The current state of the United States housing market is raising concerns about the economy, with signs pointing to potential trouble ahead. The Kobesissi Letter shared data on June 29 indicating that the U.S. housing market is mirroring the conditions leading up to the 2006-2007 crash. Home valuations have surged to levels not seen since before the previous financial crisis, sparking fears of an impending recession.
Home prices are now overvalued by 20% based on rent and 26% for homeowners, representing a fourfold increase in just four years. This rapid escalation is driven by soaring home prices, with median prices for new and existing homes reaching around $420,000, close to all-time highs.
Adding to the concerns is the growing disparity between household income and the cost of buying a median-value home. The gap has widened to a record $40,000, highlighting the extreme lack of affordability in the U.S. housing market. The rising owners’ equivalent rent, surpassing 25% overvaluation since 2015, along with market-based rents for new leases following a similar pattern, point to a market teetering on the edge.
Various indicators are now pointing towards a potential U.S. recession in the near future. The U.S. Leading Economic Index (LEI) has dipped by 14.7% from its recent peak, historically heralding recessions over the past six and a half decades. Many anticipate a recession hitting in the latter half of 2024, with the U.S. Treasury yield curve projecting a 52% chance of an economic downturn within the next year.
All eyes are now on the Federal Reserve as decisions regarding interest rate cuts will play a pivotal role in shaping the economic landscape and potentially steering the country away from a looming recession.
