from Birch Gold Group:
For decades, home ownership was considered the foundation of middle class prosperity. Now that foundation’s crumbling…
According to one index, U.S. consumers are suffering through historically bad home buying conditions.
This fact was recently summarized in a somber post by Kobeissi Letter on X:
TRUTH LIVES on at https://sgtreport.tv/
Homebuyer conditions for US consumers plummeted to their lowest level in history this month.
The index of buying conditions for houses fell to ~30 points which is below the previous low of ~40 points in the early 1980s.
In just 4 years, conditions for buying a house have… pic.twitter.com/M4lKxKTXSp
— The Kobeissi Letter (@KobeissiLetter) May 27, 2024
A chart prepared by the University of Michigan illustrated the historically-low home buying conditions that Kobeissi described:
Via University of Michigan surveys of consumers. Red arrow added to highlight 2021-present decline.
An update from FOXBusiness summarized a few more relevant details about the historically bad housing market:
Housing demand has ground to a halt as rates move higher. Applications for a mortgage to purchase a home dropped 5% from the previous week. Application volume is down 12% compared with the same time last year.
Demand for refinancing also fell last week, declining 7% from the previous week, according to the survey. Compared with the same time last year, refinance applications are down 1%.
Part of the reason for that decreased demand could be the fact that average mortgage rates have remained above 6% since September 2022. They have also hovered persistently close to 7% since August 2023.
You can see that reflected on the official line graph below:
An article from the Mortgage Bankers Association summarized a wish-list of conditions that would be necessary for the market to improve for home buyers:
“In addition to lower mortgage rates, more housing inventory is desperately needed in markets throughout the country this summer to alleviate these tough affordability conditions,” said Edward Seiler, associate vice president of housing economics at MBA and executive director of Research Institute for Housing America.
Unfortunately, those conditions aren’t likely to develop any time soon.
Here’s why: If the Fed were to cut rates now, then the inflation rate would likely start heating up even further than it has already (right on the heels of the historic period of Bidenflation).
Higher inflation could make home building more expensive (like it did in 2022), and as a result, would certainly put a damper on efforts to increase available inventory.
The bottom line is this: The housing market is in the dumps and there are no easy solutions.
Your home may not be as safe an investment as you thought
Most people think of their homes as a good investment. That’s because of the misguided notion that the value of your home will “always” increase.
But once you factor inflation into the picture, you can see how the idea goes up in smoke. (Recessions amplify this impact.)
Nobel Prize-winning economist Robert Shiller proved this 15 years ago in his book Irrational Exuberance. Adjusted for inflation, the long-term historical average home value grows about 0.1% per year.
