With the slowdown in the US housing market seen in 2022, investors may be wondering whether a market crash akin to the 2008 housing crash is upon us again.
While the economy is shrinking, the housing market is cooling, coupled with the stock market drawdowns and rising inflation, which is all scaring market participants who are now Googling how to sell their homes at an accelerating pace.
Meanwhile, Eric Basmajian, Founder & Editor at EPB Macro Research, warned investors via his Twitter that volumes in the housing market are imploding, with new home sales dropping by 51% compared to two years ago.
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“Home price growth in 2021 was nearly 14% which was higher than home price growth at the peak in 2005! The biggest bubble in 2005 (Arizona) was bigger than the biggest bubble today (Idaho). In 2021, 38 states had home price growth >10% compared to 26 states in 2005.”
The graph depicts a more extreme growth in house prices compared to the years preceding the 2008 housing bubble crash.
Home supply growth
Looking at the monthly supply of new single-family homes offers insight into the current pool of homes and how long it will be depleted according to the current sales pace.
Today, the monthly supply is at 10.9 months, indicating that it would take 11 months to deplete the inventory of homes. In 2008, this number climbed as high as 12.2, with a sales decline of 70%, while currently, that number is at 51%.
Mortgage rates and liquidity crunch
In particular, mortgage rates have jumped over 2.7% compared to last year, and despite actually being lower by roughly 5.6%, the pace of the increase is almost unprecedented.
Similarly, the liquidity growth seen from the Covid lockdowns onwards was equally fast, and the current house prices have been propped up partially by this excess liquidity.
In essence, the current housing market issues are mostly caused by the current liquidity crunch as the Federal Reserve (Fed) is pulling funds out of the markets, coupled with rising interest rates, meaning a perfect storm for the 2022 housing market is in the books.
Quite possibly, the current housing slump could be equally bad for the housing sector as the one in 2008; yet, the banking sector seems to be in far better shape than it was in 2008, so a global meltdown this time around seems less likely.
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