Meet Kevin: The Coming Peak Pain of the Housing Crisis
For most Americans, the equity in their home is their largest source of wealth. Home prices have been in decline over the past few months amid a jump in interest rates. That could create a reverse “wealth effect” where consumers spend less because they feel poorer looking at the value of their assets.
While recent sales data has been a bit more favorable, especially as mortgage rates have come down slightly from their peak, there may be more pain ahead.
Ultimately, much of the economy is based on confidence. That’s why there are several indicators based on how consumers, producers, and even corporate managers feel about the economy.
Consumer spending remains heavily correlated to household wealth. That includes intangibles such as home equity. With interest rates still rising, and with the Fed looking for higher unemployment to confirm that the economy has slowed, it’s clear more pain could be ahead.
That’s bad news for most consumers. It’s a sign that interest rates likely haven’t topped out yet. That means mortgage rates haven’t come down either.
Fortunately, it’s potentially good news for those looking to invest in real estate. While borrowing costs are higher, lower prices make it easier for investors to buy at a reasonable price.