Housing Boom Echo: Contrasting 2008 Crash with 2023's decline

Housing Boom to Bust: Contrasting 2008 with 2023

Updated Nov 12, 2023

Exploring the 2023 Housing Outlook, we reflect on the 2008 crisis—learning from the past to avoid future mistakes. Real-time insights showcase valuable lessons.

Introduction

The housing market in 2023 presents a complex and nuanced landscape characterized by competing forces pulling the market in different directions. On the one hand, a sense of optimism is driven by the continued resilience and strength shown by the broader economy as it emerges from the shadow of the COVID-19 pandemic.

Factors such as robust job growth, rising wages, and strong consumer spending have fueled robust demand for housing. This demand has underpinned solid home price appreciation and new home construction activity over the past couple of years.

However, juxtaposed against this optimism is the looming threat of a potential housing market downturn and bust. Rising interest rates pose a significant challenge as the Federal Reserve aggressively hikes rates to combat high inflation. After holding near record lows during the pandemic, mortgage rates have nearly doubled in 2022. This has added hundreds of dollars to monthly housing costs for new buyers. Affordability has deteriorated, with many first-time buyers priced out of the market.

At the same time, high home prices in many markets have stretched buyer affordability to the limit based on traditional lending standards of 3-5x income. Years of solid price gains have also raised the risk of overvaluation in some previously red-hot housing markets. If economic growth slows more than expected or unemployment rises due to Fed rate hikes, it could lead to a correction in prices.

The convergence of these factors – rising rates, worsening affordability, and potential economic weakness – has raised concerns about the sustainability of the current housing boom. A downturn or bust cannot be ruled out, especially if higher borrowing costs combine with job or income losses to cool demand. This dichotomy between optimism and risk defines the complex and uncertain outlook facing the housing market in 2023.

Rising Above: The Optimistic Horizon of the Housing Market

Despite the challenges, there are reasons for optimism in the housing market. The demand for housing remains robust, underpinned by a generation of millennials reaching home-buying age and seeking stability after years of uncertainty. Approximately 52% of millennials were homeowners in Q4 2021, nearing 50-year high levels according to data from ATTOM, as many look to establish roots after renting for extended periods. Additionally, remote work policies have expanded the geography of home searches, allowing buyers to look beyond traditional urban centres for more affordable options. Some data suggests that nearly one-quarter of homebuyers in 2021 utilized their newfound flexibility to relocate to a different city or state.

Construction activity has also picked up, with housing starts reaching their highest levels since the 2006 peak, aiming to address the chronic undersupply that has characterized the market for years. Builders permitted 1.8 million single-family housing starts in 2021, the most in 15 years. These closings and in-progress buildings could help replenish inventories. However, deliveries also face constraints like high labour and material costs that builders must navigate. Suppose construction can outpace typical rates of 1.5-1.6 million per year. In that case, it suggests the increase in supply, if sustained, could help moderate price growth and improve affordability over time as more options become available to buyers.

Affordability and Interest Rates: The Twin Challenges

However, affordability remains a critical concern. Even with some slowing in price gains, the median existing-home price rose 15.8% in 2021 to $346,900, according to the National Association of Realtors—the largest annual increase in 35 years of data. Housing is increasingly strained for Americans with wages rising just 4.5% annually. The National Association of Home Builders/Wells Fargo Housing Opportunities Index, which measures affordability based on income and median prices, saw its largest quarterly drop in Q4 2021.

At historic lows below 3% for nearly two years, interest rates are now on an upward trajectory as the Federal Reserve tightens monetary policy to combat 8.6% inflation. According to the current data the average 30-year fixed mortgage rate rose from 3.22% to 8.01 between January 2021 and Nov 2023. With each 1 percentage point increase adding approximately $250 to the monthly payment on a $400,000 loan, housing affordability faces renewed pressure despite recent signs of a cooling price appreciation. “The reality is, a significant number of homebuyers are finding themselves priced out of the market.

The burden of monthly payments has become too heavy for many, pushing them to return to their parents’ homes. It’s not just the mortgage struggle; high rents add to the financial strain. To make matters worse, wages aren’t keeping pace with the real inflation, leaving people feeling squeezed from all angles.”

Untangling the Housing Bust: Peering into the Risk Abyss

The potential for a housing bust looms as affordability challenges intersect with economic headwinds. Should interest rates continue rising to 7% or higher, demand could plunge once monthly payments pass buyers’ thresholds. Some early evidence suggests prices may already be rolling over from peak annual gains above 20% to single digits. However, mainly avoiding a crash will hinge on how long higher rates persist for and whether job stability holds. Approximately 12-13 million homeowners would face payment stress if rates average 6% in the long term, based on Black Knight Data & Analytics.

