Housing prices could spiral into the stratosphere with Decentralized Finance
Due to permanent capital and international investors, the future for buying a house in the United States this year is grim. Foreign investment firms that buy apartment buildings, hotels, and shopping centers all over the world have found a new favorite real-estate play: single-family homes in American suburbs. These institutions are partnering with housing firms in the United States to buy or construct thousands of new homes. Much of the United States is experiencing a seller's market, which started in late 2019, heated up around the time Covid-19 arrived in the country, and is expected to last into 2022. There are more buyers than sellers in this market. Many homebuyers are attempting to take advantage of low mortgage interest rates and economic growth.
According to the National Association of Realtors (NAR), total U.S. home sales rose to 6.76 million units, up 22.2% over 2019 numbers. That’s the highest level of annual growth since 2006, prior to the housing bubble burst in 2007. Meanwhile, as of December 2020, house prices are up 12.9 percent from the previous year. This is attributed in part to fundamental economics: overall housing inventory has decreased as demand has outpaced supply. The total number of homes available for sale at the end of December 2020 was down 23% from the previous year. In other words, there are just around 500,000 homes for sale in the entire United States. It’s increasingly difficult to find even distressed properties being sold for prices that make sense for the two most popular investing strategies: to buy, rehab, and flip, or to buy, hold and rent.
Developers sell whole neighborhoods before they are even completed. To make matters worse, construction materials are in short supply. Wildfires decreased the availability of timber, the pandemic delayed manufacturing much further, and a surge in demand attributable to an increase in home remodeling projects both contributed to the construction material shortage
The United States should prepare itself for average home sales of more than $1 million. This have been happening in various properties hot spots throughout the world for over a decade. Places like California, Toronto, Vancouver, and Hong Kong have seen their properties prices skyrocketed because of these funds. There were so many mansions in Vancouver owned by foreign millionaires and left empty that the city started charging owners additional taxes for having an abandoned property. The city also rents out the properties. NZ government banned foreign investors In 2018 did nothing to cool the market.
No country on the planet has a worse housing crisis than China. In China, they have now constructed enough homes for 3 BILLION people, despite the fact that the country's population is only around 1.4 billion. And still, its house prices continue to rise exponentially, and they continue to construct more and more houses since it accounts for one-third of China's GDP. China was offering 0% interest home loans to Chinese citizens who bought property in other countries. In major cities, the Chinese housing market is now out of control. Property sales in 30 tier-1 and tier-2 cities more than tripled in March compared to February. Many people buy property for investment with no intention of ever moving in. But the thing is, the US government can turn a lot of this off by telling permanent Capital they can't use real estate for securities or whatever. However, even that might not slow things down...
Decentralized Finance Is Building A New Financial System
Decentralized finance, also known as DeFi, manages financial transfers using cryptocurrency and blockchain technologies. DeFi seeks to democratize finance by replacing legacy, bureaucratic structures with peer-to-peer relationships capable of providing a wide range of financial services, including daily banking, deposits, and mortgages, as well as complex contractual relationships and asset trading.
Centralized Finance Today
About every part of banking, leasing, and investing is now governed by structured networks that are run by regulatory bodies and gatekeepers. To obtain everything from car loans and mortgages to buying stocks and bonds, ordinary customers must negotiate with a slew of financial middlemen.
The Federal Reserve and the Securities and Exchange Commission (SEC) set the guidelines for the field of organized financial services and brokerages in the United States, and Congress amends the rules over time.
As a result, customers have few direct entry points to capital and financial resources. They are unable to avoid middlemen such as banks, exchanges, and lenders, who benefit from any financial and banking trade. To play, we must all pay.
The New Way: Decentralized Finance
DeFi challenges this bureaucratic financial mechanism by disempowering middlemen and gatekeepers and empowering ordinary citizens by peer-to-peer transactions. DeFi takes core aspects of today's work undertaken by banks, exchanges, and insurers, such as banking, investing, and selling, and places them in the hands of everyday people.
Here’s how that might play out. Today, you might put your savings in an online savings account and earn a 0.50% interest rate on your money. The bank then turns around and lends that money to another customer at 3% interest and pockets the 2.5% profit. With DeFi, people lend their savings directly to others, cutting out that 2.5% profit loss and earn the full 3% return on their money.
You might think, “Hey, I already do this when I send my friends money with PayPal, Venmo or CashApp.” But you don’t. You still have to have a debit card or bank account linked to those apps to send funds, so these peer-to-peer payments are still reliant on centralized financial middlemen to work.
