Housing Prices Are High — and Potentially Illusory

Home Is Where the Heart (of Darkness) Is

I once received a strange compliment from a reader who said a column I had written made him say “Oh s***!” This was good because I’d shown him that there were serious problems on the horizon (in the commodities market, shortly before it crashed in 2008). Unfortunately, a recent look through the statistics on US housing just made me say exactly the same thing — and I don’t think it’s positive.

Many aspects of the economy are still being buffeted by the ripples from the pandemic, which makes precedents hard to apply, and should make everyone cautious as to their judgments. Housing market data is also, inevitably, reported with a lag. That said, the latest numbers on monthly sales of existing homes in the US show they are selling at an annualized pace barely above 3 million. Barring one bad month in the aftermath of the Global Financial Crisis, this is the worst figure in 27 years:

Transactions Have Collapsed

Worse is to come. “The slide in home sales is far from over,” says Nancy Vanden Houten, lead US economist at Oxford Economics. “Keep in mind that recorded sales of previously owned homes are based on contracts signed a month or two earlier. Since those contract signings, mortgage rates are up another half-percentage point and it’s doubtful that the squeeze on affordability from higher rates has been offset by declines in home prices.”

As might be expected when 30-year fixed mortgage rates have just topped 8% for the first time since 2000, demand for home loans has taken a dive. The index kept by the Mortgage Bankers Association suggests fewer Americans are applying for mortgages than at any time since 1997. As these numbers are highly seasonal, the index is shown as a 50-week moving average:

The Dwindling Appetite for Mortgages