Last week, we contributed extensive empirical evidence that the US housing market can be starting to crack when we quoted regional managers from Bob Burns Real Estate Consulting, all whom agreed on one (or more) of three stuff: i) Demand is decreasing, namely entry-level due to transaction shock; ii) Investors are usually pulling back; and iii) Ripple effect of rising prices starting to hit move-up marketplace. Here are some excerpts:
- Based in dallas builder : “ Interest lists are shrinking or even buyers are truly pausing. ”
- Houston builder : “ Many first-time buyers simply no longer qualify with the increase in interest rates, as their debt-to-income percentage gets out of whack. ”
- San Antonio builder : “ Traffic has been cut in half since the hike in rates. ”
- Raleigh builder : “ Investor activity has slowed dramatically. ”
- Provo builder : “ Investors are evaluating the investment more vitally than in the past. ”
- Washington DC builder : “ Traffic fifty percent what it was in March. Worried about first time buyers. Many less REAL buyers than number of individuals collected on interest listing last 6 months. Certainly a lot more attempts [from buyers] to negotiate. ”
- Seattle constructor : “ Pause with a large population of customers. To achieve our desired [sales] pace, we had to make price adjustments. Rates starting to knock people out of qualification. ”
Needless to say, a casing crash would be a bad point for the US economy for which the housing sector is of paramount importance: a house is generally the biggest asset in American’s savings, comprises a large chunk of the labor force, and is a big contributor to inflation indices. That’s precisely why the Fed, hell bent on showing the US economy into a economic downturn as fast as possible to reverse pumpiing, would want nothing more than a housing recession.
Yet what if Powell instead will get a housing crash on par with 2007?
If that’s what is coming, we may be able to sniff it out soon in this big week for housing data in a US housing market that can be, until now, red hot. As DB’s Jim Reid creates, today’s data showed that building remains strong, with houses under construction hitting an all time high, even if pending home sales tumbled as did mortgage programs.
Tomorrow it gets even more interesting: upon Thursday morning we get a look at how new home construction translates to sales, which, given the precipitous climb up in mortgage rates, can start facing some requirement destruction. Which brings us in order to today’s Chart of the Day from Reid, which shows that mortgage prices have taken off with the Fed’s pivot, and the post-Covid boom in existing house sales has started to wobble. Meanwhile, consensus requirements marked by the X show they will decline further the next day.
If the graph is correct, Reid warns that “ it will be a very painful few months ahead” (for homeowners, not so much for traders as the stock market will smell out the coming economic downturn and soar, as it frontruns the Fed’s next easing).
Of course , the particular bulls will still point to the strong fundamentals which usually underly housing: like other sectors, there is a big supply versus demand imbalance as inventories available for sale are still near historic lows, labor in the construction sector is limited with immigration down, and millennials are aging into their peak earning and home-buying years. All while customer balance sheets are strong.
So , as Reid concludes rhetorically, will certainly the Fed need to raise rates such that mortgages is much above levels most home buyers have grown accustomed to, ultimately slowing blistering price development? Or will the cracks appear much sooner (spoiler alert: indeed ).
One thing is certain: Housing, as well as fate, will serve as the earliest guide to the Fed, prices and the US economy.
Discussing how Biden’s insurance policies have had a negative effect on the general public, Alex Jones called on Republicans in order to introduce articles of impeachment against the Democrat puppet president in order to save the nation.