Re: The U.S. housing market just took another hit

[Biden buffoonery]

In article <1b50f6a8-b8fd-4dbe-9986-
c52243...@googlegroups.com>
ignorant emotional democrats <utter...@cnn.com> wrote:
>
> Joe Biden could fuck up taking a shit.
>

Back in early February, Minneapolis Fed President Neel Kashkari
went on CNBC to make it clear that loosening financial
conditions, including mortgage rates which had slipped at the
time to 6.09%, could interfere with the Fed’s inflation fight if
it saw the economy warm up.

“The [U.S.] housing market is starting to show signs of life
again because mortgage rates have come back down,” Kashkari
said. “You’re right it [loosening financial conditions] does
make our jobs harder to bring the economy into balance. All
things being equal, that means we’d have to do more with our
other tools.”

In the days following that interview, financial markets
tightened back, and the average 30-year fixed mortgage rate shot
back up to 6.97% as of Friday, as investors realized that
improved economic data means the Federal Reserve will likely
hold the federal funds rate higher for longer than previously
expected.

Real estate agents and homebuilders had been celebrating a
slight improvement in transaction levels spurred by reduced
mortgage rates earlier this year, but this rebound in mortgage
rates means the U.S. housing market, activity wise, could be in
for an extended period of sluggishness.

Already, mortgage purchase applications—a leading indicator for
home sales volumes—has started to fall again. Indeed, this
week’s seasonally adjusted Mortgage Purchase Application Index
came in at the lowest level since 1995.

“After a brief revival in application activity in January when
mortgage rates dropped down to 6.2%, there has now been three
straight weeks of declines in applications as mortgage rates
have jumped 50 basis points over the past month,” wrote Joel
Kan, the deputy chief economist at the Mortgage Bankers
Association, earlier this week. “Data on inflation, employment,
and economic activity have signaled that inflation may not be
cooling as quickly as anticipated, which continues to put upward
pressure on rates.”

The economic shock from this latest mortgage rate jump means the
U.S. housing market slump will continue, and could even deepen,
risking pushing the U.S. economy into a recession.

On Tuesday, economists at the Federal Reserve Bank of Dallas
warned that "the perils detected in the U.S. and German housing
markets pose a vulnerability to the global outlook because of
the size of those nations’ economies and significant cross-
border financial spillovers."

Historically speaking, the economic impact from the Fed's
inflation fighting always hits housing first. It goes like this:
The central bank begins by applying upward pressure on interest
rates. Not long afterwards, home sales sink and homebuilders
begin to cut back. That causes demand for both commodities (like
lumber) and durable goods (like refrigerators) to fall. Those
economic contractions then quickly spread throughout the rest of
the economy and, in theory, help to rein in runaway inflation.

The question heading forward is if the housing market can absorb
these economic shocks without it spreading throughout the rest
of the economy. On one hand, private residential fixed
investment (i.e. housing GDP) has already seen a sharp pullback.
On the other hand, residential construction employment remains
at its cycle peak as builders avoid layoffs as they work the
historic backlog they accumulated during the Pandemic Housing
Boom.

While spiked mortgage rates have translated into a historic
pullback in home sales, it hasn't translated into a house price
crash. Through December, U.S. single-family home prices as
measured by the seasonally adjusted Case-Shiller National Home
Price Index (see chart above) are down 2.7% from their June 2022
peak. Without seasonal adjustment national home prices are down
4.4%. (Keep in mind, some regional housing markets still haven't
seen a decline.)

"Housing froth has reemerged since 2020, with signs of a
pandemic housing boom extending beyond the U.S. to other, mostly
advanced, economies. While house-price growth has recently begun
to moderate—or, in some countries, to decline—the risk of a deep
global housing slide persists," wrote Dallas Fed economists
earlier this week.

Heading forward, Dallas Fed economists expect the U.S. housing
market to continue passing through a "modest" home price
correction. However, if the Federal Reserve were to get even
more aggressive in its inflation fight, it could create a
"severe" correction in national home prices.

"While a modest housing correction remains the baseline
scenario, the risk that a tighter-than-expected monetary policy
may trigger a more severe price correction in Germany and the
U.S. cannot be ignored," wrote Dallas Fed economists earlier
this week.

Want to stay updated on the housing recession? Follow me on
Twitter at @NewsLambert.

<https://fortune.com/2023/03/04/housing-market-just-took-another-
hit-mortgage-rates-home-price-correction-real-estate/>