The US housing market could be heading for a significant correction.
A veteran strategist, Chris Vermeulen of Technical tradersbelieves it is seeing worrying signs in the market, noting that borrowing costs are expected to remain high for an extended period.
Vermeulen points out how the number of single- and multi-family housing starts has stagnated after a sharp decline last year, mirroring patterns last seen before the devastating 2008 housing crisis.
Despite a recent stabilisation in construction activity, driven by increased investment, Vermeulen believes the housing market is still at risk, particularly if mortgage rates remain high.
US housing market could be headed for a significant correction as mortgage rates remain stubbornly high
While most single-family homes in the U.S. are financed with 30-year fixed mortgages, higher rates could create challenges when refinancing, especially for commercial property owners facing $900 billion in debt which expires this year.
“To me, this is a sign that things are really falling apart, and this is just a rebound,” Vermeulen told Business Insider.
“It’s the last place right now where you can make a little bit of profit from these buildings. Materials and labor costs have gone up, and on top of that, we’re seeing the financial sector and real estate prices really falling apart.”
This pressure could lead to a higher level of commercial real estate foreclosures, which already rose 117 percent year-over-year in the first quarter, according to data from ATTOM, a leading provider of national property information.
Vermeulen suggests that while a 2008-like housing crash is unlikely in the residential real estate sector, further weakening of the market could trigger an uncontrolled sell-off among investors.
Veteran strategist Chris Vermeulen believes there are worrying signs in the market and points out that borrowing costs are expected to remain high for an extended period.
He warned that the current pullback could be misleading as he expects another significant drop.
“People don’t realize that the housing market is primed and ready for another major downturn,” Vermeulen said.
“They’re buying right now because there’s been a pullback, but the reality is I think we’re going to see this collapse.”
Real estate experts have been warning for a year about a correction in real estate prices, especially in the commercial sector.
Office values have fallen 35 percent since the Covid-19 pandemic, and Fitch Ratings, a credit rating agency, anticipates further declines with many offices still empty given the large number of remote workers and higher refinancing costs.
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