housing-bubble

Chart of the Day: US Housing Crash Coming in 2022?

Housing prices exploded during the Covid-19 pandemic. Due to a mix of low-interest rates and limited availability in desired areas, people bid up the price of homes leading to an overall increase of 11.3% in 2020 and 16.9% in 2021.

It has been a seller’s market. But will this always be, and will we see prices crashing as we saw in 2008?

The National Association of Realtors recently reported that sales of previously-owned homes – houses, condos, and townhouses – fell to the lowest since June 2020, down 4.5% from a year ago, the eighth month in a row of year-over-year declines.

The NAR expects home sales “to contract 10%” this year, it said, and it blamed; 1) mortgage rates, 2) high housing prices, and 3) inflation: “The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power.” See this in the charts below and learn more here.

US-Existing-Home-Sales-2022-04

US-Existing-home-sales-price-2022-04US-Mortgage-Rate-2022-04

 

“All-cash” sales rose to 28% of all transactions, compared to 25% in February and 23% in March 2021, as overall sales declined due to rising mortgage rates and sales to homebuyers who have to get a mortgage and cannot afford it anymore.

And yet there are still few homes to buy. The supply of homes listed for sale rose to 2.0 months, the second month in a row of increases, from the record low in January. See this in the chart below.

US-Existing-Home-Supply-2022-04

All the elements are in place for a housing crash – ridiculous high prices and screaming higher mortgage rates. For certain this has and will have some effect in lowering home sales, but why have we not seen the supply of houses not shoot up as we saw back in 2008? In terms of employment, most people that want a job can find one – this should ease any credit risk to the banking system due to potential mortgage defaults.

So what is going on here? Perhaps what we are seeing in the US is a real change in the culture and the economic models brought on by the various crises – social justice (e.g., BLM movement), Covid, climate change, and now Ukraine, for example. It is a radical part of Left-wing politics consuming America. Some have attributed it to what is called the Great Reset.

Perhaps the US housing market is undergoing a fundamental change – Europeanification. Europeanification has been a dream of many in America. It is a belief that government can create a socialist, even Marxist utopia, via public healthcare systems, institutional welfare, managed economies, and heavy protective regulation. Why and whether this is a good thing is for another post. Consider the following typical mature European country and what one could find in their housing markets:

  • Guaranteed income, with a job or extensive welfare – it is easier for banks to assess credit risk or as often the case, deny credit.
  • The separation between the renter and owner classes, with great difficulty of mobility between the two.
  • Low mobility – people simply don’t house change to the same degree as what Americans are used to – even the renter classes often stay in their apartments for years or even decades.
  • The volume of affordable available homes is low – just like what we are beginning to see in the US.
  • Home prices are high relative to income – size (sq. ft.), location (distances to work), and community quality of life will matter in making pricing compromises.
  • Real estate transaction costs are high to stop any house-flipping speculation.
  • Heavy government regulations to protect renters and owners, but often have the opposite effect, by adding more risk and barriers to the housing market.

It may be possible America could be heading down this Europeanification path and may explain these market paradoxes. Perhaps the days of free-market capitalism in housing are ending – except for large players. Sensing this new shift, perhaps Americans have made their final move, which created the burst in housing during Covid. Making additional moves from here on out may have significant barriers.

So, perhaps there will be no coming housing market crash – something worse – housing market stagnation. For many, where ever you are now – you are stuck.

Welcome to socialist America … 🙁

See more Chart of the Day posts.

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 RWR original article syndication source.

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3 Comments

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  1. From my experience in home buying, a person needs to have been in a job for 2 years for it to be considered reliable income. Last time I bought a home, I had two jobs, one of them I’d been in less than a year and the lenders would not consider the second job when considering how much I could borrow. It’s funny that a home purchase interest rate is 5.34% and that’s considered high. I guess it is since we’ve been accustomed to it being in the 3% area.

  2. Look on the bright side.

    Having my home’s market value constantly jacked up only cost me substantially more property tax every year. I would love to have its appraised market value crash. Bring it on!

    Of course, that’s not going to happen with the federal government destroying the value of our money like there’s no tomorrow. It’s an inflationary money crash that’s coming; not a housing crash. A house to live in will still have value after a dollar is only worth a dime, and the bottom 20% of Americans who can’t afford rent or a mortgage are homeless and living under highway overpasses.

  3. So glad my home is free and clear. Taxes about half what renting would be so we have that going for us. Plus i will get all or most back due to location. Lots of preppers in my area. Nice ppl to know.

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Written by Tom Williams

Born down on the farm in America's Midwest, my early life was spent climbing the ladder via a long career in information technology. Starting as a technician, and after earning a degree going to night school, I eventually found a place working at ATT Bell Laboratories as a software engineer.

Later moving into management and then a long stint in a major management consulting firm working with major banking, telecommunications, and retail companies. Working in various states in America, I also spent considerable time living and working in several European countries - currently expat in France. As a side career, I was heavily involved in real estate development and an avid futures trader. This experience can give one a unique view of the world.

The storm clouds of dark change are near. Today America is at a crossroads. Will it maintain its prowess as a national leader in the free modern advancing world, or will it backtrack in the abyss of the envy identity politics of tyrannical socialism, and the loss of individual freedoms. The 2020 election may have decided this. Join the Right Wire Report team and make a stand.

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