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"Housing Crash Is Here! Soaring Prices Result
In Record Crash In Home, Appliance Buying Plans"
by Epic Economist
"As the summer months approach, the weather isn't the only thing heating up - according to recent sales data, the housing market seems to be overheating, and home sales have been steadily declining, which means the current boom is nearing an epic burst. As home prices continue to skyrocket all across the country, buying a house is becoming increasingly difficult, and this has been preventing millions of people to enter the latest housing market rally and it has also led some experts to fear that the real estate price bubble might be getting ready to explode. In every corner of the market, major strains continue to emerge. Starting with the historically low inventory while existing homes are just too expensive. In April, the median existing home price was a record-high of $341,600. In May 2020, it was $283,500, a shocking year-to-year rise of more than 20 percent.
It's comprehensible why most people can't simply make their way into the market anymore - it seems almost impossible to afford current prices while wages are nowhere near keeping up with the pace of home price appreciation. Economists expect the supply and demand imbalance to keep pushing prices up, which will make homeownership even less attainable for first-time buyers or those with limited budgets, especially given that new homes have been incredibly hard to come by. Housing starts and new residential construction projects also fell 9.5% between March and April, and even though homebuilders have tried to increase their construction pace, it could take years to reduce the huge nationwide deficit of houses.
In one of the early indications that the lack of inventory is causing home sales to crash due to the exorbitant prices, sales of newly built homes dropped by 5.9% in April from March to a seasonally adjusted annual rate of 863,000, the Commerce Department reported. The Mortgage Bankers Association disclosed that its seasonally adjusted Purchase Index dropped 4.2% in the week ended May 21 from a week earlier, reflecting a 7.2% decline in applications for refinancing. For Ian Shepherdson of Pantheon Macroeconomics, the data underscores that the housing boom is reaching an end. “Over time, though - and usually not much time - new home sales gravitate to the pace implied by the trend in mortgage applications,” Shepherdson wrote. “So, absent any other reliable near-time indicators of the pace of sales, we have to expect a steep drop in April.”
The housing market pressures are being even more aggravated by growing inflation fears, as explained by Fannie Mae senior vice president and chief economist, Doug Duncan: "Stronger inflation and a resultant move in interest rates are risks that we believe should be monitored. As the effects of expansionary monetary policy continue to work their way through the economy, inflationary expectations may continue to rise. This could lead to prices rising further even with growth concurrently slowing in the presence of diminished labor market slack and waning fiscal policy support".
That's the same warning shared by experts with ZeroHedge. They argue that the lack of rising wages will fuel even higher prices. That will happen partially because pricing futures are taking into consideration temporary wage hikes employers have been offering to attract workers back into the labor market. However, as unemployment benefits expire in September, millions of currently unemployed workers are expected to make their way back into the labor force, which will send wages sharply lower given that instead of raising base payments, most employers only offer one-time bonuses.
The report also says that buying intentions, measured by the Conference Board, have plunged across the 3 major spending categories - homes, automobiles, and major household appliances. The drop was so massive, it amounted to the biggest one-month drop in intentions to purchase appliances, and homes. The vast majority of US consumers are getting increasingly tapped out, and considering homebuyer confidence has started to collapse, housing prices won't have anywhere else to go but down.
"What does that mean for the economy? Well, all those producers and retailers who got used to bumper demand and pushed their prices sharply higher, will face a stark choice: either drag prices right back down or sell far fewer goods and services," they wrote. As for the housing market, it means that no matter how much bubble deniers say today's fundamentals are different, prices will have to face a major correction as almost no one can afford them anymore. That is to say, there's essentially no way around the next housing market crash. As the experts highlighted - if anything this screams stagflation. And one thing is certain: six months from today, the US economy will be far, far uglier."
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