from Birch Gold Group:
Back in November we covered how inflation, mortgage rates, and prices were making things worse for the housing market – in other words, for everyone who owns a home (or has a mortgage) and everyone who invests in housing (developers, real estate speculators etc.).
Looks like the bill has come due, and the housing bubble is about to return to earth…
TRUTH LIVES on at https://sgtreport.tv/
Side note: Why are we talking about this? Well, maybe you remember the last time the housing market collapsed? We call it the Great Financial Crisis, the worst period in the global economy since the Great Depression. The S&P 500 lost 50% of its value during the ensuing 18-month bear market. That’s why. The housing market is a leading indicator of incoming financial crisis.
Let’s start by looking at the more optimistic commentary that is still making the rounds. For example, Norada Investments attempts to make the case that the housing market is slowing, but won’t crash:
This time around, there are far more purchasers than available properties, the exact opposite of what occurred in the 2000s. The majority of bad mortgages have been eliminated. Lenders have significantly stricter requirements on borrowers.
So far, so good!
In fact, maybe too good… If there are really more purchasers than properties, why is Lennar (the #2 homebuilder by market cap) shopping an inventory of 5,000 houses to big rental landlords? Why are more than three times as many new home sales being canceled, compared to a year ago?
Does it sound to you like there are more purchasers than available properties?
In this next bit, Norada returns to reality:
However, this does not mean the economy is immune to the recession. Two consecutive quarters of negative U.S. gross domestic product, or GDP, often indicate an economic collapse.
This much, at least, is true (though to call a recession “an economic collapse” is an overstatement).
Never fear, despite Norada’s confusion, there are many more bullish stories! For example, Realtor.com’s Clare Trapasso claimed that demand for houses is high enough that supply can’t meet it:
The housing shortage is just too severe as there are far more people looking for homes to buy and rent than there are homes available.
Keep in mind the median home price is $450,000… If that quote stated, “there are far more people looking for affordable homes to buy and rent…” then I’d believe it.
Now, let’s take a quick look at reality.
This chart shows that new single family homes for sale have been skyrocketing since 2012, and then again in 2020 after a brief respite. The housing market isn’t as oversupplied as it was just before the Great Financial Crisis – but we’re looking at the second greatest oversupply in the last 60 years:
While the second graph reveals that the median price of those homes is also skyrocketing during the same period:
But while inventory and prices both appear to be extremely high on these graphs, the number of single family homes sold has actually been declining fast since 2020:
So, to sum these three graphs up, we have the following:
- More homes are still being built – adding supply to the market
- Prices are historically high
- Sales have been crashing for two years now
High prices, oversupply and slowing sales – that sure seems like recipe for plunging prices.
And I’m not the only one that thinks so – an astonishing number of home buyers are getting cold feet…