Moreover, the end of pandemic-era forbearance programs means that some homeowners may struggle to keep up with their mortgage payments, potentially leading to an increase in foreclosures. However, foreclosure starts remained historically low through Q2 2022, per Black Knight, even as unemployment receded, suggesting continued resilience. Serious delinquency rates for 2021 vintages are around 1% or lower. The current homeowner equity levels are robust, averaging about $300,000 per CoreLogic, thanks to strong appreciation. However, there is a potential risk if affordability declines, impacting home values in the coming years. This concern is particularly relevant for recent buyers who may face challenges if affordability erodes.

Here’s a concise breakdown of the delinquency data:

Early-stage delinquencies (30 to 59 days past due): 1.3%, a slight increase from 1.2% in June 2022.
Adverse delinquency (60 to 89 days past due): 0.4%, up from 0.3% in June 2022.
Serious delinquency (90 days or more past due, including loans in foreclosure): 1%, showing improvement from 1.3% in June 2022.

2023 Housing Horizons: Charting the Course Ahead

For prospective buyers, focusing on long-term affordability is critical. Mortgage payments, property taxes, insurance, and maintenance must be considered in the context of higher inflation across many daily living expenses.

With mortgage rates nearly tripling in 2022 to over 8%, average monthly payments on a median-priced home have increased by well over $1,000 compared to 2021. At the same time, rents have risen sharply nationwide as availability has decreased. Energy costs have also surged, with average utility bills up 20% or more over the last year.

The rapidly rising housing costs, rents, and daily living expenses have significantly eroded affordability for many. However, wages have generally not kept pace, leaving households with less disposable income to take on new mortgages.

This squeeze on budgets increases the risk of payment shocks and defaults if the economic environment deteriorates. A recession accompanied by job losses could overwhelm stretched household finances, especially for those who purchased homes at inflated prices with smaller down payments.

While sellers may be able to command higher prices currently due to solid demand, pricing homes realistically will be necessary should the market shift. Overvalued properties may sit on the market as buyers become more cost-conscious and credit tightens.

Investors and policymakers are monitoring the housing sector closely for signs of distress. A convergence of high costs, declining affordability, and economic weakness could trigger a broader correction and potential bust across previously red-hot regional markets.

Navigating these challenges will require balancing short-term opportunities and long-term risks with caution, given the market’s delicate equilibrium between optimism and pressures that threaten to destabilize prices.

2023 Housing: In Conclusion, Balancing the Boom and Potential Bust

Picture this: high interest rates, increased energy and rent costs, and salaries not keeping up with inflation. It’s a mix that could spell trouble for the market, especially for those hoping to buy a home.

Consider the current mortgage rates at 8%. Compared to when rates were below 3.5%, many monthly home payments have more than doubled. This isn’t just about budgets; it’s a significant hurdle for anyone looking to enter the housing market.

If you’re thinking of selling, pricing your home accurately is crucial. In a market that might be shifting, overestimating your property’s value could mean a longer time on the market. Buyers are becoming more cost-conscious, especially with economic uncertainties.

Investors and policymakers are closely watching the housing market. While a 2008-style bust isn’t expected due to better lending standards and oversight, the market will likely cool down from the recent high demand.

In conclusion, the 2023 housing market is all about finding balance. It’s perched between the hope of economic recovery and the potential risk of a downturn driven by affordability challenges and rising interest rates. Whether you’re a buyer, seller, or policymaker, approaching this equilibrium cautiously and clearly understanding the risks and opportunities is key.

Shifting focus, let’s delve into the historical analysis and examine how specific markers today eerily resemble what transpired in 2008.

Housing Boom Debacle: Unraveling the 2008 Bust

Another ominous warning sign that the housing meltdown has only begun and not ended is the massive drop in the practice of taking home equity loans. This is how most of the masses have been leading their lofty lifestyles and buying stuff with money they don’t have. Now that house prices are falling, they are running scared, and the worst part is that their bill has increased significantly. To put things into perspective, there was a 52% drop in home equity loans in the 3^rd quarter; total withdrawals slid from 235.9 billion in the 3^rd quarter of 2005 to 113.5 billion in the 3rd quarter of 2006. Expect this to drop even more by the end of this quarter. Things are not improving as the press and top economists would have you believe they are worsening.

Housing Boom & Bust; Late Mortgage Payments

According to the Mortgage Bankers Association (MBA), late payments and foreclosures rose in the 3^rd quarter, and this trend is expected to continue as a huge number of adjustable mortgages reset in the next couple of months. When these mortgages reset, the monthly payments will go up significantly; to make matters worse, those who have fallen behind will pay even higher rates because their credit rating has already failed.

Expect the number of foreclosures to increase substantially next year; foreclosure rates could hit new 3-6 year highs. The most significant increases will be in the formerly red-hot markets of Florida, New York, Arizona, California, etc. Our advice for over two years for those with more than one home was to sell one or more; risk-takers were advised to sell their existing homes and rent. The MBA predicts that a whopping 1.1 to 1.5 trillion worth of loans will reset next year; 700 million will be refinanced, and up to 800 million will adjust at less affordable rates. The fireworks are going to begin sometime next year.

