Home News Real estate overdue for a correction, 2008 market shows ‘similarities’ – Eric Basmajian

Real estate overdue for a correction, 2008 market shows ‘similarities’ – Eric Basmajian

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Eric Basmajian, founder and editor of EPB Macro Research, said several indicators point to a significant correction in the housing market. Consumers will struggle to pay their mortgages as the Federal Reserve raises interest rates and incomes fall.

Basmajian told Kitco News anchor and producer David Lin: “The catch-22 is that inflation cannot be brought down without causing some pain to the economy that would increase unemployment.”

Basmazian warned that the housing market could slip into a “deep recession”, but said it was unlikely this would develop into a banking crisis like the 2008 one.

“Towards 2008, the accumulation of debt was very concentrated in the housing sector in the form of banking and mortgages,” he explained. “Debt accumulation is much less [those sectors today]This makes a banking crisis much less likely. ”

Signs of residential correction

Basmajian looked at supply and demand fundamentals when analyzing house prices.

“For example, sales of new homes are down 51% since August 2020, with sales volume leading prices,” he said. “Any time we see a significant drop in volume, a drop of around 50%, he generally predicts a fall in house prices.”

Monthly supply of new homes, another leading indicator for the housing market, was 10.9 in July. “The balanced market is about 5 and we are about 11,” Basmajian said.

He also highlighted the spread between mortgage rates and Treasury rates. When spreads widen as they do now, mortgage lenders are pricing in more risk in their lending decisions and “want to build a buffer of lending above the risk-free rate.”

Basmajian said: “All these things suggest that house prices are starting to fall.”

Demographics and Housing

A YouGov poll conducted in March 2022 found that 65% of millennials (those born between 1980 and 1999) see home ownership as a sign of success. But buying a typical home requires an income eight times the median, suggesting housing affordability is at its worst level since World War II.

“Young people aged 25 to 54 are the engine of economic growth as they consume housing and durable goods,” Basmadian said. “If this generation…is in debt, their income is low relative to inflation. And they can’t afford to move forward. That will put downward pressure on the economy.”

Basmazian said there is a risk of a “baby bust” in which young people delay marriage and childbearing, which could have a negative impact on long-term economic growth.

Watch the video above for Basmajian’s home price predictions and whether it’s better to rent or own a home.

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Disclaimer: The views expressed in this article are those of the author and may not reflect the views of the author Kikko Metals Co., Ltd. The author has made every effort to ensure the accuracy of the information provided. However, neither Kitco Metals Inc. nor the authors can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation of an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the authors of this article accept no liability for loss and/or damage resulting from the use of this publication.

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