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"The Housing Market Crash Nobody
Thinks Possible Is Here"
by Epic Economist
"First, they told us that the housing market was fine, and the rapid spike in prices was a healthy sign. Then, they were forced to admit that we were in the largest housing bubble ever. And now, the Dallas Fed is warning that a 20% correction is likely to occur, even though home prices have risen on average by 47% over the past couple of years. It’s safe to say that a 20% drop won’t correct markets where prices skyrocketed over 70%, such as Austin, Texas, and Boise, Idaho. It would take a whole lot more to bring overvalued markets back to normalcy. And according to Zillow estimates, almost 60% of U.S. housing markets are ‘significantly’ overvalued right now. That doesn’t bring any relief for homeowners, who are already struggling with mortgage rates that are still two times higher than they were in 2021 and falling property values that already wiped out trillions in home equity so far this year. According to Redfin, 2023 will be marked by the largest year-over-year decline in home prices since 2008. All indicators signal that more turbulence is ahead. They can deny all they want, but the housing market crash nobody thought possible is already upon us, and losses will only get bigger from this point on.
For the first time in a decade, U.S. homeowners are seeing their home equity fall abruptly. All thanks to soaring mortgage rates that have depressed purchasing power and sent home values down. Overall, U.S. homeowners with a mortgage have lost a collective $1.5 trillion in equity since May, according to September data provided by mortgage services company Black Knight. Since then, the number of underwater mortgages — where someone owes more on their loan than their home is worth — has more than doubled. Now, roughly 450,000 homeowners are already underwater on their mortgages, and nationwide double-digit declines in property values haven’t even started yet.
All in all, ever since the Federal Reserve began slowing down the economy to tame inflation growth, the wealth of American households has evaporated—collapsing by more than $6.8 trillion since January. From June to November, the average home lost almost $40,000 in value. In fact, BlackKnight data shows that roughly 10% of U.S. households who bought a home with a mortgage in 2022 are already underwater, and at least 40% have less than 10% equity. Andy Walden, vice president of research at Black Knight, said he expects more people will fall underwater in coming months as home price declines accelerate in 2023. Up until this point, the higher rates and the lower prices haven’t resulted in any of the benefits policymakers thought it would. Those struggling to buy their first home continued to be shut out, making up less than 25% of transactions last month.
“First-time buyers are really struggling with high prices, the high bar to get into the market, and high mortgage rates,” said Lawrence Yun, NAR’s chief economist. The repercussions are impacting sellers, too. Right now, they’re either dropping asking prices at a faster pace than at any point in the past few years or removing their properties from the market altogether. In essence, this Fed-driven bubble burst is making conditions worse for everyone – owners, buyers, sellers, and even real estate agents. The most worrying part of all this is the fact that there the housing market goes, the broader economy follows, and if it is going down, everything else will fall out of place too."
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