December 6, 2022

Air Continues to Seep Out of the Housing Bubble

What the Fed giveth, the Fed taketh away.

Air continues to seep out of the housing bubble blown up with the Fed’s synthetically low interest rates in the wake of the pandemic.

Sales of previously owned houses fell by 1 . 5% in September, according to a National Association of Realtors  report .   It was the eighth straight month of declining house sales.

When compared to peak in October 2020, existing home sales are usually down 20%.

From this article you can see from the chart, the trend is beginning to look a lot like the particular plunge in sales all of us saw leading up to the economic crisis in 2008.

Compared to a year ago, the seasonally adjusted rate of sales dropped 23. 8%. That was the 14th straight 30 days of year-on-year declines.

On a year-over-year schedule (yoy), sales plunged in most regions. On a month-over-month (mom) basis, only the West demonstrated no declines in product sales from the desperately low ranges in August:

  • Northeast: -1. 6% mom; -18. 7% yoy.
  • Midwest: -1. 7% mom; -19. 7% yoy.
  • Southern: -1. 9% mom; -23. 8% yoy.
  • West: 0% mom; -31. 3% yoy.

We’re also beginning to see a drop in house prices. The median price of home sales dropped for that third straight month in September. Sale prices are actually down about 7% since the peak.

When it comes to seasonality, the 7% drop was the largest for this time period since the end of Housing Bust 1, and more compared to double the 3. 2% decline during this period in 2021.

Nevertheless, costs still remain elevated. As  WolfStreet   pointed out , the housing market is basically at a standstill.

“ Potential buyers refused to actually look at prices that sellers want. Sellers refused to slice their aspirational prices in order to where the buyers might be – though there is a lot more cost cutting going now than a year ago. And other possible sellers waited for a Given pivot that would lead to reduced mortgage rates and increased prices before they put their homes on the market. ”

Price reductions have jumped from historic lows, a sign that anticipation in the housing market are starting to come back to reality. During the increase, sellers were often getting multiple offers above the particular asking price on the first day time of a listing. Those days are gone. Mortgage rates are pricing many people out of the market.

Mortgage rates continue to keep spike with the 30-year mortgage now hovering around 7%.

The last time all of us saw mortgage rates over 6% was right before the housing bubble popped leading to the 2008 financial crisis. Until mid-April, mortgage rates were in the 4% to 5% range.

With home prices no longer rising seemingly without limits, traders appear to be leaving the market. Investors and second-home buyers bought 15% of the homes in September, according to the National Organization of Realtors. That was lower from 16% in August, and from the 17%-22% variety in the spring and winter season.

As  Reuters   has noted , the particular housing market is “ the sector most sensitive to interest rates, ” and it’s dropping speed.

This is just one of the many economic distortions caused by the government and the Government Reserve’s response to the COVID-19 pandemic.

The particular Fed blew up a housing bubble when it artificially suppressed interest rates and bought billions of dollars in mortgage-backed securities. Now the central bank has pricked the particular bubble by pushing rates up.

The actual Fed giveth, the Fed taketh away.

Mortgage rates began to along with late 2018 as the economic climate tanked and the Federal Reserve ended its post-2008 rate hike cycle. Rates continuing to fall as the Given pivoted back to  quantitative easing   and then dropped through the ground with the rate cuts plus QE infinity in response to the coronavirus. The big spike within mortgage rates we’re seeing today started as the Fed began talking up monetary tightening to tackle  raging inflation .

We expect the housing bubble to continue in order to deflate as we move into 2023. Just how fast the air comes out and the impact on the broader economy remains to be seen.

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