Today’s Housing Market Looks Even Worse than 2008
From Peter Reagan at Birch Gold Group
Since we’ve been in a constant state of recession watch for a while now, today I’m going to explore the current state of the housing market.
The importance of American housing resides not so much in its absolute size, big though it is at about $45 [trillion] in total value. Rather, it serves as a bellwether of the economy’s performance amid rising interest rates. Has the Federal Reserve lifted rates by enough to calm inflation without crushing growth? Has it gone too far? Or, perhaps, not far enough? As one of the earliest and largest sectors to react to changes, the property market offers some answers.
Owning a home is a crucial financial step for Americans – and, for most of us, our home represents the largest single investment we ever make. A massive amount of our nation’s wealth ($45 trillion dollars!) is tied up in homes.
That’s why the housing market matters whether you rent or own. The housing market is a reliable leading economic indicator.
As goes housing, so goes the economy – and right now, it’s not exactly going great…
79% of Americans say it’s not a good time to buy a house
A recent Gallup poll asked whether it’s a good time to buy a home. (In 2003, that answer was a resounding yes.)
There’s a capsule history of housing market polling, since the last housing bubble burst in 2007:
…home prices headed downward the next two years, and generally were flat through 2011. With lower prices and generally low interest rates, public optimism about home buying recovered, climbing to 71% in 2009 and holding in the high 60s or low 70s through 2017.
By 2020, in the early stages of the coronavirus pandemic when economic activity was severely limited in many parts of the country, 50%, a then-record low, thought it was a good time to buy a house.
In the past two years, as housing prices have soared and the Federal Reserve has raised interest rates to try to tame inflation, houses have become less affordable for many Americans, and views of the housing market have tumbled.
The housing market was already becoming unaffordable for many families back in 2021.
It’s gotten much worse since then.
Prices rose significantly, along with interest rates… In the last three years, the typical mortgage payment has risen 71% to a record high. (I had to triple-check the math.)
Mortgage broker Redfin published a chart showing year-over-year changes since 2020:
Note this is just one bottom-line, real-world result of the Federal Reserve’s
Here is the bottom line result of this mess, which results from the Fed raising rates (which they needed to do to ease red-hot inflation), as laid out nicely in a tweet by Charlie Bilello:
3 years ago: 30-yr mortgage rate was 2.97% & average new home price in the US was $360k.
Today: 30-yr mortgage rate is 6.39% & average new home price is $562k.
Result: $40k increase in down payment (assuming 20% down) & 132% increase in monthly payment (from $1,209 to $2,809).
— Charlie Bilello (@charliebilello) April 25, 2023
Bilello followed up with an article that explained the rest of the bad news in the housing market:
While prices are starting to move lower (1.7% YoY decline is the largest since 2012), it’s not nearly enough to make a difference.
Supply remains constrained as many would-be sellers simply can’t afford to move. Two-thirds of mortgages have an interest rate below 4% (vs. 6.4% rate today), and most of the buyers from the last few years could not afford the house they are living in if they had to buy them at current rates/prices.
The result: a standstill in the housing market with existing home sales down 23% year-over-year, the 20th consecutive YoY decline. That’s the longest down streak since 2007-09. [emphasis added]
Remember when I said housing was a bellwether, a leading economic indicator? Here are a few reasons why:
- Buying a home is a fundamentally optimistic endeavor – people don’t do this when they can’t afford it, or expect rough times ahead
- Construction generally is a $1.6 trillion sector of the economy (about 5% of GDP)
- Nearly 4 million businesses employ about 8 million people (some 5% of the total workforce)
- 65% of Americans own homes, significantly more than those who have any retirement savings at all (just 50% are saving for the future)
- To reiterate, the housing market is a $45 trillion asset
Like any other asset inflated by the Fed’s response to the pandemic panic, the housing market is in a tight spot. The reduction in sales and price stagnation (along with the fall in new home starts) point to an economic downturn in the very near future.
And that will be bad news for everyone, not just those who saddled themselves with a 7.1% 30-year mortgage on a home with a declining value…
Real estate isn’t the only real asset
There are a few assets you can generally rely on to resist the corrosive effects of inflation.
However, some inflation-resistant assets (in this case, homes) are much more economically sensitive than others. As I’ve just explained, housing is so extremely economically sensitive you can actually use it to forecast economic trouble ahead.
Other “real” assets include Birch Gold’s specialty, physical precious metals. Gold isn’t just inflation-resistant, it’s the historic safe haven asset of choice during periods of economic crisis.
If I’m right about the housing market, and this time around things really are worse than the last housing bubble that destroyed so many dreams, now is the time to consider your finances could survive a repeat of the Great Financial Crisis.
Take a few minutes right now to learn more about the benefits of owning physical precious metals. About those might be the best thing you can do to protect your savings against both red-hot inflation and an economic downturn.2023, Featured, housing bubble, housing market