Air is hissing out of the housing bubble faster and faster every week.
Pending sales plunged in June and the inventory of homes on the market jumped as mortgage rates continue to rapidly rise.
As interest rates rise, the air continues to hiss out of the housing bubble.
Existing home sales tumbled to a two-year low in May. Sales fell to a seasonally adjusted 5.41 million units, according to the latest data from the National Association of Realtors. It was a 3.4% drop, bringing existing home sales to the lowest level since June 2020. May was the tenth consecutive month of year-over-year declines.
The Fed has barely started raising interest rates but the air is already seeping out of the housing bubble.
New single-family home sales plunged by 16.6% from March and were down 26.9% year on year. New home sales dropped to the lowest level since the lockdown in April 2020.
The Federal Reserve launched its fight against inflation earlier this month, but it wasn’t exactly shock and awe. The Fed raised interest rates by just a quarter percent. Peter Schiff called it the most anticipated and least significant rate hike ever. Meanwhile, the central bank continued to expand its balance sheet.
While the Fed’s tiny monetary policy adjustments won’t likely put a dent in inflation, they are already having an impact on the economy. Last week, mortgage rates charted their biggest weekly increase in 11 years.
How long will it take for rising rates to pop the housing bubble?
Are we heading toward housing crisis 2.0?
That remains to be seen.
Two things are for certain. This is a massive housing bubble. And the Fed is holding the pin.
The Federal Reserve is helping corporate real estate investors evict poor people from mobile home parks.
With the stimulus checks long ago spent, Americans have gone back to buying things the old-fashioned way – on credit.
Household debt surged by $313 billion in the second quarter to nearly $15 trillion, according to the Federal Reserve Bank of New York Household Debt and Credit Report. It was the biggest quarterly dollar increase in household debt since 2007. In percentage terms, household debt grew by 2.1%, the biggest surge since Q4 2013.
Despite the “improving economy,” subprime mortgage delinquencies remain at record high levels. And the full extent of the problem is masked by forbearance programs.
The delinquency rate on FHA mortgages spiked to 17.5% in February. That was up from 17.0% in January and equals the all-time record set in September and November of 2020, according to AEI’s Housing Center.
Millions of Americans remain out of work. The US economy continues to languish, burdened by government lockdowns and other pandemic-related factors. Retail sales have dropped precipitously over the last several months, underscoring the economic malaise. So, how is it that the housing market is booming?
This is not the ideal time to own an apartment building. Millions are struggling to pay rent and despite the extension of the federal eviction moratorium through Jan. 31 in the latest stimulus bill, a lot of people will likely face eviction in the coming months. According to data released in November, 17 million households are behind on rent or mortgage payments.
Of course, this has a trickle-down effect. If renters can’t pay their rent, that makes it difficult for apartment building owners to keep up with their mortgage payments. If they default, who’s on the hook?
Increasingly, the US taxpayer.