Source: Housing Wire —
When Federal Reserve Chairman Jerome Powell talked about a housing reset in June, it sent shockwaves around the country because it sounded so ominous. In the most recent FOMC meeting, held last week, Powell finally clarified what he meant by that term and what a housing reset means to the Fed. However, a housing reset isn’t the only pressing issue — we now also have to think about a worldwide global recession.
To put it as simply as I can, the strength of the U.S. dollar is causing too much pain worldwide, and traditionally something breaks when this happens. China is in a mess, Europe has an energy crisis, and the wild card of Russia’s war in Ukraine is still unresolved, all while the Fed is aggressively hiking rates. Savagely unhealthy is no longer just a term for the U.S. housing market — it now applies to the world economy.
As I noted during my recent podcast on HousingWire, things are getting sloppy in the markets, and when chaos happens, you can’t ever be sure how bad the damage is going to be. Over the weekend, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said, “We are going to do all that we can at the Federal Reserve to avoid deep, deep pain.” It’s never a good thing when you have to qualify pain like that.
What a housing reset means
Let’s take Chairman Powell’s words from the FOMC’s Q&A session on Sept. 21 and discuss what a housing reset means.
Powell: So when I say reset, I’m not looking at a particular, specific set of data or anything…
This isn’t true (just look at his next statement, below) — he really wants the bidding wars to end, and for total inventory to grow and regain balance. I can understand this mindset. As you can see below on the NAR total inventory chart, we didn’t have a seasonal push in inventory in 2020, which left us vulnerable to price growth that was above the historical norm.
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We don’t need more houses, we need less immigration. Less people means housing prices come down.
It seems to me what the higher rates are doing is taking out the first time homebuyers and replacing them with the investment companies that are gobbling up the same homes to rent them out. The results are higher rental rates while driving prices higher because of a lack of inventory. Making the American dream for the low to middle class even more elusive.
What is the solution? Cannot stop these hedge funds and Bezos types because of our economy. The raise of the interest rates is not helping. And this new housing climate will be the downfall for owner occupied housing.
I predicted this a few years as I did the real estate debacle in the 2008-2010. And although a much different reason but maybe the same results.
Valued on this date are not reducing, they are still on the rise just not as rapidly. A housing shortage will always do that. However, with corporations purchasing homes at discounted rates from sellers that are in situations the warrant it, prices should begin to recede in two years (maybe). However that will only change if more affordable housing is built for owner occupants. How will that be done? Because there is no land to be created (if anything global warming is reducing land mass), existing housing may be the answer. Condo conversions, turning shopping malls into cluster zones (multi-zoning) and converting office complex that are no longer necessary into residential zone are just the beginning and probably faster to complete in our ever growing areas.
It’s a shit show right now but there are ways towards smart and succinct growth which everyone benefits.