We’re already in the midst of a historic housing market crash that is shaping up to become the biggest since at least the 1940s. This downturn is going to affect all of us and have far-reaching repercussions for the US economy and financial markets. With home values plunging in recent months, the net worth of millions of families is at huge risk, and many of these households are already underwater on their mortgages, facing foreclosure, and losing their homes in 2023. Experts say this is a “very frightening time” for the entire real estate industry, and new data reveals disturbing similarities to the 2008 disaster and why we all should worry about what’s coming next. That’s what we’re going to expose today.
Home prices surged by 38.1% since 2020, according to figures released by Fortune. To put it into perspective, even a 28% drop in housing prices like it happened in 2009, would not put home prices back at their historic norms. Right now, higher mortgage rates are making homes less valuable and more costly. In other words, even though price corrections have already begun all across the country, higher rates are elevating mortgage payments and making it more expensive for buyers to purchase a home.
But since November 2022, housing prices have started to fall by an average of 2.4% month-over-month, according to the Case-Shiller National Home Price Index. Experts are predicting that in the third quarter of 2023, US properties may lose on average 15% of their value. Several other indicators point to a further home price correction in the subsequent quarters. For instance, U.S. home construction has been falling for five straight months, with single-family housing starts plunging by almost 5% in Q1, according to a Commerce Department report.
Moreover, institutional homebuyers are already preparing for a major downturn and reducing their purchases now so they can snap up better deals after the big crash occurs. For example, YieldStreet reduced buying levels by 90%, while Blackstone-owned Home Partners of America also slowed their purchases by 88%. “We’re pretty much on pause across all home buying strategies,” Tejas Joshi of Yieldstreet told Fortune.
With economic conditions deteriorating month after month, a drag down in business activity and rising unemployment is “creating the largest housing correction since 1945,” said Mitch Roschelle, a founding partner at Macro Trends Advisors. “The current correction already stands as the second largest in the post-World War II economy,” Roschelle emphasizes.
And many US families are already feeling the impact of the current housing bubble burst. Households that experienced increases in their net worth during the peak of the bubble are now facing the “reverse wealth effect,” according to best-selling finance author and former Wall Street analyst, John Rubino. With the value of their houses plunging significantly, families are losing their purchasing power and coping with tighter budgets, which is resulting in slower spending and economic growth, Rubino notes.
That has been particularly detrimental for middle-class households, which tend to be heavily leveraged, with their homes as primary assets. Credit conditions are already tight, and housing and economic activity are already weakening, a crash is already underway, and the numbers indicate that the worst is still ahead of us. For US homeowners, the pain has only just begun. We’re not watching the death of the American dream, and the next few chapters are going to be even more disturbing than what we’ve seen so far.
Views: 308