- According to strategist Chris Vermuelen, there may be a major “leg down” in the real estate market soon.
- Indicators of construction activity reflect the period prior to the 2008 crash.
- “Many people fail to realize that the real estate market is poised for another major leg down,” he stated.
According to Chris Vermuelen, a veteran strategist, there may be a major correction hanging in America’s real estate market.
The chief market strategist at The Technical Traders highlighted concerning signals in the real estate sector, as it seems borrowing costs are likely to stay higher for a long time.
Construction for both single- and multi-family homes has reached a plateau after a major drop last year. This trend reminds me of a pattern like the housing correction in 2008.
Vermuelen suggests that the recent surge in investment has contributed to the stabilization of construction activity. However, real estate in the dusty state continues to face challenges, especially if mortgage rates remain high.
“In my opinion, this signals a major deterioration, and what we’re seeing now is merely a temporary recovery,” Vermuelen commented on the recent stabilization in construction activity.
“Right now, it’s the final opportunity,” he said, where “there is still potential to gain some profits from these buildings.”
There has been an increase in material and labor costs, he said. The financial sector and real estate pricing have experienced a significant drop.
Although 30-year fixed mortgages typically finance most single-family homes in the US, property owners who require an earlier refinancing option may face challenges due to higher rates. Many commercial property owners are facing this problem, with the sector expected to have $900 billion of debt maturing this year, according to Bloomberg data.
Vermuelen warned that if interest rates continue to increase, it could lead to a surge of financial distress. According to ATTOM’s first quarter data, foreclosures in the commercial real estate sector increased by 117% compared to the previous year.
According to Vermuelen, it is unlikely that home prices in the residential real estate market will experience a major crash similar to the one that happened during the 2008 bust. However, any additional drop may trigger a wave of selling among investors who have been actively vesting in real estate companies and related assets, such as real estate ETFs.
“Many people fail to recognize that the real estate market is poised for another major drop,” he said. “They’re buying at the moment, as there has been a pullback, but in my opinion, we are likely to see a collapse,” he later added.
For the past year, veterans in the real estate industry have been cautioning about a potential fall in property prices, especially in the commercial real estate sector. The value of office space has significantly declined due to the COVID-19 pandemic, experiencing a 35% drop by late March. According to Fitch Ratings, the sector is expected to experience more downside due to the increase in vacancies caused by remote work as well as property owners refinancing debt at higher rates and lower property valuations.
