With real estate prices continuing to hold up well, talks of an incoming U.S. housing market crash seem ridiculous. Thanks to a low unemployment rate and a labor market that continues to outpace expectations, prospective homebuyers seemingly have little choice but to suck it up and find ways to manage escalating prices.
Nevertheless, people should still be on the lookout for housing market indicators that could be broadcasting real estate market crash signs. As we’ll get into below, the granularity of the data implying a robust post-pandemic recovery leaves some question marks. To be fair, questions don’t necessarily indicate problems. However, with such an expensive purchase, you’ll want to enter the space after conducting thorough research.
Admittedly, real estate prices tend to rise over time. Further, certain regions such as San Francisco might not really see a downturn due to limitations building on a peninsula. Therefore, broader U.S. real estate trends might not align with specific regions. That said, buyers need to be careful now because of the distinct dynamic of elevated prices and borrowing costs. On that note, below are three signs that might point to a U.S. housing market crash.
Predicting Housing Market Crash: Rising Unemployment
On paper, the May jobs report presented a picture of comprehensive economic health, with 339,000 employment opportunities added. This stat came in above analysts’ expectations and also beat out April’s tally. So far, so good. However, the unemployment rate also ticked higher to 3.7% from a five-decade low of 3.4% in the prior month. Possibly, this could be an early warning sign of a U.S. housing market crash.
True, you don’t want to read too much into any one data point. However, it’s worth pointing out that – using data from the U.S. Bureau of Labor Statistics – prior to the Great Recession, the unemployment rate hit a multi-year bottom of 4.4% in October 2006. From there, the rate gyrated from this bottom until June 2007, when it hit 4.6%.
From there, unemployment gradually rose until it sharply accelerated throughout most of 2008 and into 2009. Similarly, following Covid-19, the rate first dropped to 3.4% in January of this year and subsequently bounced around this level. However, if joblessness starts to rise decisively from here, predicting a housing market crash might not seem so unreasonable.
U.S. Housing Market Crash: Household Debt and Mortgage Delinquencies
According to the Federal Reserve Bank of New York, total household debt spiked by $148 billion (or 0.9%) to reach $17.05 trillion in the first quarter of this year. Per the report, “[m]ortgage balances climbed by $121 billion and stood at $12.04 trillion at the end of March. Auto loan and student loan balances also increased to $1.56 trillion and $1.60 trillion, respectively, but credit card balances were flat at $986 billion.”
Frankly, we may be carrying too much debt, presenting concerns about a possible U.S. housing market crash. Indeed, as ChatGPT pointed out, one of the housing market indicators for deciphering U.S. real estate trends is the relationship between high levels of household debt and mortgage delinquencies. Moreover, the rise of mass corporate layoffs could apply significant pressure on this dynamic.
Remember, with the pink slips we’ve seen, we’re not talking about burgers-and-fries jobs. No, we’re seeing heavy cuts in the technology sector or other areas that often require a college education. Plus, consumer debt service payments as a percentage of disposable personal income was 5.99% in Q1 2008. As of the latest read in Q4 2022, this metric jumped to 5.73%.
Housing Market Indicators: The End of Remote Work
Perhaps one of the clearest signs of a possible U.S. housing market crash is the end of remote work. I know, it’s an incredibly controversial concept. However, an increasing number of companies have reversed course on their remote work policies. Not only that, some workers sold their homes and moved out to more rural, cheaper locales (such as Boise, Idaho).
Moving forward, the Boises of America could be the epicenter of real estate market crash signs. Essentially, workers must choose between protesting (at risk of termination) or returning to tow the corporate line. However, Americans collectively are not in a position to protest indefinitely (see the point about household debt above). So, capitulation appears to be the answer. And that means Boise real estate could be getting cheaper soon.
Of course, I can’t guarantee that remote work will end. However, coming from the corporate world, I can tell you that these suits aren’t stupid. Back in 2015, Forbes ran an article noting that wasting time at work represented an epidemic. But suddenly, management is supposed to believe that a lack of accountability increases productivity. Again, these suits aren’t stupid. And that could eventually yield localized declines within U.S. real estate trends.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