Decentralized Finance (DeFi) is likely to have a significant impact on how banks operate in the future – and even has the potential to shift the structure of the whole financial system at a macroeconomic level. Bitcoin is the Biggest bubble of all time, in the history of mankind BUT it might hit $100k btc this cycle. A lot of these people will be trying to put their money into real estate squeezing real estate from all sides. While Bitcoin is the more popular cryptocurrency, Ethereum is much more adaptable to a wider variety of uses, meaning much of the dapp and protocol landscape uses Ethereum-based code.
DeFi scene is now exploding. It is now much bigger than the ICO craze of 2017 with the first practical uses of decentralized finance via the oldest known financial transaction: credit.
There are many players like Nexis and Uniswap in Eastern Europe, providing loans in fiat against cryptos as collateral. Unlike banks, who lend 10x for every dollar they have, these guys lend 1 dollar for every 2 dollars of guarantee through cryptocurrency, with no credit bureau record, no minimum KYC, and no prejudice based on tax residency or nationality. The smart contract is usually capped with the collateral being automatically deducted as per the market price, and is automatically liquidated once it reaches a certain threshold, such as the coin reaching 80% or less of the fiat principal. Most people are using the loans to purchase altcoins and more crypto, it is pure speculation. Of course this rollercoaster will end up with many companies hacked, bankrupt, disappearing, some frauds and most altcoins losing value, faster than anyone will expect.
But, some will remain as the first wave of DeFi. Following years will bring real factionary ownership of startups, venture capital without the need of institutional investors, factoring and other operations all secured into the Ethereum and compatible blockchains. The ICO craze was mostly frauds, but I think DeFi technology is here to remain, this will become big in developing countries and rural areas without banks and ATMs.
Here are some ways dapps and protocols are already being used:
* Traditional financial transactions. Anything from payments, trading securities and insurance, to lending and borrowing are already happening with DeFi.
* Decentralized exchanges (DEXs). Right now, most cryptocurrency investors use centralized exchanges like Coinbase or Gemini. DEXs facilitate peer-to-peer financial transactions and let users retain control over their money.
* E-wallets. DeFi developers are creating digital wallets that can operate independently of the largest cryptocurrency exchanges and give investors access to everything from cryptocurrency to blockchain-based games.
* Stable coins. While cryptocurrencies are notoriously volatile, stable coins attempt to stabilize their values by tying them to non-cryptocurrencies, like the U.S. dollar.
* Yield harvesting. Dubbed the “rocket fuel” of crypto, DeFi makes it possible for speculative investors to lend crypto and potentially reap big rewards when the proprietary coins DeFi borrowing platforms pay them for agreeing to the loan appreciate rapidly.
* Non-fungible tokens (NFTs). NFTs create digital assets out of typically non-tradable assets, like videos of slam dunks or the first tweet on Twitter. NFTs commodify the previously uncommodifiable.
* Flash loans. These are cryptocurrency loans that borrow and repay funds in the same transaction. Sound counterintuitive? Here’s how it works: Borrowers have the potential to make money by entering into a contract encoded on the Ethereum blockchain—no lawyers needed—that borrows funds, executes a transaction and repays the loan instantly. If the transaction can’t be executed, or it’ll be at a loss, the funds automatically go back to the loaner. If you do make a profit, you can pocket it, minus any interest charges or fees. Think of flash loans as decentralized arbitrage.
The DeFi market gauges adoption by measuring what’s called locked value, which calculates how much money is currently working in different DeFi protocols. At present, the total locked value in DeFi protocols is nearly $43 billion.
Adoption of DeFi is powered by the omnipresent nature of blockchain: The same moment a dapp is encoded on the blockchain, it’s globally available. While most centralized financial instruments and technologies roll out slowly over time, governed by the respective rules and regulations of regional economies, dapps exist outside of these rules, increasing their potential reward—and also increasing their risks.
For western countries, central banks and banks will NOT like that at all. Will they allow companies from Estonia to offer immediate saving accounts, loans and financial products to their citizens? Even if the DeFi gets to 10x its current size, it will be barely 1 or 2% of the crypto market cap. Central banks will take corrective action and create their own Digital Currency by 2024.
Sources:
https://www.wsj.com/articles/that-suburban-home-buyer-could-be-a-foreign...
https://www.reuters.com/world/china/chinas-new-home-prices-grow-more-qui...