Big housing markets are showing signs of trouble. From Denver to San Jose to Austin to Portland to Seattle, house prices are slumping, inventories are skyrocketing and economist Robert Shiller (famous for spotting bubbles before they burst) says “This could be the very beginning of a turning point.”
The most reasonable explanation? Housing prices are unsustainably and artificially high and people are declining to participate in the market because of it. Presumably they’re choosing to stay in smaller places, moving away from big cities, or renting in an increasingly monopolized and price-gouging rental market.
Rising interest rates aren’t helping to attract new buyers either.
Add to that the fact that Trump’s massive, super great, never before seen tax cut has resulted in…. wait for it….. wage decreases:
So what happens next? Well, if the bubble bursts, speculators who paid too much for housing will become over-leveraged, in which case they’ll start dumping inventory. That will trigger a cascade of sell-offs which will tank the market altogether. Good thing we have all those financial regulations in place because we learned our lesson during the subprime housing crisis back in 2008.
Oh, the Trump administration and senate republicans have been rolling those back? Cool, cool.
A tanking market is great news for those with loose capital, say the beneficiaries of the recent tax cuts in the US.
Existing-home sales dropped in June for a third straight month. Purchases of new homes are at their slowest pace in eight months. Inventory, which plunged for years, has begun to grow again as buyers move to the sidelines, sapping the fuel for surging home values. Prices for existing homes climbed 6.4 percent in May, the smallest year-over-year gain since early 2017, and have gained the least over three months since 2012, according to the Federal Housing Finance Agency. Shares of PulteGroup Inc. fell as much as 4.9 percent Thursday morning after the national homebuilder reported that orders had declined 1 percent from a year earlier, blaming rising mortgage rates.
“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics Ltd. in London. “People are saying: Let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.” That means “we’re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years.”