Housing To Take A Hit



  • Home purchases in March had their biggest decline since November 2015.
  • Some say a crash is inevitable at this point.
  • With this disinflationary shock, inflation-protection assets will struggle.
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"In 2007, in the early 2007, everybody saw the housing market was falling, and at any given moment a lot of people thought it was going to fall more, and a lot of people thought it was going to rebound. You just didn't know." - Lloyd Blankfein

We're starting to see some of the cracks in the housing market. Alongside rising unemployment, massive weekly jobless claims, and stay-at-home orders, the spring housing market is going to struggle. We had the recent existing home sales numbers for March, and in typical economic fashion these days, they were ugly. As the coronavirus pandemic has shut down much of the U.S. economy, it is not a surprise to see the most significant part of the housing market showing a steep decline. Sales of previously owned homes declined 8.5% in March, the biggest month-over-month decline since November 2015. Expectations by economists were for a 7.5% decline, but even that wasn't enough. Spring is a time of year where home sales usually surge, as the spring buying season is pivotable for the market. As I mentioned in The Lead-Lag Report, the downward surge in the latter half of March is a definite harbinger for what is going to happen in April, where things are most certainly going to get worse.

Some signs point to an inevitable housing market crash at this point. Inventories in the U.S. are sharply declining, leading to a supply shock. Wage growth is non-existent in this economy, and there are tens of millions of layoffs happening, leading to an incredible demand shock. As sales decline, prices will have to drop, and as people cannot meet their mortgage payments, they will be forced to sell. It's an unfortunate situation we are likely to find ourselves in. A lot of consumers will be deferring mortgage payments to try to stay afloat, but that can only last

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This article was written by

Michael A. Gayed, CFA profile picture
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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