The US consumer is being treated like one of Mike Tyson’s punching bags at the moment, taking hit after hit from elevated price pressures and suffering a serious cost of living squeeze. And now it looks like the knockout blow might have arrived in the form of soaring housing costs. The average cost of a 30-year, fixed loan was 6.7% – increasing from 6.29% just a week ago. That takes mortgage rates back to levels last seen in 2007. The housing market is clearly feeling the chill already and this isn’t even expected to be the peak: with the Federal Reserve on an anti-inflation crusade, rates above 7% are now being projected.
Google search trends are also showing an anxious consumer: search interest for “real estate market crash” has exploded by north of 200%, setting a new record in Google Trends data. Another statistic that highlights the growing problem of affordability is that the median American household is now sacrificing 50% of its income to meet payments on a median-priced home. The higher this number goes, the less dough the US consumer will have to inject into the US economy.
The takeaway is to stay clear of any assets associated with the real estate sector, at least in the shorter term – that means investments in timber, home builders, and general building material suppliers. At some point the cycle will turn and these assets will offer solid upside price potential – but that time hasn’t arrived yet, so sit tight.
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