows, even worse than the worst times during the GFC. Debt is at historic highs. People living in disaster-prone areas—from fire, floods, wind and hail storms—are getting hit with large increases in homeowners insurance. Property taxes are being reset higher due to inflated home prices. The costs of building, maintenance, upkeep have skyrocketed. Home-owning members of the Silent Generation and Boomers are dying and headed into nursing homes at increasing rates. What else? I’m sure I’ve missed something.

Everything I see on both the cost and income side indicates that home prices must drop in real terms to make them affordable again. Easing alleged supply constraints won’t do that to the degree required because of other costs I’ve indicated. Won’t happen.