Since the formation of the US Republican Party in 1854, and starting with the first Republican leader, Ulysses Grant, there has only ever been a Republican President in office as our economy entered every prior real estate cycle extreme peak.
And what happened every time into that said peak? The historical record tells us there will be increased spending on the military and intensifying asset speculation pushing yields, eventually, to unsustainable levels. At the core we will experience unsustainable rises in the price of land and other natural assets such as fossil fuels.
The new administration will introduce a new round of tax cuts. Higher disposable incomes for those who benefit will increase the demand side of the property market, and this increase in demand will be capitalized into higher land prices, higher asking prices for residential properties and higher rents for apartments. Absent huge public subsidies, the construction of housing affordable to a growing percentage of households will not be possible.
Looking at the annual increases in property prices across most of the United States, the coming property market crash is certain to be even more severe than that which occurred in 2008.
The real estate cycle will turn when the yield on the long bond (30-year rates) refuses to stop going up. This is when markets panic.
Then, there is the public debt. The increase in the US government debt over the past ten years – a $17 trillion increase – is now more than the entire increase in the prior 240 years. The interest payments are now larger than the military spending, itself at levels greater than most other nations combined.
In the downturn to come, we can expect to see unemployment levels approaching 10 – 15%. And then some. Most affected will be the US working class as employers seek to lower costs by outsourcing jobs to the extent possible and turning to AI systems to replace workers.
What scares me a great deal is that hardly any economist will see this coming.
One person who does seem to have a sense of what is coming is Warren Buffet. And, what is Buffet doing? He is building a cash reserve, currently more than $325 billion. Alternative asset managers and firms such as BlackRock are putting ever-larger amounts of capital into all types of exotic private credit.
Early in 2025 I will be gathering all of the statistics to support what I have written here. I welcome any comments.
Ed Dodson