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The housing market in the US and other developed countries is facing its toughest challenge in over a decade. Recent data suggests the industry is struggling, raising concerns about a potential housing crash. Let’s examine the current state of the housing market and whether a major downturn might occur this year, as homebuilder stocks take a hit.
Home prices have soared in recent years. This week’s data showed that the median home price in the US hit a record high of over $402,000 in May. Considering that the median household income is just over $69,000, it would take nearly seven years of saving every dollar to afford a home. With many Americans living paycheck-to-paycheck, buying a home has become increasingly difficult.
However, today’s situation differs from the 2008 housing crisis. Back then, the price surge was fueled by risky subprime mortgages. Today, the increase is mainly due to an imbalance between supply and demand. While demand has surged, supply has been constrained by inflation and supply chain issues.
Recent data indicates that the housing market is cooling off. For instance, housing starts and building permits dropped sharply in May, and existing home sales fell by more than 3.4%. New home sales data, expected on Friday, are also anticipated to show a significant decline.
Homebuilder stocks like KB Home, Lennar, and D.R. Horton have each fallen over 30% this year, reflecting investor fears of a potential housing crash.
With the Federal Reserve raising interest rates, the situation may worsen. The Fed has increased rates by 150 basis points this year and more hikes are expected. As a result, mortgage rates have climbed to 6%. Jerome Powell, the Fed Chair, mentioned that the goal is to bring the housing market back to a more sustainable path.
Whether a major housing crash will occur this year remains uncertain. Analysts expect home prices to moderate slightly as demand softens, but a repeat of the 2008 crash is unlikely.