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Real home price growth is trending downward in the current market cycle, and experts say it will get worse, due to the same red flags preceding the housing bust of the last decade.
Even though the national economy is strong in terms of gross domestic product, the housing market is "locked in a cyclical downturn," according to Bloomberg's research. Housing demand is high, but home prices are so high that buyers are discouraged from entering the market, driving down sales. Indeed, the University of Michigan's monthly consumer sentiment survey finds that homebuyer attitudes had the worst reading since 2008. For home builders, the news is even more troubling, as the cost to build continues to increase, hitting one of the highest readings recorded by Bloomberg.
Separately, with rates rising and the broader economy in a stealth slowdown that few recognize, stock prices are vulnerable to corrections, like the 10 percent decline in February and the weakness seen last week. In this context, the home price downturn raises the risk of generalized asset price deflation that could result in a negative wealth effect for the first time since the financial crisis. If nothing else, the prospect of this scenario warrants serious monitoring.
