The U.S. housing market is trapped in a cycle of low transaction volumes, reduced mobility, and elevated interest rates, with recent data alarming veteran economists who see parallels to the 2008 financial crisis. David Rosenberg, founder of Rosenberg Research, highlights a key indicator: the annualized pace of home sales. In July, existing home sales dropped to an annualized rate of 4.06 million, down nearly 2% from June, falling below levels seen in early 2008 when the crisis began. In January 2008, sales were at 4.89 million, already a nine-year low. This doesn't mean the market is reliving 2008, but Rosenberg warns that sustained contraction in sales is a leading indicator worth monitoring.
Mortgage rates remain high, creating a "lock-in effect" where both buyers and sellers are hesitant. With rates staying elevated, many potential buyers are priced out, while homeowners who secured low-rate mortgages during the pandemic avoid selling to take on higher financing costs. This dynamic has led to exceptionally low market activity. The current housing inventory equates to about 4.6 months of supply. As listings increase and demand stays weak, the risk of price pressure grows. Rosenberg estimates that when both demand and supply face such stress, the median U.S. home price could drop roughly 2%. National data from NAR shows the median existing home price was still up about 2% year-over-year in July, but some regions are already seeing declining demand, rising inventory, and falling prices. Rosenberg cautions not to underestimate the impact of a price decline on consumer wealth effects. Years of rising home prices have built significant paper wealth for U.S. households. If prices turn downward, consumers may reduce spending due to a psychological wealth effect, meaning housing weakness could ripple beyond real estate into the broader economy through consumption.
More critically, Rosenberg argues that the U.S. economy has avoided a recession largely due to the artificial intelligence investment boom. He estimates that about 50% of corporate capital investment now flows into AI-related projects, with real growth around 18%. Meanwhile, capital spending in traditional sectors is declining. This creates a "K-shaped economy": one side sees AI, data centers, and related infrastructure attracting massive capital, while the other side features weakness in housing, auto sales, and non-tech manufacturing. Rosenberg suggests that excluding AI investment, the economy would be very weak, and "without the AI boom, the U.S. might already be in a recession." This aligns with recent data: the second-quarter annualized growth slowed from 2.1% in the first quarter to 1.5%, and July nonfarm payrolls unexpectedly fell by 23,000, far below the expected gain of 85,000. Thus, the economy may be in a unique state where AI investment generates growth, but traditional sectors are losing momentum. This explains why Rosenberg believes that one cannot judge the overall health of the economy solely by strong stock market and AI-related company performance. He also warns that, similar to before the 2008 crisis, credit markets may send danger signals earlier than stock markets. Rising financing costs and widening credit default swap (CDS) spreads are worth investor attention. If credit markets worsen further, they could eventually impact the currently hot AI trade. From this perspective, the drop in U.S. home sales to near 2008 crisis levels is not about a housing price crash, but about synchronized cooling in housing, employment, and traditional capital spending, with the AI boom potentially masking this weakness.
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