Is It That Bad?
Next week, I’ve penned in my schedule to listen fully to the earnings calls of all the major real estate firms and housing funds and developers. A few stats are clear, even before I spend a minute taking notes from CEOs, and these pieces of information are scary.
They paint a picture that resembles the troubled past and I want to compare it to 2008 to show you not only why housing is terribly expensive, but also why it might be one of the riskiest moves to purchase a home in today’s environment.
One of the most critical points that I can’t overstress is disposable income.
Today, the debt/income ratio for homebuyers is 40%, which is HIGHER than it was at the peak of the housing bubble in 2007.
At these levels, the crisis is imminent, as shown by this incredible chart that just posted:
(It was a great read)
Buying a home is more unsustainable today to service than in 2007… that’s a very frightening thought, but it might not lead to a full-blown collapse this time around.
It does, indeed, make me think about the likelihood of a recession in the next six months.
This next clue is also downright scary, because, coupled with the elevated debt/income ratio, it literally spells that we’re living in the calm before the storm.
When I was attending a basketball game a couple of months back, I saw that the crowd was ready to erupt if the home team scored, but in the first few minutes, they were dead-silent… it was calm, but then the stadium went bananas. I worry about housing entering a rough sea environment as soon as September:
(It was a great read)
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Because of the strength of the jobs market, there are virtually no defaults; after all, if you have a job, why would you skip a mortgage payment, when you already put 15%-20% down and are living in a house you worked so hard to make your home?
Families don’t decide to quit, unless they have no active income, but in America today, people have jobs…
This tells me that if this trend of strong labor participation continues, we won’t see a meaningful crash anytime soon.
Why, then, can we suffer from a recession, if employment is strong and defaults are low to non-existent?
Take a look at this next one:
(It was a great read)
One of the chief reasons that prices are going up and remaining this high, even though unaffordability is worse than in 2008, is because there are very few houses on the market for sale. The reason is that people who locked cheap mortgages are smart enough not to let go of the deal of the century they were able to nail.
The number of homes sold on the market this year is already so low that it is like 2008 already, but as you can see, there’s A HUGE DIFFERENCE between this bubble and the sub-prime one: Everyone was bullish on housing back then and people were making money hand over fist; it was an institutional story, with banks and Wall Street in the mix.
In 2023, the banks are restricting lending and NO ONE is bullish; to me, it looks like the real estate market is not functioning properly, therefore, I believe that a crisis is not imminent, as most think…
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