The US real-estate market is on the brink of a significant correction, with property prices potentially dropping by 30%, according to Chris Vermeulen, a veteran strategist and founder of The Technical Traders. Vermeulen's forecast suggests both residential and commercial properties could experience substantial distress in the coming years.
Vermeulen highlights several economic indicators that suggest a looming real-estate correction. Retail sales have been unexpectedly soft, rising just 0.1% in May, indicating weakening consumer spending. Additionally, layoffs surged at the start of the year, with job-cut announcements rising 136% in January. Unemployment could peak around 5% to 6%, further straining mortgage holders.
Most US mortgages are 30-year fixed rates, but many were locked in at lower rates from several years ago. Vermeulen warns that Americans often stretch themselves too thin when purchasing homes, making them vulnerable as unemployment rises. Residential foreclosures rose 3% in May, and this trend could continue for the next two to three years.
The commercial real-estate sector is also at risk, with more than $900 billion in debt maturing this year. This debt will need to be refinanced at higher rates, potentially leading to a wave of distress. Commercial foreclosures have already jumped 117% on an annualized basis in March.
Vermeulen predicts that the Federal Reserve will eventually lower interest rates as the economy tips into a recession. However, banks may become more hesitant to lend, further weighing on demand and causing real-estate prices to plunge. He estimates that the market could take seven to ten years to recover from these losses.
While Vermeulen's forecast is dire, not all experts agree. The National Association of Realtors believes that low housing inventory will keep a floor under home prices for the foreseeable future. They argue that it could take at least three to four years for supply and demand to balance out.
The US real-estate market is facing significant challenges, with potential price drops of up to 30% in both residential and commercial sectors. Economic indicators such as rising unemployment and high inflation are contributing to this outlook. While some experts remain optimistic, the coming years will be crucial in determining the market's trajectory.