SVET Weekly Markets Update (July 18, 2022)
On Week 29 there are two notable macro-economic releases both aimed to gauge the state of the US real estate market (and, hence, ‘wealthy’ consumers’ economic sentiments) in June: U.S. Census Bureau’s Housing Starts and Building Permits reports (at 07:30 AM on Tuesday, July 19) as well as National Association of Realtors’ Existing Home Sales details (on Wednesday July 20 2022 at 09:00 AM).
Statistics for the past year shows that sellers (construction companies), energized by the 2021 real estate market boom, had been increasing new homes supply more or less progressively from 1.5 million in October 2021 to 1.8 million in April 2022 but then abruptly brought it back to 1.5 mil in May.
At the same time, buyers discouraged by galloping prices and rising mortgage rates, started to withdraw from the market much earlier — in February 2022, when home sales dropped from 6.4 million in January to 5.9 million in February and then to 5.7 (March), to 5.6 (April) and to 5.4 in May.
On a surface we have an economic paradox when a rising supply of homes has a zero (or even a negative effect) on an average price (an abundance of supplied homes is supposed to lower its prices and though to increase a demand for homes).
On the one hand, we can say that prices rise faster than builders build because USD flood gates stayed wide opened throughout 2021. However, even already existing construction technologies allow to increase new homes supply much faster than 4–10% yearly inflation rate registered in the real estate sector.
It means, that this dichotomy must not have happened if new home builders, armed with breakthrough construction materials, forms and methods, are allowed to enter the market freely, bypassing countless red-tapes introduced by local and federal politicians sponsored by industrial associations (a.k.a ‘cartels’).
Among other things that distorted dynamic reveals once more the inherent idiosyncrasy of the contemporary economic mechanisms debilitated by unabridged governments interventions and suffocated by the monstrous world-size bureaucratic apparatus.