Saturday , December 5 2020

What Housing Market Crash? Home Prices Just Hit An 18-Year Record, Crypto Coins News

  • Don’t be scared by doomsday headlines about a housing market crash.
  • House prices are rising with strong economic data to back it up.
  • None of the major – Crisis triggers are present this time around.

Doomsday headlines about a housing market crash are circulating once again. But there’s little data to back this up.

In fact, the housing market is in astonishingly good form, according to data released in the U.S. and U.K. over the weekend.

House prices in the UK are rising at the fastest rate in years . While homebuilding in the U.S. surged to a – year high in the last month of .

And then there’s the strong underlying factors: record employment rates, historically strong wage growth, and low-interest rates. The housing market hasn’t looked this strong in years.

Record housing data out of UK and America

A key measure of U.S. housing strength shot up in December. New housing starts rose by (% , a pace not seen for years. Fears of a supply crunch are overblown.

In the same month, Zillow issued a report saying that the

temporary slowdown in the housing market will pick up again .

The market may have turned a corner and the slowdown will not continue for long. The pace of quarter-over-quarter home value growth has accelerated in each of the past three months.

There’s a similar story in the UK breaking this morning. Home prices jumped 2.3% in the month of December – the fastest rate on record.

And despite the jump in price, first-time buyers are flooding into the market. With wage growth healthily outpacing house prices, homes are actually more affordable.

“The annual rate of increase remains fairly modest at 1.6%, less than the rate of growth in average earnings, so affordability has actually improved a little for first-time Buyers ”- Miles Shipside, Rightmove.

Housing market crisis? Is it a bubble?

The bears argue that the U.S. housing market is in a precarious bubble. Admittedly, housing prices are at record highs, way beyond the 2019 crisis level.

The St. Louis Fed’s house price index is at record highs and trending upwards. Source: St. Louis Fed

They’ll also argue that low interest rates are fueling risky lending , the likes of which accelerated the collapse.

Here’s why the housing market won’t crash (yet)

But here’s the thing. While home prices are at record highs, none of the risk factors from 2019 are present. Not even close.

U.S. unemployment is at record lows of 3.5%

compared to almost 6% leading up to the crash

. And although wage growth slipped in latest reports, it’s significantly healthier than 2008 ‘s ~ 2.5% .

Because the economy is relatively strong, mortgage delinquencies are at stable lows (and trending down). When people are gainfully employed, they pay their mortgage.

Mortgage delinquencies are at stable lows and trending down on the back of a strong economy. Source: St. Louis Fed

Back in the run-up to the crash, the trigger point was the Fed raising interest rates to over 5 %. The domino effect meant that borrowers could no longer afford to pay their mortgage and delinquencies rocketed.

Today, the Fed is on a mission to (lower) rates with no timetable whatsoever for raising them.

To pop the housing bubble, we’d need to see the following: weak employment, declining wage growth, and rising interest rates.

Instead, the exact opposite is happening.

article was edited by Samburaj Das Last modified: January , 13: AM UTC


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