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"Housing Crash Begins And It's Worse Than You Think"
by Epic Economist
"Now it’s official: The U.S. housing bubble has finally burst, and home prices are in free-fall with no floor in sight. After two years of stratospheric price appreciation, a major shift has begun, and at this point, homeowners are already seeing property values collapse at the fastest pace since the Great Recession. This downturn is escalating much faster than experts anticipated as mortgage rates surpass the 7% mark, and home sales continue to plunge all across the country. Given that the vast majority of markets are overvalued by 50% or more, we’re about to witness the worst housing crash of our lifetime, and the consequences are going to be brutal for the U.S. economy.
Last week, the National Association of Home Builders reported that slumped home construction subtracted 1.37 percentage points from U.S. GDP in the third quarter, which represented the biggest housing contraction since 2007. At the same time, mortgage purchase applications plunged by 41.8% on a year-over-year basis, and total mortgage applications are now lower than at any point during the Great Recession.
Home sales are also cratering. In September, they declined for the eighth month in a row. In the West, sales have dropped the most dramatically, sinking 31.3% since last year. Meanwhile, pending home sales, declined by a staggering 35% nationwide this month, the biggest drop in at least seven years. All of that is thanks to the highest mortgage rates since 2002. This month, they hit a new high of 7.16%, according to data from the Mortgage Bankers Association. That suggests housing will continue to become less affordable, even if prices keep going down.
On the flip side, they're still up 4.8% in the past six months, 13.1% over the past year, and 42.2% since the beginning of the health crisis. And the market’s biggest irony right now is the fact that even as the price of housing is steadily falling, the cost of housing is still climbing to new highs.
Axios analysts estimate that if someone bought a median-priced home in September rather than June they would have paid 5.1% less for their house (approximately $427,000 rather than $450,000), “but, assuming a 20% downpayment and a 30-year mortgage, that person would face monthly mortgage payments almost 10% higher, at $2,260 per month,” they explained.
The firm noted that the monthly principal and interest mortgage payment on the median-priced home is up $930 from a year ago, a painful 73% increase. A Wall Street economist recently estimated that a 20% drop would occur in the very first stage of this new bubble collapse that will extend through the end of 2022, and from that point on, they would continue to free fall as ”tumbling demand for homes amid sharply rising mortgage rates add immense pressure on home prices,” says Ian Shepherdson, chief economist with Pantheon Macroeconomics.
This is neither a sellers’ nor a buyers’ market, it’s an environment where everyone loses, argues financial analyst Bill Holter, alerting that we could soon see a crash that will make previous crashes “blush”. Many people are going to lose everything overnight. All indicators show that this is just the beginning of a nightmarish crisis, and this new crash is going to be way more devastating than what we experienced back in 2008. Very rough weather is headed our way, and everyone is starting to feel that things are about to get really ugly."
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