Housing Recession - Good News for Home BUYERS
Homeowners should brace for the upcoming housing recession. Home prices have started to decline throughout the United States and with mortgage rate increases, the decline in housing prices is likely to accelerate.
In this video, we will address the rapidly declining housing prices, and if a reversal in the trend in housing prices is likely.
Housing prices are breaking records with the median housing price crossing $440,000 in the US. For perspective, 10 years ago, the median housing price was less than $250,000. And this is happening irrespective of the fed increasing rates.
There are 2 main causes of rising housing prices. One is the supply shortage and the second is the strength of the consumer. A reversal in trend on either one of these will adversely impact the housing market and a reversal in both in a rising rate environment will get really ugly.
As reflected in the data, housing starts have been on an upswing from the 2009 lows. And if we were to drill even deeper into the last couple of months, the trend in housing starts is negative.
Now if we were to zoom in on housing demand, it has been steadily climbing since 2011. And this is irrespective of new or existing homes data. And the trend while most prolific in the south and west, is really the case for the Midwest and Northeast as well. However, if we dig even deeper to more current data, existing home sales are down almost 6% in July.
And mortgage applications over the last several weeks have also been steadily declining. So, the data is showing that applications for mortgages are down, thus suggesting demand is down, and this is further confirmed by existing home sales data. Additionally, when it comes to new housing starts that is also declining.
In a nutshell both demand and supply are declining thus suggesting the inevitable decline in housing prices.
We should look at the health of the consumer to discern how well or poorly the consumer is doing to then potentially conclude on how long price declines once they start will go on for.
We all know there are lots of job openings and unemployment levels are at all time lows. Wages are also high. Granted they aren’t as high as inflation. So with wage growth not being as high as inflation consumer spending should be adversely impacted.
But the data isnt reflecting this trend.
US retail sales continue to remain unchanged. With commodity prices such as gasoline experiencing price declines, consumers have more ability to spend elsewhere. This is also combined with strong wage gains from a tight labor market and consumer savings.
Now some retailers such as Walmart and target have missed earnings of late, but that seems to be driven by heavy discounts on over ordered inventory as companys were being careful with supply chain issues.
So consumers are resilient. And while consumer sentiment as reported by the University of Michigan remains low, consumers are also not reducing their spending.
So at least in the current state of the economy, the consumer appears to be strong. However, will they continue to remain strong?
Consumers are borrowing more. So they are leveraging debt for their purchases. However, delinquency on these credit cards isn’t all that bad. In fact, over the last 10 years, it's been declining. But with that said if you zoom in card delinquency has been increasing ever so slightly since Q2, 2021.
Similarly, if you look at auto loan delinquencies, that too is showing favorable outcomes.
Even with housing, foreclosures are slowly rising but relative to historical norms they aren’t too high and the same talk track can be used for housing repossessions as well.
So what can we infer from all these consumer trends?
The data would suggest that the consumer is strong, however, there are cracks. And while these cracks are nothing compared to historical data standards, it is an early indicator of a potential problem.
A housing recession is imminent at this stage with both demand and supply declining and the strength of the consumer weakening.
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DISCLAIMER: The opinions expressed in these videos are not meant to be financial advice. Always consult with your financial advisor and do your own due diligence as individual facts and circumstances may vary.
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