House of Cards

The housing market landscape of 2020-2021 was that of demand outpacing supply. This is due in part to the financial burden of renting office buildings easing, as lockdowns made working from home increasingly in vogue, while near-zero Fed rates kept mortgage rates extremely low. By mid-2020, the 30-year fixed rate fell, below 3%, eventually printing a record low of 2.65% in early 2021 (1).

As people migrated out of larger cities into the suburbs to escape Covid restrictions, these artificially low rates allowed more people to apply for mortgages, at higher-valued properties, than would normally be affordable. The sudden surge in demand, rather than a healthy sign of post-covid recovery, merely creating another market bubble (2).


However, following the Fed’s rate hikes in 2022, mortgage rates quickly increased—currently hovering north of 6%—the drastic increase in mortgage rates, despite a decrease in housing prices (3), is putting strain on new homebuyers, who are seeing the average monthly payments increase over 50% (4).

Higher rates are also affecting housing affordability, which saw estimates plummet to -29% by March of 2022.

The current state of the housing market in the context of typical real-estate cycles is proving challenging for analysts to define (5), although the general consensus, shared by some industrial investors (6), is that real-estate is in a slow-down, with the chance of a correction or crash increasingly likely.

The crisis has extended to non-US markets with UK housing prices’ annual rate up 11% (7), while surging rental prices are creating problems in Canada (8) and Australia (9), as renters find it increasingly difficult to secure affordable housing of a reasonable standard.

China’s ongoing property crisis, which has seen its once-wealthiest woman lose over 50% of her fortune (10), has authorities providing billions of yuan to keep the sector from imploding (11); although China appears to have sufficient resources needed to restabilize this market (12).

 

References

  1. Mortgage rates chart: Historical and current rate trends

  2. This Is Housing Bubble 2.0: David Stockman

  3. US Pending Home Sales Are Down Most Since 2011 YoY (Ex-COVID)

  4. Here’s How Much a New Monthly Mortgage Will Cost

  5. Call it a 'crash,' call it a 'recession': The housing market is so weird right now that no one knows how to describe it

  6. The Other Shoe Drops: Blackstone Landlord Halts Home Purchases In 38 Cities As Market Crashes

  7. UK house prices rise at 11% annual rate despite cost of living crisis

  8. Nowhere to live: Rents in Canada surge as home prices fall

  9. People are shivering in cold and mouldy homes…

  10. Asia’s richest woman loses half her wealth in China’s property crisis

  11. China Launches 200 Billion Yuan Bailout Of Reeling Housing Sector

  12. China Has $501 Billion Bailout Ammunition for Property Mess