You may not want to buy a house right now. What goes up must eventually come down, and we have just entered the “down” side of that equation. Over the past two years, home prices in the United States have gone up nearly 40 percent. Now mortgage rates are rising at a pace that is truly frightening, and they are likely to go even higher in the months ahead as the Federal Reserve continues to fight a relentless war against inflation. Needless to say, higher mortgage rates mean higher potential mortgage payments for prospective home buyers, and so millions of Americans are being priced out of the marketplace right now. The only thing that is going to bring those buyers back into the marketplace is for home prices to go down, and that is already starting to happen in some areas of the nation.
We were already in a historic housing bubble heading into 2020, and over the past two years we have witnessed another housing bubble develop on top of the previous housing bubble.
Overall, home prices in the U.S. rose 37 percent between March 2020 and March 2022.
That is insane.
Of course our incomes have not been going up as fast as home prices have. In fact, it is being reported that “home prices have gone up four times faster than incomes” over the past year…
Economists at the Federal Reserve Bank of Dallas put the real estate industry on edge this spring after they published a paper titled Real-Time Market Monitoring Finds Signs of Brewing U.S. Housing Bubble. Why the renewed concern? Over the past year alone, home prices have gone up four times faster than incomes. Simple economic theory, which dictates that neither home prices nor incomes can outgrow the other for very long, tells us that isn’t sustainable.
There is no way that this could continue for long, and we have reached a point where home prices in the United States are “overvalued” by almost 25 percent…
The analysis conducted by Moody’s Analytics aimed to find out whether economic fundamentals, including local income levels, could support local home prices. On a national level, Moody’s Analytics finds U.S. home prices are “overvalued” by 24.7%. In other words, U.S. home prices are 24.7% higher than they would historically trade at given current income levels.
Does this mean that home prices will come down by 25 percent?
Well, it all depends on what the Federal Reserve chooses to do.
If the Fed decides to stop raising interest rates by the end of this year, the damage could potentially be minimized.
But if the Fed continues to raise interest rates throughout 2023, we are likely to see carnage that is unlike anything we have ever seen before.
Personally, I have been stunned by how rapidly mortgage rates have risen. According to Peter Schiff, the last time that average 30 year mortgage rates crossed the 6 percent threshold was just before the last housing crash…
Average 30-year mortgage rates have pushed to nearly 6.4%. The last time we saw mortgage rates over 6% was right before the housing crash of 2008. Until mid-April, mortgage rates were in the 4% to 5% range. Just one month ago, rates were 5.49%.
Lower-income homebuyers have already been priced out of the market by spiking mortgage rates. The houses that are selling tend to be in higher price ranges.
Officials at the Federal Reserve can see what is happening, but they consider taming inflation to be a much higher priority right now.
So the housing bubble will inevitably continue to implode, and the numbers for the industry will just get even uglier. Here is more from Peter Schiff…
Air is hissing out of the housing bubble faster and faster every week.
Pending sales plunged in June and the inventory of homes on the market jumped as mortgage rates continue to rapidly rise.
Pending home sales plunged by 16% year-over-year in June. This follows on the heels of a 12% drop in May and a 9% dip in April. June marked the 10th straight month of year-on-year declines in pending sales.
Some of the hottest markets in the country have started to cool off really fast.
For example, just look at what is happening in California…
The pace of California home sales plunged 21% in June from a year earlier as soaring mortgage rates took a bite out of buyer interest, the state Realtors group reported Monday.
And what we are witnessing in Boise is really alarming.
Boise was once one of the hottest markets in the entire nation, but now sales are dropping faster than Joe Biden’s approval rating…
Before governors relaxed stay-at-home orders two years ago, white-collar professionals were already fleeing their exorbitantly priced apartments in cities like San Francisco and Seattle. The biggest beneficiary of that WFH homebuying wave was undoubtedly Boise—where home prices skyrocketed 53%. You could even call it the poster child of the pandemic housing boom.
But that Boise honeymoon is over. While spiking mortgage rates have pushed the overall U.S. housing market into a slowdown, it has delivered a particularly hard blow to the Boise housing market. That has seen both Boise home sales plummet—down 28% on a year-over-year basis—and inventory levels surge—up 161% this year. It’s also chipping away at home values. According to Zillow, the median Boise home sales price fell 3.5% in June.
This downturn is going to have enormous implications for home builders as well.
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Sales are falling, and a key measure of home builder confidence just declined for the seventh month in a row…
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the seventh consecutive month to 55, the lowest level since May 2020. It is the second-biggest, one-month decline in the survey’s 37-year history.
