The Economy Is Flashing Warning Signs as the Stock Market Bubble Inflates
Photo by CNBC Screenshot
This could be a headline from 2007, and it was a “not since 2007” statistic which spawned the research that led to this article. I am not saying we are on the precipice of another Great Recession, the whole point of the 2008 Great Financial Crisis is that institutionalized fraud was so endemic no one could see it coming until it was too late (save for a handful of analysts). Whether there is rampant 2008-style fraud in the financial system is not something I am privy to, but public data on the economy is, and this one highlighted by Bloomberg about the housing market got my attention: “Last month, the supply of new homes for sale increased to the highest since the end of 2007.”
This level of housing oversupply is still an order of magnitude smaller than its peak in 2008, but completed new single-family houses for sale are at levels nearly an order of magnitude higher than they were at the peak of the COVID crisis, and the line has been practically vertical since 2022, when the Federal Reserve began raising interest rates. The rent is too damn high and homes are way too expensive as normal people have been priced out of the idyllic American dream, and that is part of why the Federal Reserve is now beginning to lower interest rates. Add in the fact that commercial real estate has become its own kind of existential risk as it is predicated on a business model valued in a pre-pandemic world where people went into the office five days a week, and real estate of all forms poses a potentially significant downside risk to the economy.
But mortgage rates went up after the Fed pivoted, and for many homeowners as the Wall Street Journal noted, insurance and taxes actually cost more than the mortgage does, and “In September, 32 percent of the average single-family mortgage payment went to property taxes and home insurance, the highest rate ever for data going back to 2014, according to Intercontinental Exchange.” Despite having their best month since March, existing home sales are still on track to have their worst year since 1995. The housing market is frozen right now.
Stocks have dipped to end the year too, in response to an unexpected fall towards levels that are historically recessionary in the Conference Board’s index measuring consumer sentiment.
Expectations component in the Conference Board’s Consumer Confidence Index fell by 12.6 points in December … that’s the largest drop since November 2020 pic.twitter.com/OiGPIXw8T8