This week at Bidenomics: Housing Pain

The US economy is not in a recession yet, although some Forecasters think it’s heading there. The job market remains strong and consumer spending is flat. If there is a recession in 2023, it will likely be mild.

The housing market is in a more brutal way. The rapid rise in interest rates this year, due to the Federal Reserve’s aggressive anti-inflation regime, was bound to end an epic housing boom. Existing home sales, which account for most housing activity, now have decreased for eight consecutive months. This is the longest losing streak since 2007 – the fateful year that the housing bubble that led to the 2008 financial crash began to burst.

A key gauge of homebuilder confidence has fallen to its lowest level since 2012, barring a brief dip during the COVID outbreak in 2020. This was the bottom of the recent housing crisis. “Having been a huge boost to growth and inflation between the start of the pandemic and now, housing will be a huge burden on both in the coming year,” Bank of Comerica wrote to clients on October 18.

No one believes that housing elimination on the scale of the last depression is coming. There are no millions of bad loans driving lenders into bankruptcy or waves of foreclosures putting unsellable inventory on the market. In fact, the housing stock is still very low, with not enough homes to meet demand.

But buyers and sellers now face a unique set of problems that could cause months of pain before the market corrects. This adds to the gloom eroding consumer confidence, and it certainly isn’t helping President Biden and his Democratic cronies in the final weeks before the 2022 midterm elections.

So far this year, Average Fixed Rate Mortgage for 30 Years It has gone from less than 3% to nearly 7%, sharply raising the cost of paying off a mortgage. This is a left-back demand for homes. The National Association of Realtors expects existing home sales to fall 15% this year, with new home sales down 21%.

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Usually lower demand leads to lower prices, and it will undoubtedly happen in due course. But not quickly. Home prices are just beginning to fall in price, with a 0.2% drop in the S&P/Case-Shiller National Home Price Index from June to July. Since the coronavirus outbreak increased home demand in 2020, prices are still up 40%. Nobody gets a breather when prices drop by a fraction of a percentage point.

Right now, it’s the worst in the world. Zillow says home affordability is the worst in at least 15 years, with Home prices are 25% above levels It would bring affordability back to historical standards. Worse, says Zillow, “the outlook for stocks suggests that the market will be tight for years to come.” Expensive homes can also increase rents, since fewer landlords means more demand for rental properties and more pricing power for landlords.

Housing is not like a regular product, producers adjust supply based on demand and markets reach equilibrium price fairly quickly. This is because the supply cannot be ordered up or down by adjusting the assembly line speed. Permit restrictions and other factors make new construction difficult in many areas. Builders faced a severe shortage of labor, which makes construction difficult even if the permit is safe. Another wrinkle: Millions of landlords who refinanced their mortgages when rates were near their lowest, don’t want to part with that deal by selling, even if they had compelling reasons to move. This keeps more supply out of the market.

The affordability of a terrible home is not bad for everyone. It doesn’t bother owners who aren’t looking to sell, and many of those are in a better financial position because of the money they saved through refinancing. Low levels of housing activity usually correspond to lower sales of furniture, appliances and remodeling services, but that may not be a bad thing given the increase in demand for such things over the past two years – one of the drivers of today’s 8.2% inflation.

But housing affordability remains a national problem that prevents many Americans from building wealth and can even threaten homelessness for low-income Americans. A major slowdown in the housing sector could be an economic shock in itself.

Biden isn’t doing his best to address housing problems during the election campaign the way he has used every possible lever to bring down gasoline prices over the past few months. High gas prices affect everyone who drives, and even some who don’t, by advertising marquee-style inflation at every filling station. Nobody sees house prices while they are roaming, and if they do, most people have no mental indication of what is a good price and what is a bad price, as they do with gas.

Alternatively, the housing crash may contribute to a sense that the economy is unstable with Democrats in control of Congress and the White House. despite of There are many problems in the Republican Partyvoters still believe Republicans are doing a better job of dealing with the economy, which is likely to help the Republican Party to regain one of the two houses of Congress in the midterm elections. Perhaps they will have ideas for reforming the housing market.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at Tweet embed

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