Housing sector’s ‘eerily similar’ warning signs before 2008 collapse

Warning signs emerging in the US housing market are “eerily similar” to those seen just before the sector imploded during the Great Recession, a prominent market historian warned this week.

Surging mortgage rates are “taking a wrecking ball to the housing market,” said InvesTech Research president James Stack, according to Forbes. The average 30-year fixed-rate mortgage hit 7.16% this week, driving many prospective homebuyers to the sidelines and causing sellers to rethink their plans.

“The message today is eerily similar to [the] warning in 2005,” Stack said, according to the outlet. “It would be difficult to argue that the US housing market isn’t heading for a hard landing.”

Stack noted the median homeowner is putting more than 30% of their income toward monthly mortgage payments at the current long-term rate — an amount even higher than what was recorded in the midst of the 2005 housing bubble.

Mortgage rates are crushing affordability.
Getty Images/iStockphoto

The investment expert argued the housing market’s trajectory will serve as a “determining factor” for the overall economy as it faces a “probable” recession in the days ahead.

The Post has reached out to Stack for further comment.

While the housing sector has dramatically slowed in recent months, most experts say the market’s overall health is much stronger than it was when the bubble burst in 2008, setting off the Great Recession.

Lending practices have improved since the subprime mortgage market imploded, with far fewer homeowners possessing so-called “underwater” mortgages — where the value of the home is less than what is owed.

Last month, real estate analytics firm Black Knight noted the market was “on strong footing to weather a correction.” The average homeowner owed just 42% of their home’s value — the lowest share on record.

Still, the latest S&P CoreLogic Case-Shiller Home Price Index showed a “forceful deceleration” in prices, according to Craig J. Lazzara, managing director at S&P DJI.

Home prices fell 1.1% from July to August, marking the second straight month of declines.

Meanwhile, mortgage demand has hit a 25-year low due to spiking rates, with the volume of purchase applications plunging 42% year-over-year.

Another real estate firm, Redfin, noted earlier this month that housing conditions were “going to get worse” by next year as mortgage rates continue to rise. The volume of home sales and listings fell to their lowest level on record in September as demand cooled.

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