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You’ve heard the bullish arguments before: 

• “Banks have stricter lending standards”
• “There’s no new supply”
• Work-from-home has changed the game”
• “Cost of financing is at an all-time low”….

These trends, which have acted as a major tailwind for residential real estate, could be reversing at a rapid pace. Let’s go through them one by one.

Beginning with lending standards, the claim that they are stricter than those of 2006/07 is certainly true since the passage of Dodd-Frank in 2010. The problem, however, is that as mortgage rates rise, would-be buyers are being rapidly deemed not creditworthy by these stricter standards.

As for the lack-of-supply narrative, while this was true for a brief period post-financial crisis, today it’s simply no longer true. According to the US Census Bureau, the number of homes under construction surpassed the 2006 peak last October and is currently well above it.

And while WFH may never fully reverse, it’s clear that the trend is moving in the opposite direction than during peak COVID, with notable names like Tesla and Goldman Sachs calling for an end to remote work.

Lastly, the low cost of financing narrative is rather trivial to debunk, given that 30-year fixed mortgage rates have roughly doubled over the past 9 months.

Perhaps the most ominous, which has been largely undiscussed in the context of the housing market, is recession risk. As real estate analyst and founder Nick Gerli of Reventure Consulting points out, “We are already seeing a big shift in the housing market despite a low unemployment rate of 3.5% and over 11 million job openings. So what does this correction in the housing market look like in a recession where the unemployment rate goes up to 6%?”

Gerli, in his interview with Wealthion, alludes to a number of figures which spell trouble for the residential market. If you own real estate, rent, or are considering buying soon, it’s worth checking out the full interview before you decide:

Video Length: 00:43:30