American Real Estate Has a Sudden, Historic Shift
Peter Reagan

Have you ever wondered why the media pays so much attention to home sales?

If you have, you’re certainly not alone in wondering. After all, without being given the context about how home sales fit into the overall picture, it can just seem like that much extra noise in our already busy, media saturated culture.

But make no mistake: home sales are important, maybe not so much on their own, but because of what they indicate.

Let’s step back for a moment, though, and get an idea of the current pictures of how things are.

What is the current state of home sales in the U.S.?

The current situation is that home sales are down and that they are at their lowest level in sixteen years! Diana Olick with CNBC writes,

Sales of previously owned homes in March fell 5.9% from February to 4.02 million units on a seasonally adjusted annualized basis, according to the National Association of Realtors. That’s the slowest March sales pace since 2009.

What makes that especially concerning information is another surprising statistic from the housing industry. Again from Olick:

Sales fell despite a sharp increase in available listings. At the end of March, there were 1.33 million units for sale, an increase of nearly 20% from March 2024.

Think about that. The home construction industry has an extra home to go along with every five that they were already sitting on to sell.

And the rate of home sales is the lowest since 2009.

In any industry, a sales slump that is worse than the last decade and a half would be considered borderline disastrous (if not an outright nightmare).

Add in that they’re also sitting on that much extra inventory? Most industries would try to start dumping it as soon as possible in order to avoid the tax consequences of having too much inventory on hand (if you’re familiar with taxes on business, then, you understand how “excess” inventory is a really bad situation to be in for the business).

That gets us back to the earlier question:

Why does it matter if home sales are down?

And here we get to the ugly truth of the matter: if you’re not in the home building industry or in an industry that supplies the home building industry (lumber, electrical supplies, plumbing supplies, etc.), then, the situation with home sales may not be something that affects you directly.

What homes sales are, though, is an indication of what’s going on with consumers and their finances, and it can be an indicator of what is happening in the overall economy and what will happen in the near future. 

To give a bit of an explanation of the situation, a recent report put it this way:

Home sales, particularly existing home sales, are a direct indicator of consumer confidence and purchasing power. When existing home sales rise, it is a clear sign that more buyers are capable of making purchases, reflecting an increase in disposable income or access to affordable credit. 

This uptick in demand fuels increased activity in the housing market, driving investment and often leading to price appreciation.

The reverse is also true. If home sales are down, that indicates that consumers have less available money to spend and that finances are tighter.

After all, who goes shopping and who can get approved for a new mortgage if they don’t have the money to make the downpayment and pay their monthly mortgage?

Housing market downturns highly correlated with recession

To put it another way, what is happening in the housing market is a bellwether of what is coming down the pipe. If home sales are down, that could indicate that a downturn of the economy (maybe even a recession) is on the way.

And no one wants to go through that again. Especially when we remember that the primary cause of the Great Financial Crisis in the mid-2000s was a downturn in housing prices. 

The primary cause of Japan’s “lost decade,” coincidentally? Also a downturn in the housing market. 

There’s a reason for that! The housing market is the primary intersection between Wall Street and Main Street. Wall Street can get hysterical over its own drama, from collapsing hedge funds to Ponzi master Bernie Madoff, without anything changing on Main Street. We don’t care who Jamie Dimon has lunch with, or whether Goldman Sachs is an investment bank or a bank holding company. It just doesn’t affect our lives in the least. 

The housing market, though – that’s a different story. 

Most homes (from single-family suburban housing to 75-story downtown high-rises) are constructed by corporations. Funded with loans from banks and investors – and down payments made by home buyers. And the construction part takes anywhere from six months to three years, and pays thousands of salaries. The entire real estate and construction sector forms about one-sixth of the U.S. economy. 

When we have both decreased demand (indicated by lower sales) and an increase in available inventory, the iron law of supply and demand tells us what happens. Right?

Prices must fall. 

That can happen through market forces like below-asking price offers. Or it can happen through incentives like “mortgage-rate buydowns” or just outright give-aways. Late last year, one desperate construction company was offering $50,000 in total incentives in an attempt to get completed, move-in-ready homes off its balance sheet. (They wound up giving away 10% of their total revenue that quarter!)

When prices fall, homeowners can no longer trade up. They can no longer take out home equity loans. Worst of all, real estate is the #1 asset that makes up the net worth of American families. 

When prices fall, so do their hopes and dreams. 

Trust me, a downturn in the property market is a really bad sign… 

Here’s what a recession looks like

Older readers, I’m not talking to you (you already know what a recession looks like). I’m talking to my younger audience – those of you whose sole experience of a recession was the pandemic panic, those bizarre 60 days between total shutdown and the tidal wave of $7 trillion printed by the Fed. That official recession was so incredibly short that it skews the numbers – even though we eventually paid for it with 50-year-high inflation rates.

A typical recession looks like this: 

• They last about a year and a half
• The unemployment rate spikes anywhere from 1.5x-3x 
• Those who lose their jobs during recessions lose 1.5-3 years’ salary
• Decreased consumer spending leads to pressure on corporate profits, and layoffs
• Credit tightens as banks lend less money
• Property values fall as much as 20%

You can see how a self-reinforcing some of those factors are! A layoff leads to lower spending leads to lost profits leads to layoffs… Lower property values lead to less spending leads to…

A big part of the problem with recessions is simply this: They are inevitable. They’re a regular feature of the modern economy. And we don’t have control over government economic policy or larger shifts and changes in the economy driven by technology and other factors.

That’s okay, though, because you don’t need to be able to control the entire economy.

You just need to be able to build a firm foundation for your own personal economy to make sure that you and your family can weather whatever economic storm comes our way in the coming months and years.
The best way to build that foundation, in my opinion, is to diversify into precious metals and to do that sooner rather than later. You can start your due diligence for that by getting our free Precious Metals Information Kit for 2025.

 

 

Peter Reagan is a seasoned financial market strategist at Birch Gold Group with over 15 years of experience in the precious metals industry. He has been featured in several leading publications, including Newsmax and Zerohedge. At Birch Gold Group, Peter leverages his deep market insights to help educate customers on how they can diversify their savings into gold and other precious metals. His commitment to education has made him a trusted thought leader in the field. In addition to the Birch Gold website, you can follow Peter on LinkedIn.

 

www.birchgold.com