Can a Lousy Banking System Save Us from an Overheated Economy?
The article I didn’t get to write during COVID was to be called “Banking Under Water” which is what it felt like pretty much for the last year until recently. From a lending perspective, everything was in slow motion. Loan requests took forever to receive a response from most banks, and completed credit files tended to sit on bankers’ desks interminably while they waited their chance to get into loan committee. Astoundingly, the typical lender had scant info on when he may get his day in court to present your case.
So given where we were say 14 months ago, when we were reaching a crescendo of frenzied financial activity, it was possible during this period to try and take a positive view and say maybe this slowing down of lending activity will lessen some of the development pressure and reduce the risk of overbuilding in certain markets. It has not played out that way. The dramatic increase in the money supply, with over $4 TRILLION printed and handed out by the government in the last year, is having a very clear affect on asset prices across all facets of the economy from cryptocurrency to real estate. The most common place you may see it in the news or feel it firsthand is in the stock market. Bloomberg Radio said recently that 37% of people making between $35,000 and $75,000 invested at least some of their first stimulus check into the market, which is fascinating and really helps to visualize the run up, but it hardly stops there in terms of where the extra dollars are going. There is an outright run on urban and suburban for-sale housing, especially in the starter home price point. Stories of multiple offers above ask are common. The only difference from 2006 is that you cannot get 99% financing to make the purchase.