Is the housing market about to crash? That question has been on the minds of many prospective homebuyers lately.
There’s plenty of evidence to suggest that a crash is coming. Fortune reports that affordability in the current market is worse than it was in 2006 when the housing bubble neared its peak. With more and more credit available, consumers had rushed to buy homes, only to see their dreams dashed when the subprime loan crisis left many new homeowners with mortgages they were unable to pay. Now, a new housing market crash may be looming.
When prices surge to these levels, home sales can be expected to decrease. But recent data indicates that they fell even further in July. According to Seeking Alpha, “existing-home sales fell 2.2% in July to a seasonally adjusted annual rate of 4.07 million.” Over the past one year, home sales have declined more than 16%. Meanwhile, the median existing-home sale price is up almost 2% year-over-year (YOY), reaching $406,700.
Is a Housing Market Crash Coming?
According to Lawrence Yun, Chief Economist at the National Association of Realtors, this type of activity can be attributed to two factors: mortgage rates and the availability of inventory. Yun notes that neither one of these have been in homebuyers’ favor lately. But there seem to be other factors pushing the U.S. toward another housing market crash as well.
InvestorPlace’s Shrey Dua recently spoke to Michael Gayed, Portfolio Manager at Tidal Financial Group and publisher of the Lead-Lag Report, about this topic. He identified another negative catalyst bearing down on the industry. As Gayed sees it, the return of student loan payments will likely have bearish consequences for the housing market:
“[It’s] only a matter of time until consumers start to realize that they have to cut back on their discretionary spending. Now, if I’m right about that too, combined with the student loan payment resumption, very suddenly then, I suspect you’re going to have consumers really pulling back almost all at once, because they start realizing that their cash flow is not what it once was. You get that, I promise you, unemployment rises. You get that, I promise you housing prices start going down.”
Gayed has also advised investors to “get bearish” on homebuilder stocks, citing the looming credit event as a catalyst likely to push the sector down. And it’s true that stocks he named — such as Lennar (NYSE:LEN) and D.R. Horton (NYSE:DHI) — have been trending downward this month as investors begin to pull back amid housing market concerns. Meanwhile, real estate stocks like Zillow (NASDAQ:ZG) and Redfin (NASDAQ:RDFN) are performing similarly.
Why It Matters
As of now, many economic indicators suggest that a housing market crash is imminent. As Dua reported, home sales fell in June and have continued this pattern in July. This isn’t surprising, given that affordability has been getting worse. Now that student loan repayments are poised to constrain consumers even more, buying houses is about to get even harder for many Americans.
On the date of publication, Samuel O’Brient did not hold (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.
