Before I start, a big thank you to my friend @MacroAlf for promoting my Twitter page.
I got over 10,000 new followers!
So let's see if we can add some value…
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— Eric Basmajian (@EPBResearch) August 29, 2022
This is a map of home price growth at the peak of today's housing bubble in 2021.
See the difference?
In '05, home price growth was concentrated in certain states, namely Arizona, Nevada, California, and Florida.
Today, it's everywhere.
— Eric Basmajian (@EPBResearch) August 29, 2022
So national home price growth today is MORE extreme than in 2005 and 2006.
The concentrated bubbles in 2005 were larger, but today it's so broad-based.
Does that mean it will be worse than the 2008 debacle?
Let's scan just a few data points.
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— Eric Basmajian (@EPBResearch) August 29, 2022
Yes, I know that many of these homes are not "completed," but that doesn't matter at all. The total number is the leading indicator.
Also, we're more concerned about the inventory of new homes vs. existing homes because all the economic activity & jobs are tied to new homes.
— Eric Basmajian (@EPBResearch) August 29, 2022
It's worth noting that in 2008 sales declined 70% AFTER the recession started and AFTER numerous credit events.
We're down 51% so far with no job losses and no credit events.
Food for thought.
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— Eric Basmajian (@EPBResearch) August 29, 2022
In the lead-up to the peak in the housing bubble in 2006, liquidity growth was NOT excessive.
The bubble in 2006 and the crash in 2008 were more about a debt crisis and cheap credit.
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— Eric Basmajian (@EPBResearch) August 29, 2022
Today's bubble is more about record liquidity growth that was channeled into financial assets vs. bad loans and underwriting standards.
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— Eric Basmajian (@EPBResearch) August 29, 2022
Real money growth never contracted or slowed below 0% when the 2006 housing bubble popped, not until mid-2008.
Today, liquidity is falling sharply as the Fed pulls money out of the system to correct an ongoing inflation problem.
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— Eric Basmajian (@EPBResearch) August 29, 2022
The debt bubble was worse in 2008 because the debt was concentrated in the banking sector and the household sector in the form of mortgages.
Together, the household and financial sectors had almost 220% debt to GDP compared to 150% today.
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— Eric Basmajian (@EPBResearch) August 29, 2022
Today we have a bigger debt problem in the Federal Government, and the household debt is concentrated in what we call consumer debt, mainly student loans and auto loans, not so much mortgage debt.
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— Eric Basmajian (@EPBResearch) August 29, 2022
Housing volumes are extremely important for the business cycle and a leading indicator of recession risk.
New home volumes down 51% foreshadow trouble no matter how you look at it.
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— Eric Basmajian (@EPBResearch) August 29, 2022
There’s much less of a chance that this housing downturn morphs into a global banking crisis.
But I'm still highly concerned about recession risk given the magnitude of this housing slowdown.
I'm not sure it can be avoided at this point.
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— Eric Basmajian (@EPBResearch) August 29, 2022
- Boise, Idaho; Charlotte, North Carolina and Austin, Texas were the three most overvalued areas in the United States, according to Moody’s Analytics
- Moody’s found that found that 183 of the nation’s 413 largest regional housing markets are ‘overvalued’ by more than 25 percent
- If a recession hits, house prices in those 183 regions could plummet by as much as 20 percent, Moody’s predicted
- If there is not a recession, they will still fall 10-15 percent, the analysts believe – echoing other experts
- The housing inventory is at its highest level since April 2009, as sellers struggle to get rid of their property because mortgages have become more expensive
- Mortgage rates have nearly doubled since January, rising to 5.13 percent for a 30-year loan as of last week, according to Freddie Mac