2024-07-28 03:45:00
Access to real estate has rarely been so difficult for American families. The indices that measure this accessibility, admittedly imperfect, since they ignore the differences between regions, age groups and income levels, have recently been at lower levels than at the height of the property bubble in the mid-2000s. that the parallel may seem alarming, the two cases are not comparable. In the first half of the 2000s, the accelerated expansion of subprime mortgages that it opened the doors of real estate ownership to numerous categories of families that were previously excluded, mainly due to insufficient income.
This fueled demand, as might be expected, leading to a sharp increase in prices until a bubble was born. This culminated in 2007 when the number of households unable to repay their loan increased in the context of economic slowdown and increased unemployment.
The current situation is very different: the main barrier to access to property is the rapid rise in loan rates. Thus, the 30-year reference rate has gone from just over 3.0% in mid-2021 to over 7% today, even exceeding the 8% threshold briefly last fall. At the same time, prices have increased, although there is no bubble, due to changes in living and working habits brought about by the pandemic and the lack of supply of houses available for sale.
On this last point, the situation is about to change. Although they are increasing, available second-hand houses are still very low and this market is completely frozen: buyers in recent years do not want to take advantage of the cheap credits they received in 2020 and 2021, which which keeps prices artificially high. On the contrary, the new housing stock continues to increase and in May it reached the highest level since January 2008. It is a symbolic fact that the median price of new housing, which remained stable for a year, fell below the median was used for the first time. house prices (excluding COVID) since mid-2005.
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Although far from healthy, this context creates fewer risks than in the 2000s and is likely to open when rates begin to fall, but not before creating a significant downward adjustment in prices. However, this is precisely where the greatest risk is that the real estate market projects on the US economy at the moment. The rise in real estate prices in recent years has certainly been one of the factors driving the wealth effect, that powerful engine of household consumer spending that has largely fueled America’s growth.
Due to the same consequence, a fall in real estate prices would certainly have a negative impact on household consumption and, therefore, on the economic dynamics of the US—essentially logical and necessary to regain balance on supply and demand.
The issue is far from trivial at a time when US growth is starting to slow (GDP grew just 1.4% at an annualized rate in the first quarter) and consumption periodically shows signs of vulnerability. From a macroeconomic point of view, we have evidence of this in the disappointing retail sales figures or the poor contribution of private consumption to GDP growth in the first quarter (more than twice lower than the figure for the previous two quarters). From a macroeconomic point of view, this is also confirmed by the most recent quarterly results, which were uneven in a good number of consumer companies, such as, for example, the poor figures recently announced by Wallgreens.
The group, which operates one of the largest chains of drug stores of the United States, published results slightly below expectations, but above all significantly lowered its outlook for the coming quarter, citing greater than expected weakness in US consumption.
History does not exactly repeat itself and the real estate sector today does not have the systemic risk it did before the 2008 crisis However, it could be one of the determining factors in the trajectory of the economy USA in the future.
Enguerrand Artaz is the manager of La Financière de l’Echiquier (LFDE)
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