“Home prices are falling at the fastest rate in 15 years.”
That was a Business Insider headline on Monday.
And since August, the National Association of Home Builders has been sounding the alarm on housing, too.
The association’s chief economist, Robert Dietz, warned:
Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession.
Then, in November, home builder sentiment reached one of the lowest levels in more than a decade, after falling for 11 straight months.
But that’s not the worst of it. Because as I’ll show you in today’s essay, things are about to get a lot worse in the housing market…
Home Builder Confidence Hits a Troubling Low
The National Association of Home Builders keeps tabs on home builders’ confidence.
And right now, builders aren’t feeling too good about home sales. Take a look at the chart below…
It shows the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
It’s a gauge of builder confidence on current and future single-family home sales.
A reading above 50 indicates a positive outlook on home sales. A reading below 50 indicates a negative outlook.
As you can see in the chart above, the latest reading is 33. The last two times it dipped that low were in 2006, leading up to the 2007-08 housing crisis… and again briefly during the 2020 pandemic.
Now, when builder confidence dipped in 2020, it recovered in just two months.
But that was a unique situation, and I wouldn’t bet on a quick recovery this time. Here’s why…
When the markets crashed in 2020, the Fed turbo-charged its easy-money policy. It grew its balance sheet by close to $3.2 trillion in 2020. And it added another $1.4 trillion to the books in 2021.
But since then, it’s taken away some of the easy money by raising interest rates aggressively.
From near-zero at the start of 2022, the main Fed Funds interest rate is up to 4.25-4.5% today. That’s the highest it’s been since 2007.
That aggressive policy is already hurting the housing market.
When the Fed increases rates, it inhibits the average home buyer from buying a home. Add in inflation, which is still near 40-year highs… And it becomes a lot harder for people to afford a mortgage.
We’re already seeing signs of a slowdown…
Single-family home starts are down 23% since the beginning of the year. Multifamily construction is down 17.1%.
Meanwhile, existing home sales are down 32% since their January peak this year.
It’s gotten so bad that some economists are warning we could be on the verge of a housing meltdown.
Another Fed Blunder
If this was part of the Fed’s plan to cool the housing market with its rate hikes… it’s a poorly executed one.
The time to cool the housing market on purpose would’ve been a year, a year-and-a-half ago. But that’s when the Fed still insisted that inflation was “transitory.”
But now it’s too late. To the extent that today, I believe we’re not far away from another housing crisis that could trigger a new wave of bankruptcies on Wall Street.
As Bloomberg put it:
The wave of [bankruptcies] that’s coming could be the worst since the housing bubble burst about 15 years ago.
Now, just to be clear, this time the cause will be different from the housing crisis we saw in 2008. But the outcome will be the same: If you’re not prepared, your portfolio will suffer.
That’s why this week, I hosted a special strategy session to show you how this crisis will play out, and how you can take advantage of it.
Thousands of your fellow readers tuned in to Countdown to Housing Crisis 2.0.
I showed them how a legendary investor is already betting $200 million against the housing market…
I revealed the looming Washington event that happened this week that could send this house of cards collapsing…
And I uncovered a strategy that Wall Street loves… that can give you the chance to “flip” losers into big winners.
I even gave away a free recommendation that I believe could be one of the top plays for 2023.
I’ve asked my publisher to make a replay available. But I can’t promise it’ll be online for long. So if you missed it, don’t wait to watch the replay here.
Editor, Inside Wall Street with Nomi Prins