By now, most everyone is aware that real estate prices have been falling in many neighborhoods. It’s no surprise. Consider this: Despite the biggest real estate boom in history, the average US homeowner has less equity (value of the home less debt, as a percent) than when it started. For example, back in 2000, when all homes in the US were together worth $11.4 trillion (Federal Reserve, Flow of Funds statistic), there were only $4.8 trillion in mortgages against them. At the end of the second quarter of 2006, that mortgage debt increased to a whopping $9.3 billion. That means that home equity (as a percent of home value) declined 4% points even as housing values soared 78%. Please think about that for a moment. Were did all this supposed wealth of rising house values go? This has never happened before.
Many households decided to borrow against the rising value of their house, and spend it on something else. Home equity extraction (of all types, as calculated by Ed Yardeni) have boomed, reaching a rate of almost $1 trillion annualized during the first quarter of this year. Even as recently as the second quarter of this year, over 80% of all mortgage refinancings involved a cash out! After years of such reckless behavior, what is the result? The financial obligations to own a home and pay credit card debt for the average American household has soared to 16% of household income, the highest in history…off the charts, in other words. (Total financial obligations are now at a record 10.3% of income.) And this at a time when interest rates are generally low.
Why is this significant? There are a number of reasons. However, here is one that has not been widely considered. Many nations today with massive debt-driven real estate booms are historically Christian countries with still large evangelical populations. By this measure, one would reason that they would be least vulnerable to poor stewardship and the deceptions of wealth. Actually, it couldn’t be any more different. Now, most Christians in these countries are apparently reveling in God-blessed prosperity and are over-run with “feel-good,” “focus-on-the-self” preaching. Most of them have long forgotten what it is like to suffer for Christ. The fact that Jesus warned his followers that they would be persecuted for not being of this world, is an entirely un-Christian concept these days. (Link to these articles for a deeper examination of this phenomenon: Terrible Times: Apocalypse Now: for Believers and Last-Day Prophecy—Hot Comfort, Cold Faith.)
Given the wide-spread beliefs that the Christian life is the “good life” of material prosperity and luxury, we must fear the likely response to an housing-related economic downturn. What will happen? Most Christians will be mad at God. They will think that God did not keep their bargain of material blessing. Love will run colder amongst “Country Club Christianity” as “the worries of this life and the deceitfulness of wealth” will choke them (Matthew 13:22) at the same exact time that Middle Eastern affairs are heating up. Given the times, such a development must be seen to have potential prophetic significance.
Many Christians therefore will be in no mood to focus on either eternal or prophetic matters. Therefore, it is significant to observe that the major impact of a coming real estate bust will likely occur in the countries with the largest evangelical communities. The enemies of Christ and Israel, around which all Bible prophecy circumnavigates, will come to positions of greater power.
What do you think about current real estate conditions? Just how will fellow Christians respond should conditions yet become much worse in ensuing years? Will many Christians be caught in a debt trap?