The Dallas Fed: The State of the US Housing Market in 2023
Economists are predicting a 19.5% housing market crash and admit that the US is in a housing bubble. Affordability in the housing market is worse than it was at the peak of 2008, with the Dallas Fed admitting this. This raises the question of what will happen to the American people and their outlook on the housing market. The US housing market has not been this unaffordable since 2006.
According to an article from Global. Blackstone, many investors are liquidating and getting their cash ready. Reid is still bleeding money, with around 3.9 billion of redemption requests but only fulfilling $1.4 billion worth. The banks are also suffering from people withdrawing, with the banking industry’s profits falling 6% in 2022. Many banking executives are preparing for Americans to fall behind on their mortgages and loans in 2023.
The ten-year Treasury topped over 4% as of March 1st, just like what was seen in May 2022. In just 30 days, there was a 1% interest rate jump. The percentage of subprime auto borrowers who are at least 60 days late on their bills hit 5.6% in December, surpassing 5.4% in January 2009. The director of INSIGHT for Edmunds, Ivan Douri, said, “We are only seeing the tip of the iceberg.” If people are struggling to pay debts, they may default on their homes or cars.
Blackstone, a private gallery, is trying to stay liquid while capping investor withdrawals because they believe that there will be ample opportunities, and they want to be on the offense rather than the defense. KKR, Starwood, UBS, Turnbull, and more are all limiting withdrawals because their investors are pulling their money out of these rates. If these rates struggle with liquidating their assets, what will this do to the inventory levels?
The Dallas Fed believes that we are in a housing bubble and need to see a 19.5% drop in home prices. According to them, a housing boom becomes frothy and out of sync with fundamentals when driven by fear of missing out or FOMO. Based on the wide acceptance of the belief that today’s strong price appreciation will continue unabated in the future, leaving behind prospective purchasers.
Nationally, people who have to buy a house right now are spending about 43% of their income to pay for the median sales price nationwide. But in Boise, it’s 48.5%, and the affordability graph by Atlanta Fed is showing that the Twin Falls Metro is around 39.8%. The hope is to bring the price-to-rent ratio back down to the 2020 levels.
Investors were planning on a Fed pivot in March, but Chair Powell just opened the door for a 50 basis point hike. Everybody has been planning on a 25 basis point hike or a no hike in March, which means that they could get even more aggressive next week at the meeting. The Fed pivot is possible, but not what people were expecting.
In conclusion, the US housing market is in a state of turmoil, and the Dallas Fed is predicting a significant crash. Affordability is worse than it was in 2008, and the US housing market has not been this unaffordable since 2006. Investors are liquidating and getting their cash ready, and banks are struggling. The percentage of subprime auto borrowers who are at least 60 days late on their bills is higher today than it was at the peak of the Great Recession in 2009. The Dallas Fed believes that a housing boom becomes frothy and out of sync