US Real Estate Market on the Brink of Correction, Warns Strategist
Signals in construction activity mirror the period leading up to the 2008 crash, indicating a major correction is looming in the US real estate market.
Real Estate MarketCorrectionStrategistConstruction ActivityMortgage RatesReal Estate NewsJun 25, 2024
Vermeulen points out that the stabilization of construction activity is likely due to a burst of investment that's hit the sector, but real estate is still in trouble, especially if mortgage rates remain elevated. Material and labor costs are up, and financial sector and real-estate pricing are really falling apart.
While most single-family homes in the US are financed with a 30-year fixed mortgage, higher rates could pose a problem for property owners who need to refinance sooner. This is particularly concerning for commercial property owners, who will see $900 billion of debt maturing this year. Continued interest-rate pressure could bring on a wave of distress, with commercial-real-estate foreclosures already jumping 117% year over year in just the first quarter.
In residential real estate, it's unlikely that home prices will crash the way they did during the 2008 bust. However, further weakening could spark a panicked sell-off among investors who have been putting cash to work in real-estate companies and in things like real-estate ETFs. Real-estate veterans have warned about a correction in property prices for the last year, particularly in commercial real estate, where office values have plunged 35% since the COVID-19 pandemic.
The Technical Traders, a leading market research firm, has been tracking the real estate market closely, providing investors with insightful analysis and forecasts. With the market on the brink of correction, it's essential for investors to stay informed and adapt their strategies accordingly.
In summary, the US real estate market is headed for a correction, driven by plateauing construction activity, rising material and labor costs, and higher mortgage rates. While the market may not crash as it did in 2008, investors should be prepared for a potentially turbulent period ahead.
Frequently Asked Questions
What is the current state of the US real estate market?
The US real estate market is heading for a correction, according to strategist Chris Vermeulen, due to plateauing construction activity, rising material and labor costs, and higher mortgage rates.
What is driving the correction in the real estate market?
The correction is driven by plateauing construction activity, rising material and labor costs, and higher mortgage rates, which could pose a problem for property owners who need to refinance sooner.
Will the real estate market crash like it did in 2008?
It's unlikely that home prices will crash the way they did during the 2008 bust, but further weakening could spark a panicked sell-off among investors who have been putting cash to work in real-estate companies and in things like real-estate ETFs.
How will commercial property owners be affected by the correction?
Commercial property owners will be heavily impacted, with $900 billion of debt maturing this year, and continued interest-rate pressure could bring on a wave of distress, with commercial-real-estate foreclosures already jumping 117% year over year in just the first quarter.
What should investors do in response to the correction?
Investors should stay informed, adapt their strategies accordingly, and consider seeking advice from market research firms like The Technical Traders to navigate the potentially turbulent period ahead.
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