This is classic late-cycle behavior.
In the final years of the 18.6-year cycle, the market gets creative.
It uses every possible tool at its disposal to prolong the growth period.
For real estate, it means that financing a home purchase becomes easier… at the expense of some long-term instability.
But the market will think about that instability later…
For now, it’s all about squeezing every ounce of growth out of the real estate market.
And we just received a sign this is happening…
Using AMZN Shares as Collateral
Do you remember mortgage-backed securities?
Those were the bond-like tools that got really popular before the 2008-2009 crisis.
As a reminder, a mortgage-backed security is an instrument that pays out interest based on the underlying mortgage obligations.
These securities were late-stage signals of an impending housing crisis. Some say that they were at the center of it.
And now we have the reverse: securities-based mortgages.
Do you think this will go well? From The Wall Street Journal:
Amazon.com Inc. employees will soon be able to use their company shares as collateral when buying homes, under an arrangement with online mortgage lender Better.com.
A new Better.com product, Equity Unlocker, will allow employees to pledge stock for loans for down payments, the companies said, rather than having to sell the stock to raise cash.
To protect itself from a continued slide in Amazon’s stock price, Better.com will charge a higher rate on the mortgages of employees pledging stock—between 0.25 and 2.5 percentage points above the market rate, depending on how the down payment is structured, the company said.
I don’t think this will go very well. Stocks are, by definition, riskier than bonds.
Using them as collateral for mortgages is not something that will lead to long-term stability in the real estate market.
But there’s an upside to this…
Equity-Backed Mortgages Will Fuel the Housing Market Until 2026
Before the inevitable downturn in the housing market happens, you need to keep this in mind.
Other companies may join Amazon and allow their employees to put down their security holdings as collateral.
This will create a new wave of demand for housing… coming from some of the best-compensated employees in the country working in tech and other high-flying sectors.
So if you expect a housing downturn soon, don’t.
The market will do everything it can to keep the party going… just as my 18.6-year cycle predicts.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson