Digest: U.S. Home Prices Could Fall By 20%

Plus, the Era of the Self-Repossessing Car

Welcome to your weekly digest… my breakdown of the things we’re thinking about and talking about in the Global Intelligence world.

First up this week, the U.S. housing market…

Home prices in America could slide by as much as 20% on average, according to new research from the Federal Reserve Bank of Dallas.

Housing prices soared during the pandemic, since consumers were flush with disposable income and mortgage rates sat near record lows.

Since then, however, mortgage rates soared to their highest levels in two decades. This is due to the Federal Reserve’s rapid interest rate hikes to tackle inflation.

The higher rates have pushed home ownership out of the reach of millions of Americans. As a result, mortgage applications hit a 27-year low in 2022 across the U.S., and remain weak this year.

According to economists at the Dallas Fed, the U.S. housing market would now need to see a 19.5% decline to return to a level in line with market fundamentals. And the correction could be even greater if mortgage rates remain elevated.

A similar pattern is also emerging in other major Western economies.

In the U.K., housing prices are falling at their fastest pace in more than a decade. Prices are already down 3.7% from their peak in August last year and are expected to continue tumbling.

Of course, this situation could reverse rapidly.

Housing supply remains tight in the U.S., U.K., and other major Western markets, like Germany.

This means consumers are eager to buy… they just can’t afford to take on mortgages at these rates.

So, if central banks reverse some of the recent interest rate hikes (something that’s likely if the global economy continues to struggle), the housing market could rebound… fast.

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Speaking of soaring loan costs…

The percentage of U.S. borrowers behind on their car loans recently surpassed the levels seen in the Great Recession.

Three factors are converging to drive this rise in car loan delinquency.

First, consumers are running out of savings as inflation eats away at family budgets.

Second, car loan costs have soared in recent years for the same reason that mortgage costs have… the Fed’s interest rate hikes. (A record 16% of Americans now have car loans that top $1,000 per month!)

Third, used-car prices are falling.

The cost of used cars skyrocketed during the COVID pandemic because of supply chain issues that meant automakers were struggling to get new cars to dealerships.

Now, supply chains have improved… new car deliveries are increasing… and used-car prices are falling again.

That means a significant number of borrowers are trapped in negative equity, or “upside-down” loans—they owe more on their loan than their car is worth—so they can’t get out from under the loan by simply selling their vehicle.

According to car-shopping guide Edmunds, the average amount owed on upside-down car loans jumped to $5,341 in the fourth quarter of last year, compared to $4,141 in the same quarter in 2021.

This, in turn, explains why repossessions are on the rise.

The U.S. consumer is clearly under severe pressure. The signs are everywhere.

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To end this week, we’re stick with repossessions…

Ford Motor Company has applied for a patent on a technology that would allow cars to self-repossess.

We’re seemingly approaching the age of self-driving cars. Major automakers and tech companies from Tesla to Google have invested untold billions in developing these systems.

For the moment, the only results of this investment are moderately reliable driver assistance features, such as Tesla’s Autopilot. And it’s unclear how long it will be before fully self-driving vehicles are a reality.

Still, Ford clearly thinks that future is coming…

The company reportedly filed a patent in August 2021 for self-repossessing vehicles, covering a series of options including vehicles driving themselves to repo lots or moving from private property to a new location where they could be picked up by a tow truck.

The patent also covers in-car systems to remind people that payments are past due, and technologies to begin disabling in-car features over time, such as GPS or radio dials, until payments are made.

If it all sounds a bit Orwellian, that’s because it is. But I wouldn’t be surprised if it becomes a reality within our lifetimes.

Time was, when you were stuck for cash, you’d have to beg your landlord for an extra week to make rent.

Soon, you might have to make the same request of the AI system in your Ford Escape.

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.

Enjoy the rest of your Sunday.