Aug 3, 2023
The U.S. housing market is in for a prolonged slump, according to at least one expert.
In a recent interview with Fox Business, ProChain Capital President David Tawil discussed the Federal Reserve’s ongoing battle with inflation and why a prolonged period of high interest rates could “crush some very interest-rate-sensitive industries, such as real estate.”
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Tawil predicted a “multiyear, maybe decade-long fallout,” starting with commercial property and spilling over into the residential sector later.
“Housing has been incredibly strong despite all of the turmoil going on with respect to rates,” he said.
“There will be a fallout.”
Tawil’s thesis
“I think rate hikes are on the horizon,” Tawil said in the interview. His thesis is based on the fact that core inflation – the surging price of goods and services excluding volatile elements like food and fuel – have proven stickier than expected.
Whereas overall inflation cooled to 3% in June, according to the Fed’s latest numbers, the core consumer price index (CPI), which excludes food and energy, remained elevated at 4.8%. This measure has been persistently and stubbornly high for the past few years.
In a recent study, researchers from the Federal Reserve Bank of San Francisco went a step further to explore what they call “supercore inflation,” which excludes the prices of food, fuel and housing. The researchers speculated that this subcategory of price pressure could be persistent, even if the job market cools down.
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If that proves true, the central bank may have to keep interest rates elevated longer, a situation that Tawil believes could force the real estate market into a difficult period of adjustment. Faced with the prospect of refinancing properties at high rates, many owners, in both commercial and residential sectors, may decide to cut their losses and sell, which would put more inventory on the market, causing prices to fall.
He suggests investors look elsewhere to protect or expand their capital. Specifically, his team is focused on technology and cryptocurrencies such as Bitcoin.
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The crypto option
Tawil’s team is bullish on technology, especially crypto. Tawil’s year-end target for Bitcoin is $50,000, roughly 67% higher than the digital currency’s current price.
The optimism is based on the flow of new institutional capital into the sector. Tawil points out that industry giants such as Blackrock have applications pending for regulatory approval of Bitcoin exchange-traded funds (ETFs).
Bloomberg’s ETF analyst Eric Balchunas estimates the move could unlock roughly $30 trillion in additional capital — a game changer for the controversial industry.
Bitcoin currently trades at just under $30,000. It’s up around 76% year-to-date, handily outperforming the commercial real estate sector and even the S&P 500.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
