Original title: beware of the housing market "Black Swan"! Experts warn that US house prices may plummet
Source: FX168
Fox Business reported on Saturday that optimism in the US housing market may be flashing a "red flag" and that high home values may be at risk of falling sharply.
Record low interest rates, tight inventories by historical standards and the influx of COVID-19 have prompted people to buy homes from the city centre to the suburbs, leading to an unprecedented rise in US house prices.
David Rosenberg, chief economist and strategist at Rosenberg Research, points out that "black swan" refers to the inevitable collapse in US house prices, which are extremely high based on all the fundamentals that drive valuations.
House prices in the United States surged 16.6% in May from a year earlier, up 38.1% from a peak in 2006, according to the Case-Shiller house price index.
Rosenberg said the surge in house prices caused prices to be overvalued by 25% relative to residential rents, nearly 50% higher than normal after taking inflation into account, and more than 25% overvalued relative to income indicators such as the employment cost index.
Recent data show that buyers are becoming more hesitant because house prices are at unprecedented levels.
According to a consumer survey released by the university of Michigan in July, only 30% of consumers think the conditions for buying a house are favorable, the lowest level since 1982.
The number of single-family homes under construction in the US reached 689000 last month, the highest level since the housing bubble burst in July 2007.
Edward Moya, a senior market analyst at OANDA, warned: "the real estate market seems to be peaking." He points out that mortgage applications and new housing starts have fallen recently.
Applications for home mortgages in the United States have fallen for weeks, falling 19% in the week ended Aug. 13 from a year earlier. Housing starts fell to a three-month low in July as builders struggled to cope with timber shortages, causing the cost of the key material to soar and unable to find enough workers to complete the construction.
There are signs that these problems are being resolved.
Wood prices have plummeted more than 70 per cent from their peak this year. In addition, builders have added workers in 11 of the past 12 months, and the $300-a-week supplementary unemployment benefit program expires next month, which is likely to bring more workers back to the labour market.
Odeta Kushi, deputy chief economist of First American Financial Corp., said a further increase in inventories is unlikely to fully cool the housing market because supply is still at a "very, very low" level.
"it's like moving from a very hot market to just a hot market," Kushi said. It is still a seller's market. "