Is The US Housing Market On The Verge Of Crashing?

6 September 22

Many millennials in the US more or less gave up on the dream of owning a home. The home price to median income ratio is more than twice of what it used to be from the 1960s to the early 2000s. This means that median wages have not caught up to the rapidly increasing home prices.

We have seen a similar situation in 2007 right before the housing bubble burst, triggering one of the biggest global economic recessions in history. The interesting thing is that the home price/income ratio in 2005-2007 was significantly lower than it is today.

You may say that there is nothing to learn from history and we are simply living in different times. That might be, if that was the sole piece of data indicating a housing bubble. Unfortunately, if you are a real-estate agent, and perhaps, fortunately, if you are in a market to buy your first home, mortgage demand in the US has dropped to a 22-year low.

But the most important statistic of all is that the actual asking prices for homes have started declining. The average home price in the US has dropped by 2.5% in July compared to June.

Real-estate experts are still quite skeptical and do not believe that the prices are going to crash. It is more likely that the market will experience a slow drop in prices since the supply is likely to adjust quickly to the drop in demand. One of the factors being record high prices for construction materials which limits the amount of new housing projects.

The better way of looking at the housing prices is by comparing it to inflation. Using this metric helps to understand that the growth of real prices is actually negative.

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