Wednesday, March 22, 2023

"Brace For A Housing Market Meltdown As Property Values Are Crashing Harder Than In 2008"

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"Brace For A Housing Market Meltdown As 
Property Values Are Crashing Harder Than In 2008"
by Epic Economist

"The U.S. housing market is in big trouble. While mortgage rates are spiking and worsening affordability all around the nation, property values are crashing hard. Redfin data shows that over the past eight months, U.S. homes have lost a combined $2.3 trillion in value, and we aren’t even close to seeing a bottom just yet. Things are getting so scary that even Federal Reserve officials are warning about a double-digit drop in home prices, and saying that “bubble theorists” have been right all along. Home sales are falling precipitously, mortgage applications just hit a low last seen in 1995 and several other indicators are signaling that more turmoil is ahead. According to an expert that has accurately predicted previous downturns, many properties will halve in value by the end of 2023 and a wave of foreclosures is now emerging on the horizon. Since the summer of 2022, the housing market has been weakening every month, with the home prices in some bubbly markets falling over 21% since June, which has been the case in San Francisco, California; Boise, Idaho, and Austin, Texas, according to the S&P Case-Shiller index of prices in 20 major metro areas.

Last month, mortgage applications fell to 1995 levels, according to Fannie Mae data. But the truth is that despite recent price declines, the housing market remains significantly overvalued all across America, and property values have a lot more room to fall. No wonder why now even Federal Reserve officials are alerting about a double-digit drop in prices on top of the declines we have already witnessed so far. In a research report released last week, Dallas Federal Reserve economists warned that the U.S. housing market would face a worrying price correction this year, and more rate hikes from the central bank could make a crash even worse. "If the observed price-to-rent ratio grows at an explosive rate relative to its fundamental-based ratio estimated with long-term interest rate and rent growth data, bubble theorists merit attention," they said.

For the housing market to return to its fundamentals, they estimated that a 20% correction would still be necessary. That decline would add to the 8% nationwide drop in home prices that already occurred last year, meaning that we are set to see property values falling even more sharply than they did during the 2008 housing crash when U.S. homes lost a quarter of their value. And that’s the “modest baseline scenario,” they said. “More hawkish monetary policy could trigger a much steeper correction.”

And over the past eight months, the housing market suffered the biggest drop in value since 2008. Real estate brokerage firm Redfin released data that shows that the value of U.S. homes tumbled from $47.7 trillion in June 2022 to $45.3 trillion this month — a decline of $2.3 trillion, or 4.9%. That represents the biggest drop in percentage terms since the 2008 financial crisis when home values plunged by 5.1% from June to March.

Jeremy Grantham alerted about an "everything bubble" that could halve the value of U.S. homes, and plunge the U.S. economy into a much more painful recession. The price of real estate and other investments have ballooned to unsustainable highs during the pandemic, Grantham said. The current bubble is pretty damn big compared to previous ones, and dwarfs 2008 in scope, the market historian observed. If the US gets lucky, the housing market might slump by around 29%. But if events pan out poorly, a 50% crash is not unlikely, the bubble expert predicted.

Investors are panicking, policymakers are desperate, but still most people remain unaware of the risks that lie ahead. As Grantham emphasizes: this is going to be the implosion of a superbubble. And we all should expect the consequences of it to be extremely destructive."
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