From Business Insider: The US housing market isn’t just slowing down, it’s in the early stages of a major correction. With mortgage rates nearing a blistering 7% and home inventories still tight, there’s trouble ahead, according to a Tuesday note from Comerica.
The firm’s chief economist forecasted that real residential housing investment will plunge 18% in 2023, and sales of new single-family homes will drop 25%.
Rhys Williams, the chief strategist at Spouting Rock, told me yesterday that he, too, thinks a correction is likely, given the red-hot rally the market saw when the COVID-19 pandemic hit.
“People don’t buy a house for $500,000. They buy a monthly payment that works for their income,” Williams said. “So a lot of housing decisions aren’t driven by what something’s worth, but what people can afford.”
And what people can afford today is far different from two years ago, when government stimmy checks flushed consumers with spare cash while mortgages cratered to historic lows.
More and more Americans are getting priced out of the market as rates now rise and inflation eats into peoples’ savings, Williams explained, so eventually housing prices have to fall further to match weak demand.
The latest S&P Case-Shiller housing data showed home prices are already on the decline, and some strategists expect them to tumble another 20%.
But the dismal outlook extends beyond just housing. According to the latest consumer confidence report, Americans are feeling downbeat across the board.
Between stubborn inflation, dwindling pandemic savings, and a looming recession, optimism has dropped.
“It’s actually surprising to see consumer confidence stayed as high as it has been,” Williams said. “It’s one more leg to give the doves at the Fed a reason to pause after they raise rates at the next meeting.”
Lynn Franco, senior director of economic indicators at the Conference Board, said in the latest report that consumers’ expectations for the near-term remain dismal.
At the next Fed meeting, traders expect policymakers to announce another 75 basis point rate hike, likely resulting in further increases in borrowing costs for everything from housing and mortgages to auto loans.
In Franco’s words: “The Expectations Index is still lingering below a reading of 80 — a level associated with a recession — suggesting recession risks appear to be rising.”