Anxiety over a housing market disaster continues to rise all over America. Home sales are falling precipitously, double-digit price drops are already being reported in many major U.S. cities, and foreclosure rates are going through the roof right now. All that is thanks to the spike in mortgage rates that is causing an affordability crisis far worse than economists anticipated. Demand is cratering faster than ever before, which led a famous Big Short investor to warn about a “danger that households could come to lose a significant proportion of their property value overnight again”.
Existing home sales have gone down consistently every month for an entire year. The decline was fueled by recession fears, and more recently, by a backdrop of bank collapse and financial turmoil. It’s all creating a negative feedback loop between buyers and sellers, says Selma Hepp, chief economist at CoreLogic. Now, with rates hoovering 7% again, the cracks are growing wider in the U.S. housing market. In fact, Black Knight data shows that Between March 2021 and March 2023, total mortgage originations fell by 83%. Refinancings — which were more than 70% of the total at the beginning of the period — dropped by a stunning 95%, as soaring interest rates killed demand.
In March, U.S. home prices logged a ninth-straight monthly decline. In the eight months from June 2022 to February 2023, existing home prices fell 12%, from $413,800 to $363,000. S&P Market Intelligence data shows that 19 of the 25 major cities it analyzes registered a decline in home prices this year.
Currently, only 18% of homes listed for sale are affordable for the typical U.S. household, meaning that a buyer’s monthly mortgage payment is 30% or less of the buyer’s income.The last time the U.S. housing market looked so frothy was back in 2005 to 2007. Then home values crashed, with disastrous consequences, Seeking Alpha’s financial analyst Logan Kane highlights. The speed of the deterioration in fundamentals could be catastrophic. Conditions are becoming so extreme that even Goldman Sachs is admitting that 4 major cities are already facing a 2008-style housing crash, according to a note to clients obtained by the New York Post.
Meanwhile, ATTOM found that foreclosure filings rose by 36% in February. For 21 consecutive months, the rate of foreclosures has been surging all across the U.S. Over the past twelve months, there was a 115% increase in foreclosure fillings and a 67% rise in the number of properties repossessed by lenders. Adding fuel to the fire, in the last week of March, an $18.7 billion decline in real estate loans was recorded, but that was just a continuation of the $19.2 billion drop in the previous week. Combining the two weeks adds to a $37.8 billion plunge in real estate loans in the second half of March.
This is a very worrying number because it is the biggest since the collapse of the country’s then-second largest subprime lender, New Century Financial in March 2007 was the catalyst that ushered in the global financial crisis, and within the year led to the collapse of Bear Stearns and, eventually, Lehman. The pressure is on. It’s safe to say that the U.S. housing bubble won’t live for another year, and the coming months will be decisive for the market as prices continue to collapse. We have never seen so many similarities to the catastrophic event that rocked the world’s financial markets and plunged us into the worst economic recession in history. Only this time, we’re headed to an ever bigger downturn that will have disastrous consequences for all of us.
Janet needs to spend more time in the real world.t.co/K5yMYbxqKl t.co/uGsIGTX7Dm pic.twitter.com/G5g2BQlGwp
— Sven Henrich (@NorthmanTrader) April 11, 2023