America’s real estate market could be heading for a significant correction.
One veteran strategist, Chris Vermeulen of The Technical Traders, believes that he is witnessing troubling signals in the market, noting how borrowing costs are expected to remain high for an extended period.
Vermeulen notes how building numbers for single- and multi-family homes have plateaued following a sharp decline last year, mirroring patterns last seen before the devastating 2008 housing crisis.
Despite a recent stabilization in building activity, driven by increased investment, Vermeulen believes the real estate market is still at risk, particularly if mortgage rates continue to stay high.
America’s real estate market could be heading for a significant correction as mortgage rates remain stubbornly high
While the majority of single-family homes in the US are financed with 30-year fixed mortgages, higher rates could create challenges when it comes to refinancing, especially for commercial property owners facing $900 billion of maturing debt this year.
‘To me, this is a sign that things are really breaking down, and this is just a bounce,’ Vermeulen said to Business Insider.
‘It’s the last spot right now, where you can squeeze a little bit of profits out of these buildings. Material and labor costs are up and then, we see the financial sector and real-estate pricing really fall apart.’
Such pressure could lead to an increased level of commercial real-estate foreclosures, which are already up 117 percent year-on-year in the first quarter, according to ATTOM data – a leading provider of nationwide property info.
Vermeulen suggests that although a crash similar to the 2008 housing bust is unlikely for residential real estate, further market weakening could trigger a panicked sell-off among investors.
Veteran strategist, Chris Vermeulen, believes there’s troubling signals in the market, noting how borrowing costs are expected to remain high for an extended period
He warned that the current pullback might be misleading, as he expects another significant downturn.
‘People don’t realize real estate is primed and ready for another major leg down,’ Vermeulen said.
‘They’re buying right now, because there’s been a pullback, but the reality is that I think we’re going to see this collapse.’
Real estate experts have been cautioning about a correction in property prices, particularly in the commercial sector, for the past year.
Office values have dropped 35 percent since the Covid-19 pandemic, and Fitch Ratings, a credit rating agency, anticipates further declines with many offices still empty considering the high amount of remote workers and higher refinancing costs.