© Reuters.
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Investing.com – Hours before release, US home sales data fell short of expectations, posting consecutive declines as data pointed to a recession in general and housing recession in particular.
The data also indicates that buyers are losing confidence in their economy, particularly with mortgage rates rising for the first time since 2008, which makes the 2008 crisis looming and heralds a large housing bubble.
US home sales
It recorded 4.8 million homes in August, down from the previous month when it recorded 4.82 million homes in July.
Currency traders are watching domestic data closely, as it is the first published indicator of the month on demand in the real estate sector. Selling a home also means that real estate agencies get commissions, and homeowners often buy new items for their homes like tools and furniture right after they buy a home. The downward trend of this ratio has a negative impact on the country’s economy as the increase in home purchases by consumers means they are in a state of confidence and optimism in their financial situation.
Highest mortgage since 2008
The US 30-year fixed-rate mortgage jumped to 6.25% last week, the fifth consecutive and highest since October 2008, illustrating a growing challenge for the housing market.
Data from the Mortgage Bankers Association on Wednesday showed the rate rose about a quarter of a percentage point, the highest since mid-June.
Adjustable mortgages also increased, with the average five-year mortgage jumping 31 basis points to 5.14%. Over the course of the day, Fed policy makers will raise interest rates by 75 basis points for the third consecutive meeting.
stagnation of the real estate market
The rapid rise in mortgage rates this year has stagnated the US housing market, depressing sales and putting home prices under pressure.
Last week, data from Freddie Mac, released Thursday, showed that the 30-year average loan broke the 6% mark for the first time since 2008, threatening a long-term recession for the U.S. housing market and looming over the real estate crisis of 2008.
Meanwhile, home purchase orders fell nearly 30% from a year ago, while refinancing fell nearly 83%.
greater than 2005
House price growth in 2021 was nearly 14%, a percentage higher than the house price growth at the peak of 2005, when the biggest bubble of 2005 (Arizona) was bigger than today’s biggest bubble. (Idaho).
In 2021, 38 states experienced 10% higher house price growth than the 26 states in 2005. So national house price growth today is more extreme than it was in 2005 and 2006, as is the recession. is escalating and subsequently exacerbating causing a housing bubble to collapse the economy? We do not know yet.
The bubbles concentrated in 2005 were bigger, but today they are huge, does that mean they will be worse than the disaster of 2008?
Sales volume is totally collapsing today and there are no signs of slowing and new home sales have fallen by 51% since August 2020.
It should be noted that in 2008 sales fell by 70% after the onset of the recession and after several credit events. We are down 51% so far with no job losses and no credit events, so the indicators are worse than before.
The bubble of today
Today’s bubble revolves around record liquidity growth that has been channeled into financial assets versus loans. When large corporations started entering the single-family home market, housing became just another financial asset and an easy recipient of this excess liquidity that had historically been trapped in the stock market.
Real money growth never contracted or slowed below 0% when the 2006 housing bubble burst, not until mid-2008. But today, liquidity is decreasing dramatically as the Federal Reserve withdraws money from the system. to correct an ongoing inflation problem.
The 2008 crisis started out as a housing problem, but turned into a banking crisis. We now have real estate data that, by most measures, are on track to be similar to 2008. We find that we have a much bigger debt problem in the federal government and household debt is concentrated in what we call consumer debt, especially student loans and auto loans, not many mortgage debt.
The Fed and quiet prices .. But the market is about to stagnate
Rising home prices and rising mortgage rates this year have pushed home ownership out of reach for many potential buyers. The decline has been rapid and severe, with a number of measures indicating weak sales and construction activity, which portends market stagnation.
The Fed’s efforts to reduce inflation led to a rise in mortgage rates, which cast a shadow on the housing market and slowed the market.
With mortgage rates at their highest levels since 2008, this has exacerbated affordability challenges and rising house prices. While higher rates are expected to make funding costs more expensive, this could ease demand for homes and possibly ease pricing pressures.
This is what Fed Chairman Jerome Powell, who previously told Congress, predicted that the housing market is slowing and that home prices could fall fairly quickly. The Federal Reserve raises interest rates to cool large-scale demand in the economy, including housing, to tame high inflation for decades.
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