March 2020-Housing Boom and Market Update

The Coronavirus issue will be blown out of proportion and made to look like the mother of all pandemics. We feel this is a test by the big players that control most of the media outlets to see how far the truth can be stretched, and so far, it’s working marvellously. It is estimated that eight corporations control the bulk of the media in the US.

Now people are being checked with thermometers to see if their temp is above average, and an above-normal temperature has become the litmus test for the Coronavirus; voodoo science at its best.

Addressing the Core Challenge: Incompetence Takes Center Stage

One cannot lay the blame solely on Trump or the Republicans; both parties have exhibited gross levels of ineptitude bordering on the insane. But there is always a silver lining, even though it’s difficult to see. There are some parallels to what took place in 2008. However, the crash in 2008 began on a note of euphoria. However, the Fed purposely made that crash worse by refusing to bail out the Leman brothers. Ironically, the $700 billion bailout package they approved after the carnage would have been enough to bail Lehman out.

This hysteria-based sell-off is producing one of the most immense buying opportunities in decades; more on that later.

Charting Clarity in the Short Technical Outlook: Navigating Through the Haze

The short-term technical analysis cannot identify support levels because we are dealing with madness, so we added the new level to the anxiety index. What exacerbates the situation is that there is very little liquidity; look at the bid and ask price on some options. They are unreal, for example, an offer of 1.40 and an ask of 5.00. This allows a few big players to move the markets in whatever direction.

On the same token, one could state that the government could have come out and told the masses the worst, and the markets would have pulled back, but not as dramatically as they have now. The data was released in pieces, creating more havoc than the preceding piece because hysteria took over.

Insights from the CDC: Unveiling Key Statistics

According to the CDC, the 2018-2019 season witnessed a significant burden of illness due to influenza. It is estimated that approximately 35.5 million individuals fell ill with influenza, with 16.5 million seeking medical care for their illness. Moreover, there were 490,600 hospitalizations and, tragically, 34,200 deaths attributed to influenza (as shown in Table 1). Remarkably, the number of influenza-related illnesses during the previous season closely paralleled the estimated figure from the 2012-2013 influenza season, during which approximately 34 million people experienced symptomatic influenza. http://bit.ly/2UMJjMG

In comparison to the flu virus, the Coronavirus has caused a minimal amount of damage, yet it has received 100 more coverage than the flu virus, which resulted in 34.200 deaths (and only US data is being used); the current death toll of the Coronavirus stands at 1113 (based on the latest data). It’s no laughing matter, but it still pales in comparison to those caused by the flu. Even more sinister is the Worldwide death toll from smoking:

2020 Vision: Unraveling the Stock Market Outlook

There is a 75% chance that the markets will experience at least one strong pullback this year; it would be foolhardy to attempt to predict the exact date, though it would be ideal if this event occurred during the 1^st quarter. Market Update Feb 20, 2020

This correction is taking place in the ideal timeline, so when it ends, it will lead to a spectacular rally; those waiting for the crosswinds to subside will (as always) be left holding a can with rotting worms.

The Sole Solution for Immediate Stability: A Critical Proposal for Stabilizing the Situation

The press starts to report the news accurately; all they have to do is go to worldmeters.info to get a better view of what is happening. For example, this Nobel Laureate (a biophysicist) predicted how things would unfold in China. They grew precisely as he claimed, and he is now making similar proclamations for the rest of the world. So, if the Press reported facts instead of fiction, the situation would be much better.

A new rapid detection test has been announced. This will be good news as it will allow a massive number of individuals to be tested, proving to the masses beyond any doubt that the mortality rate, while higher than the flu, is not as dire as the fearmongers are claiming.

The US has come up with concrete measures to test many individuals rapidly. This would be seen as good news because the average death rate is 1.28%, considering all groups. This is significantly lower than in China and many other nations.

A vaccine works in clinical trials. The FDA is going to approve the usage of this vaccine extremely fast. However, data has to show that it works even with little problems.

A treatment that has a 90% cure rate.,

Riding the Market Rollercoaster: Discovering Buying Opportunities Amidst the Madness

The masses beg for an opportunity to buy stocks at a lower price; when that opportunity arises, the groups panic, stating that they need to wait for things to get better before jumping in again. And so they wait, and when things finally get better, they notice that the price of everything they want to buy is higher than before, and so starts the next stage of sorrow.

This hysteria-based sell-off is producing one of the most significant buying opportunities in decades; more on that later.

The short-term technical analysis cannot identify support levels because we are dealing with madness, so we added the new standard to the anxiety index. Very little liquidity exacerbates the situation; look at the bid and ask price on some unreal options, for example, a Bid of 1.40 and an ask of 5.00. This allows a few big players to move the markets in whatever direction they see fit.