The U.S. housing market is now the latest sector to signal trouble for the economy amid persistent uncertainty.

In this regard, data shared by The Kobesissi Letter on June 29 noted that the US housing market eerily resembles the prelude to the 2006-2007 crash.

Dramatic increase in home valuations

According to the report, home valuations have reached levels last seen just before the previous financial crisis, raising concerns about an impending recession.

Notably, home prices are now overvalued by 20% on a rental basis and 26% on a landlord basis. These valuation metrics have increased at least four-fold in just four years.

This dramatic increase is attributed to a rapid increase in home prices, with median prices for new and existing homes hovering near all-time highs of approximately $420,000.

Decrease in family income

Compounding the situation is the fact that the annual income needed to purchase a median-value home now exceeds the median household income by a record $40,000. This indicates an extreme level of unaffordability in the US housing market.

The Department of Labor estimates that homeowners' equivalent rent rose sharply starting in 2015, peaking at more than 25% overvaluation in recent years. Market-based rents for newly rented homes follow a similar trend, although slightly lagging compared to the equivalent rent from owners. Current levels of overvaluation exceed those seen during the pre-2008 housing bubble, indicating that the market is in a precarious position.

Overall, in recent weeks, various indicators have increasingly pointed to a possible recession in the United States. For example, according to a report by Finbold, the US Index of Leading Economic Indicators (LEI) has fallen 14.7% from its recent peak in this economic cycle. This substantial drop has historically signaled the beginning of recessions in the last 65 years.

Attention at the Federal Reserve

Meanwhile, attention has now turned to when a potential recession could hit, with a majority consensus pointing to the second half of 2024. In fact, the US Treasury yield curve projects a 52% chance of a economic recession in the coming year.

Meanwhile, attention now shifts to the Federal Reserve regarding its monetary policy on interest rate cuts, as it will be crucial in influencing the direction of a possible recession.