February 23, 2024

Collapsing Housing Market

Diane M. Kimura,

A 10% month-over-month decrease in housing inventory, dropping to a mere 1 million units in December.

Lack of housing is one big challenge keeping inflation elevated above the Fed's desired 2% rate.

This abnormally low supply will keep the supply/demand dynamics tight and keep a bid on housing prices. This matters because housing is roughly one-third of CPI.
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Tim adds:

And yet existing home sales fell over all of last year.
https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/

FTA:

"Existing-home sales cooled in December, down 1% from the month before and 6.2% from a year prior. 2023 ended with existing-home sales plummeting to 4.09 million"

They did tick up slightly in January, up 3.1% from December but still down from a year ago. https://www.bankrate.com/real-estate/existing-home-sales/

And according to Bloomberg new housing starts are down as well.
https://www.bloomberg.com/news/articles/2024-01-18/us-housing-starts-fall-for-first-time-in-four-months

"Residential starts decreased 4.3% last month to a 1.46 million annualized rate , government data showed Thursday. Single-family home construction fell by the most since July 2022, following a surge in November, while multifamily projects rose to a five-month high."

So housing inventory is dropping off, even while existing home sales are down. That tells me that people do not feel confident enough about the future to lock themselves into a mortgage now.

This strongly suggests to me we are on the cusp of a recession. The Fed cannot cut rates because inflation will spike, and they cannot keep them high because the nation made slide into recession.

The problem is legion, for they are many but all ultimately go back to the blunders of the current Administration. Certainly the flood of illegals has artificially inflated demand for housing, and most of that is not permanent but simply temporary emergency housing which is driving up prices and at the same time strangling sales.

It doesn't help that Joe Biden has proposed almost doubling capital gaines taxes on real estate, from 20% to 39%. The prospect of that happening alone will spook investors. https://www.washingtontimes.com/news/2023/mar/13/bidens-proposal-to-double-capital-gains-tax-rate-c/

And his other restrictive policies make it harder to keep the market moving. That especially includes his policies to make natural gas more costly (including the stoves and furnaces). https://www.wsj.com/articles/biden-tax-proposal-would-squeeze-apartment-building-owners-11620734400

It's clear not just this administration but the Federal Reserve is clueless about what their policies are causing.

Posted by: Timothy Birdnow at 01:05 PM | Comments (3) | Add Comment
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