Then there is more anecdotal evidence that builders are revising their own forecasts down as demand becomes unpredictable.
Even for buyers willing to brave the uncertainty, there’s another hurdle: rising costs.
Tariffs on materials are pushing construction expenses higher. Renovations are also becoming pricier, making entry-level homeownership even harder for those looking to start small and fix up.
From the Financial Times article above:
“The tepid housing market signals a general sense of caution among consumers,” said Selma Hepp, chief economist at property consultant Cotality. “With 70 per cent of US GDP depending on consumer spending, it could quickly result in a recession.”
Oh dear, there it is. The dreaded ‘R’ word.
Certainly, for a consumer-based economy, US consumers who decided to, you know, not consume anymore means that the use of the word recession is justified.
Though context matters, right? A recession based upon falling spending is easily avoidable by, you guessed it, consumers spending again! More on this in a moment.
High mortgage rates have constrained the US housing market since the Federal Reserve raised borrowing costs in 2022. Many mortgages in the US cannot be carried over to new houses, so homeowners who are locked in at a lower rate are often unwilling or unable to move.
This is, if you will, a consequence of the unique American mortgage market with the overwhelming majority of loans being of a 25-30-year duration at a fixed interest rate.
Finally, there is the issue of affordability. To get some idea of the scale of the problem facing buyers and sellers alike, real estate giant Redfin announced that the median monthly mortgage payment hit a record high of $2,870 for homes that went under contract in April.
And, according to a survey by the National Association of Homebuilders, builders estimate that Trump’s new trade levies will raise materials costs by an average of $10,900 per home, which they expect to pass on to buyers.
All in all, a pretty damning verdict. Is it any wonder the mass media are screaming for recession and a systemic crash for the US real estate market. But is that really the case?
Has the real estate cycle reached its cyclical peak now?
Is it the right time to buy instead?
This is how knowledge of the history of the 18.6-year Real Estate Cycle directly benefits you. And frankly, if you aren’t using this knowledge today, you really are missing out I’m afraid.
Despite what I’ve laid out for you above – land prices haven’t fallen much and in some states are still rising! Can you believe that? Despite all the bad news, despite the seemingly irrefutable data that I have just given you which shows the mounting challenge for homebuyers and owners.
But these are quite simple to explain: we have not reached the overall peak for US land markets yet!
Don’t ask me why commentators consistently seem to miss that most basic of points. That’s why you don’t listen to them.
If I asked you to name the fourth largest economy in the world today, would your answer be…. the state of California? Astonishing fact – but true. It is one of the most important economic drivers within the US.
And what’s happened to California land values over the last 12 months? The median listing price in the state was $767K. Despite all the problems and issues outlined above, property prices – and therefore land prices – are virtually unchanged from 12 months ago.
Listings are rising here too, but this can’t be absorbed overnight. And until the market shows that these properties can’t be absorbed you won’t see downward pressure on land prices that signifies the end of the cycle.
Land prices across the globe are now the highest they have ever been, but…. they can still go higher! That is what history tells me. Events will transpire, much like they have the last 17 odd years now, that we see the cycle continue to turn.
Here’s the biggest one. Trump’s proposed tax cuts. And the pressure he’ll place on the Federal Reserve to reduce interest rates.
Think what those will do for buyer “affordability”.
The window is small, and shrinking, but if you’re a would-be buyer searching for your first home, you still have time to do so. And here is why.
Remember the bidding wars of 2021-2022? Those days are gone. With buyers dropping out of the market, those who remain have more room to negotiate. Many sellers, especially those who need to move quickly, are willing to adjust prices or accept better terms to get deals done.
US homebuilders, facing sluggish demand, are offering bigger incentives to entice buyers, including lower rates of finance, credits that buyers can use to personalise their dream home, and finally widespread price reductions to move current inventory sitting idle.
If you’re in the market, willing to negotiate, and financially stable, you might find deals that weren’t possible just months ago. Likewise, sellers who can think on their feet and be adaptable can indeed sell their home. And then take advantage of the discounts on offer themselves if they wish.
Buying or selling your property remains one of, if not the, biggest and most consequential financial decisions you can make. And at this late stage, one you simply can’t afford to get wrong.
And so – get educated! Start that education here, and become our newest Boom Bust Bulletin (BBB) member. Let the BBB guide you on the inherent timing of the economy only knowledge of the land market can give you.
Each month this history and knowledge will be yours via monthly written editions and video postcards that will help explain the real estate cycle like never before.
The US housing market is a mixed bag right now. On one hand, high mortgage rates and economic uncertainty are making homeownership tougher than ever. On the other, demand is cooling, giving buyers rare leverage they didn’t have in previous years.
But the real estate cycle is basically unbeaten for over 200 years now.
You can trust its timing. It can help you with your biggest financial decisions. You just need to learn it.
The next step is yours to take.
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