US Home Sales Drop Below 2008 Levels, Sparking Wealth Effect Fears
A steep drop in US existing home sales below early 2008 crisis levels threatens to erode homeowner wealth and dampen broader consumer spending.
The annualized pace of US existing home sales fell nearly 2% to 4.06 million in July, a figure that now sits beneath the 4.89 million rate recorded in January 2008 just as the last housing crash ignited. This drop reflects a residential market effectively paralyzed by elevated mortgage rates, which have sidelined buyers, and a lock-in effect from low pandemic-era rates that prevents sellers from listing.
The resulting anemic transaction volume is drawing scrutiny from market veterans. Economist David Rosenberg, founder of Rosenberg Research and widely known for accurately forecasting the dot-com and housing busts, flagged the plunging sales pace as an alarm bell. He warned that the current environment closely mirrors the conditions that preceded the 2008 meltdown.
A critical dynamic building beneath the surface is inventory. The market currently holds roughly 4.6 months of unsold housing stock, a level that historically exerts severe downward pressure on valuations. Rosenberg estimated that the last time supply and demand fundamentals were this pressured, median home prices fell by approximately 2%.
"It's funny how inflation is on everyone's brain at a time when every measure of real estate prices is now in the process of cracking," Rosenberg wrote. While the national median sale price technically rose 2% year-over-year in July according to the National Association of Realtors, that headline figure masks emerging weakness where localized demand has slumped and inventory has piled up.
For investors and corporate executives, the significance of a housing cooldown extends far beyond the real estate sector. A sustained decline in property values threatens to disrupt the consumer economy by undermining the wealth effect. Homeowners who have grown accustomed to steady post-pandemic appreciation may curtail their spending if they perceive their net worth to be shrinking.
"Do not underestimate the effect this will have on the fabled 'wealth effect' on spending in the coming months and quarter — a huge offset to what the stock market is doing (assuming it continues to do what it has been doing)," he added. Rosenberg, who last year predicted the housing sector would suffer its worst downturn since the Great Financial Crisis, recently noted that the AI boom is the primary force delaying a broader US recession.