The only time that the index has fallen more in a single month was during the very early stages of the COVID pandemic.
National Association of Home Builders CEO Jerry Howard fears that things will continue to get worse in the months ahead, and he is warning that “we’re going to go into a recession” unless something dramatic happens…
“For the last seven straight months it has been going down and this is a huge drop – and I think all it says is, ‘Somebody do something or we’re going to go into a recession,’” Howard said.
I am sorry to tell you this Jerry, but we are already in a recession right now, and it is going to get really bad.
Our leaders have been making decisions that have been mind-numbingly bad for a long time, and now we are all going to suffer the consequences.
If you are searching for an easy way out of this mess, you can stop looking, because there isn’t one.
What we are heading for is going to make 2008 and 2009 look like a Sunday picnic, and it will shake our nation to the core.
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Those who ignore history are doomed to repeat it. At least we don’t have “no doc” loans being put into AAA secured instruments and sold. BTW, maybe we can get Putin to buy some of those bogus assets.
When will the liberals come to the realization that their party was taken over in the 70’s by marxists. The goal is nothing less than personal domination of the rest of us. We and our descendants are in bondage to these marxists. Time to turn our country back into one that is governed by the Constitution. Folks the INSURRECTION happened on 11/03/2020 not as these traitors try to paint a false narrative that it took place on 01/0621.
Lenders will adjust with 40yr mortgages like they did with 72 month car payments.
It will be all of North America, Canada included. All those who own a house now will loose their house period, there will be no escaping this.
When the Marxist loose, as they will; they will leave massive destruction in their wake, and the housing crash will be just one of the bigger things that will be the destruction.
The housing prices will drop so far, it will be a buyers dream and a renters joy because the renting prices will also fall to extraordinary levels.
Psst… it’s “lose,” not “loose.”
Please learn the difference so as not to embarrass yourself in the future.
It’s LOSE! Lose, lose lose. What is it with you people?
We will not LOSE (not loose) our home. The mortgage was paid off years ago. The same will be true for all others like us, and those whose balances are low.
in my area on the west coast of florida, the majority of home purchases are cash, meaning the baby boomers are bringing their nest eggs with them…they are not being stifled by mortgage rates. they’ll still pay a higher price for a home than the rest of the country going forward since it will probably be their last home purchase and they are not as concerned about the sale price after they are gone. I saw this in the last housing bubble/downturn as well. back in 2008
My issue with all this is, buy a house that you can afford, when interest rates drop, refinance and just stay in your house. We bought our home 15 years ago, we have a 3.5% fixed interest rate and my house has went up a lot in value. I would never sell my house, hoping to pay it off in about 8 years. Then my 3 children will inherit it and they can live in it or rent it out or sell it. So this housing market does not affect everyone. Everyone in my neighborhood has been here a long time. We thought about selling, to downsize, when the children moved out, but we decided to stay, I have put my heart and soul into this house, it is perfect for us!
Yes the market will level off. Big loss in value? No because demand for housing is raising and the supply is not keeping up with demand. That means rents will continue to be high and demand for houses will continue. Yes the sales may slow but they will not crash.
This guy is astounded by the speed of the mortgage rate increase. I was astounded by how long mortgage rates remained low while inflation was several times what the interest was. I’m locked in at 1.75% and can take a 35% house valuation loss.
Never forget Nikita Khrushchev banging his shoe in 1960 at the UN claiming, “we will bury you from within!”
He won.
he’s dead, a loser, and never returning.
We Are About to Experience an Absolutely Epic Housing Crash the Likes of Which America Has Never Seen Before”
Oh really? Obama wiped out the entire housing industry and all companies connected to it. I don’t think you’re going to beat that.
Meanwhile, get ready for 15 year car loans.
I don’t think we are going to see a big bubble pop. I think that the economy is going to shrink and this is going to slow down the housing market. When we come out of this recession, the feds will lower the interest rates again to under 5% and the market will bounce back. I doubt that we will see prices dip less than 15%.
I have seen some of the projections of guys like Harry Dent and the coming “carnage” as you called it, will be profound – I mean 1929 profound. Housing is but one metric of course. Soon it will be a buyer’s market but there is going to be employment layoffs, so people looking for a house are not going to buy it, even if the prices moderate, you will have the higher interest rates. What Bidenomics has done to our country is ugly and it will get worse before it gets better. Compared to the housing market of just 3 months ago, you will find houses discounted 40-50% from these earlier prices in 2024. Try and stay liquid and you may be able to grab that current $600K house for $300K or less. Who knows you might even be buying your next house with gold bars/coins!
What did home prices do in the Great Depression of the ’30’s?