Black Swan housing market is boiling

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The euphoria in the US real estate market may be a danger signal, and high home values ​​could be threatened with a sharp drop.

Record interest rates, historically tight inventories and the COVID-19 pandemic leading to the flight from city centers to the suburbs have triggered an unprecedented rise in house prices in the United States.

“The ‘black swan’ is the inevitable collapse in house prices in the United States – they are in the stratosphere compared to all the fundamental factors that determine valuations,” wrote David Rosenberg, chief economist and strategist at Rosenberg Research. , based in Toronto.

Home prices climbed a record 16.6% year-on-year in May, according to the National Case-Shiller Index, and are now 38.1% above their 2006 high.

The surge has made house prices 25% overvalued relative to residential rents, nearly 50% above normalized levels for inflation, and more than 25% overvalued relative to income measures like the cost of employment index, according to Rosenberg.

The “best remedy for high prices is high prices,” he wrote.

Recent data shows that home buyers are increasingly hesitant with prices at all-time highs.

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The University of Michigan consumer survey released in July found that only 30% of consumers said home buying conditions were favorable, the lowest since 1982.

This as the number of single-family homes under construction in the United States last month reached 689,000, the highest since July 2007, when the housing bubble burst.

“The real estate market‘s peak seems to be setting in,” warned Edward Moya, senior market analyst at OANDA.

He pointed to the recent drop in mortgage applications and housing starts.

Mortgage applications to buy a home fell for several weeks and were down 19% year-over-year in the week ending August 13. critical equipment skyrockets while being unable to find enough workers to complete the houses.

There are indications that these issues are being resolved.

Lumber prices have fallen more than 70% from this year’s peak. What’s more, builders have added workers in 11 of the past 12 months, and the extra $ 300 a week in unemployment benefits is set to expire next month, potentially bringing more workers back into the workforce.

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A further increase in inventory is unlikely to completely cool the housing market, as supply remains “very, very low,” said Odeta Kushi, deputy chief economist at First American Financial Corp.

“It’s like going from an extremely hot market to just a hot market,” she said. “It’s still a seller’s market.”


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