Home prices have started to correct as interest rates rose sharply in 2022. However, the real problem for home prices is still coming in 2023 as the standoff between sellers and buyers comes to a head.
As mortgage rates have risen this year, the buyer demand for homes has fallen. That has spelled trouble for the home construction business. Homebuilder confidence dropped for the tenth straight month in October. The decline in builder sentiment reflects what economist Ian Shepherdson describes as “housing … in free fall.
The U.S. housing market is absolutely imploding, but nobody should be surprised. In fact, we were warned way ahead of time that this would happen. When the Federal Reserve told us that they would be aggressively raising interest rates, we all knew what this would do to the housing bubble. It was obvious that home prices would fall, home sales would plummet and home builders would get absolutely crushed. Sadly, that is precisely what we are witnessing. But instead of reversing course after witnessing all the damage that they have caused, Fed officials are insisting that even more rate hikes are necessary. So as bad as things are right now, the truth is that they are going to get even worse in the months ahead.
Analysts expected Case-Shiller Home Price growth to continue its modest deceleration in August (the latest available data in this heavily lagged and smoothed data set), but the result was a doozy: the 20-City Composite index tumbled 0.44% MoM, far below the 0.20% expected increase, and a sharp decline from the downward revised 0.19% increase in July; more importantly, this was the first sequential drop in home prices tracked by Case-Shiller since March 2012, or ten and a half years.
Last November, housing consultancy firm Zillow lobbed the first warning shot that the housing bubble had burst, when it shocked markets by firing 25% of its workforce, and announcing it had scrapped its robo-flipping program after losing hundreds of millions by allowing robots to buy and sell homes.
The US mortgage industry is seeing its first lenders go out of business after a sudden spike in lending rates, and the wave of failures that’s coming could be the worst since the housing bubble burst about 15 years ago.
Blackstone, one of the most dominant real estate investors in the world, is going to dominate more after completing the biggest real estate fund of its kind. It may soon have over $50 billion to invest.
Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,549,000. This is 14.4 percent below the revised April estimate of 1,810,000 and is 3.5 percent below the May 2021 rate of 1,605,000. Single‐family housing starts in May were at a rate of 1,051,000; this is 9.2 percent below the revised April figure of 1,157,000. The May rate for units in buildings with five units or more was 469,000.
All these curveballs will further fragment the housing market. Oh for the good old days of a nice, clean housing bubble and bust as in 2004-2011: subprime lending expanded the pool of buyers …
Traders who play in the futures markets are familiar with the phrase, “Wash, rinse, repeat”. It describes how pros routinely relieve amateurs of their wealth in the Wall Street casinos.
But the same thing happens on Main Street … it’s just MUCH slower … and it’s easier for newbies to win because the action is too boring for real sharks.