from Birch Gold Group:
From Peter Reagan at Birch Gold Group
Since we’ve been in a constant state of recession watch for a while now, today I’m going to explore the current state of the housing market.
Why housing? Well, here’s what The Economist has to say about it:
The importance of American housing resides not so much in its absolute size, big though it is at about $45 [trillion] in total value. Rather, it serves as a bellwether of the economy’s performance amid rising interest rates. Has the Federal Reserve lifted rates by enough to calm inflation without crushing growth? Has it gone too far? Or, perhaps, not far enough? As one of the earliest and largest sectors to react to changes, the property market offers some answers.
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Owning a home is a crucial financial step for Americans – and, for most of us, our home represents the largest single investment we ever make. A massive amount of our nation’s wealth ($45 trillion dollars!) is tied up in homes.
That’s why the housing market matters whether you rent or own. The housing market is a reliable leading economic indicator.
As goes housing, so goes the economy – and right now, it’s not exactly going great…
79% of Americans say it’s not a good time to buy a house
A recent Gallup poll asked whether it’s a good time to buy a home. (In 2003, that answer was a resounding yes.)
Not anymore.
There’s a capsule history of housing market polling, since the last housing bubble burst in 2007:
…home prices headed downward the next two years, and generally were flat through 2011. With lower prices and generally low interest rates, public optimism about home buying recovered, climbing to 71% in 2009 and holding in the high 60s or low 70s through 2017.
By 2020, in the early stages of the coronavirus pandemic when economic activity was severely limited in many parts of the country, 50%, a then-record low, thought it was a good time to buy a house.
In the past two years, as housing prices have soared and the Federal Reserve has raised interest rates to try to tame inflation, houses have become less affordable for many Americans, and views of the housing market have tumbled.
The housing market was already becoming unaffordable for many families back in 2021.
It’s gotten much worse since then.
Prices rose significantly, along with interest rates… In the last three years, the typical mortgage payment has risen 71% to a record high. (I had to triple-check the math.)
Mortgage broker Redfin published a chart showing year-over-year changes since 2020:
Note this is just one bottom-line, real-world result of the Federal Reserve’s
Here is the bottom line result of this mess, which results from the Fed raising rates (which they needed to do to ease red-hot inflation), as laid out nicely in a tweet by Charlie Bilello:
3 years ago: 30-yr mortgage rate was 2.97% & average new home price in the US was $360k.
Today: 30-yr mortgage rate is 6.39% & average new home price is $562k.
Result: $40k increase in down payment (assuming 20% down) & 132% increase in monthly payment (from $1,209 to $2,809).
— Charlie Bilello (@charliebilello) April 25, 2023
Bilello followed up with an article that explained the rest of the bad news in the housing market:
While prices are starting to move lower (1.7% YoY decline is the largest since 2012), it’s not nearly enough to make a difference.
Supply remains constrained as many would-be sellers simply can’t afford to move. Two-thirds of mortgages have an interest rate below 4% (vs. 6.4% rate today), and most of the buyers from the last few years could not afford the house they are living in if they had to buy them at current rates/prices.
The result: a standstill in the housing market with existing home sales down 23% year-over-year, the 20th consecutive YoY decline. That’s the longest down streak since 2007-09. [emphasis added]
Remember when I said housing was a bellwether, a leading economic indicator? Here are a few reasons why:
