Housing Market cras….er “difficult correction”- “but it’s ok!”

[Big Blitz]

Housing market activity is crashing—and it threatens to push the U.S. into recession just like it did in 1981 and 2008

 

Analysts like to say “the Fed will push until something breaks.” That something could be the U.S. housing market…..

 

 

“Las Vegas is one of the leading indicators for [home] price action in the housing market, like we saw in 2008 and the recent frenzy. We are absolutely feeling the heat here. The buyer pool has, for the most part, dried up,” Kristen Riffle, a real estate agent in Las Vegas, tells Fortune.

 

But it’s not just bubbly markets like Las Vegas and Boise that are feeling the pain: This housing downturn is picking up steam nationwide. In fact, as of last week, mortgage purchase applications are down 38% on a year-over-year basis. That marks the lowest reading since 2014.
 

Let's be clear, though: This "crash" in housing activity—or as Fed Chair Jerome Powell calls it a "difficult correction"—didn't appear out of thin air. It's by design. The Federal Reserve flipped into inflation-fighting mode this spring with hopes that elevated interest rates would cause activity to slump in rate-sensitive sectors like housing.

 

The Fed's reasoning for slowing the housing market boils down to two words: demand destruction. Historically speaking, mortgage rates spike as soon as central banks go into inflation-fighting mode. That mortgage rate shock causes sales for both existing and new homes to fall. As builders cut back, demand for both commodities (like lumber) and durable goods (like refrigerators) then declines.
 

It also causes real estate and construction layoffs. Those economic contractions then quickly spread throughout the rest of the economy and, in theory, help to weaken the labor market and tame high inflation….

 

https://fortune.com/2022/10/25/housing-market-activity-crashing-could-cause-recession-like-1981-2008-federal-reserve/amp/

 

Edited October 26, 2022 by Big Blitz