Tuesday, May 3, 2022

"Housing Bubble Push Foreclosures To Skyrocket 181% As Mortgage Rate Shock Gets Bigger"

Full screen recommended.
"Housing Bubble Push Foreclosures To Skyrocket 181%
 As Mortgage Rate Shock Gets Bigger"
by Epic Economist

"Alarm bells are ringing in the U.S. red-hot real estate market. Skyrocketing home prices sparked a national housing crisis that has pushed millions of first-time buyers out of the market and set off a new flood of foreclosures. As living expenses face the biggest increase in nearly four decades, hundreds of thousands of homeowners have become unable to keep up with their mortgage payments. Renters, who are also suffering from the lapse of assistance programs, are having to spend a larger share of their incomes to afford the roof over their heads. Meanwhile, the housing bubble is still growing, but the lack of affordability is threatening to drag down activity, and as mortgage rates tick up, a major correction in property values is looming.

Right now, around 88% of the U.S. housing market is overvalued, S&P Global data show. This overwhelming figure is a major indicator of a crisis. As a consequence of soaring prices, millions of first-time buyers are being entirely priced out of the housing market. Since the second quarter of 2020, the median home price in the US has grown about 27%, according to the Census Bureau and the Department of Housing and Urban Development. But for Ian Shepherdson, the founder, and chief economist at Pantheon Macroeconomics, the recent spike in mortgage rates will throw a bucket of cold water on a still blazing-hot market.

Last week, that already big economic shock got even bigger. Freddie Mac reported that the average 30-year fixed mortgage rate hit 4.67%. Just one week earlier the rate was at 4.22%. While back in December it was 3.11%. This, of course, is an immediate hurdle to the demand side of the market. It means that millions of potential borrowers out there will lose their mortgage eligibility. Even those who do maintain their mortgage eligibility could still be deterred by the extra cost it adds to their monthly payment.

Many buyers who qualified for housing loans over the past two years are actually in a group known as “house poor,” which describes the situation of those who are spending too much money on housing and are getting very little in return. These people are often left with very little money to spend on anything else. Over the past 24 months, economic conditions have deteriorated so rapidly that many homeowners have already started losing their properties. In February alone, there was a 70% increase in the number of properties lenders took back compared to the same time one year ago, Black Knight data shows. Adding that to the fact that the nationwide moratorium on foreclosures has expired eight months ago, in April, foreclosure filings climbed to the highest level since the pandemic began.

About 33,333 properties across the U.S. faced foreclosure last month, a 181% increase from 2021.The trend has just begun, and according to the firm’s forecasts, hundreds of thousands of homes are hanging by a thread. As rent prices shoot up, another issue is also developing. Acute increases from $200 to $800 a month are fueling a surge in informal evictions. Millions of renters out there can’t afford to stay in their current homes anymore, and finding affordable rentals has become nearly impossible.

With housing and rent costs rising much faster than people’s incomes, some very needed changes are starting to unfold in the real estate market. With the Fed signaling its unwillingness to back off from rate hikes with inflation at generational highs, demand will keep falling, consequently pushing property values down. A housing bubble burst would mean that just as property values, the economy would also plunge - leaving several other assets with significantly less value. Home prices would greatly deflate leaving investors and homebuyers stuck. And although fundamentals may be different right now, just as it happened during the last housing market crash, when property values depreciate and a home is no longer worth what it was during the rise, homeowners will be left holding the loss - which given today's valuations, could be to the tune of hundreds of thousands or even millions of dollars."

No comments:

Post a Comment