Reckless money management plus FOMO.
How Years of “Printing Money” Has Come Back to Bite
Soaring home prices and the potential collapse of this house of cards
House prices in Canada went up 50% in two years! — Yes, during the pandemic and just after. And this was the experience in many other parts of the world. With interest rates rising, many who bought their homes may not be able to make the payments. There are a few reasons why we’re in this mess.
One reason we are in this mess in the first place is that governments released too much money into the system during the pandemic. They did this because they feared the pandemic would cause an economic slowdown (and cause unemployment and companies to go out of business).
How did they release money into the system?
Most of the global economy (except for China) did experience a slowing down during the pandemic. And it may have been much worse if the government had not poured money into the system. But maybe they went overboard?
So, how did they pour money into the system?
- They handed out pandemic relief payments to their citizens.
- They kept interest rates extremely low for a very long time.
- Buying back millions and millions of dollars worth of government bonds (this moves money from the government into the hands of the public).
This entire process mentioned above is called quantitative easing, and the government essentially funnelled a lot of money into the system, which has now come to bite us.
How did people respond?
- During the lockdown, people went shopping online, which kept the nation’s economy limping and the Chinese economy growing.
- The stocks that appreciated! Amazon and Alibaba (the Chinese version of Amazon) made a ton of money during that time — people had government checks to spend!
- Netflix viewership increased (and has subsequently decreased).
- We’re stuck! The lockdown made some people think they would work from home for the rest of their lives.
- We may as well buy a bigger home. Some even decided to buy houses — without even viewing them!
- We’re not leaving. Some people decided they wanted to stay working from home for the rest of their lives.
So, when the lockdowns eased and their employers told them to return to work, they quit. Hence, the Great Resignation!
FOMO sets in.
The government cannot take all blame for the mess we’re in. Fear of Missing Out by the constant buzz about rising home prices had many new home buyers jump in — thinking prices will never drop.
A year ago, you could not convince a soul to see that all good things must come to an end and everything that goes up will invariably fall down.
In conclusion.
So, that’s how the continuous ‘printing’ of money caused this house of cards. And by the looks of it, it’s coming down. From New Zealand to Australia, The UK, Canada and The USA, house prices are decreasing rapidly.
A crash is defined as a 20% drop in prices. Will the housing markets crash? Only time will tell.
Working in various areas of finance, Jennifer Thompson spent almost twenty-five years advising high-net-worth clients on how to invest their money.
A trip to Paris changed the trajectory of her entire life. She now consults globally and writes about how love, sex and money intersect.
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