The ability of the average family to purchase a home has gotten worse. In fact, the affordability of US housing is back to levels not seen since 2007 in the runup to the Financial Crisis. First time buyers will be looking at spending 28% of their income, on average, to make mortgage payments and it will take at least twice as long as previously to put together enough money for a 10% down payment as during the pre-pandemic period. All of this is because of rising home costs coupled with rising interest rates. A fair projection is that this situation will lock sixty percent of Americans out of the housing market. How do unaffordable housing and your options trading relate?
Effects of Housing Decline on the Economy
Housing experts not that people should never commit to a mortgage that takes more than a fourth of their income to pay. Low and middle income individuals are already affected and the effects are moving up the income scale. This will directly effect home builders and those who supply building materials adding to the risk of a recession as the Fed steadily raises interest rates. Over the long term a home is the greatest single investment for the majority of Americans. Leaving more than half of Americans out of the housing market will further increase the divide between rich and poor in America and further increase social unrest. The Federal Reserve estimates that it will take the average first time buyer 11.3 years to accumulate enough cash for a 10% down payment. Pre-pandemic it took half this long on the average.
Going into the Financial Crisis the mortgage market was a house of cards waiting to fall. Confidence in the likelihood of the system staying healthy was the only thing holding it together as banks pumped out subprime mortgages and then sold them to other lenders. Far too many people got into balloon mortgages is nearly-zero interest rates for a few years and when the rates went to realistic levels they could not pay. As people quit being able to pay their mortgages the house of card collapsed and took the stock market with it.
Options Trading with an Iffy Housing Market
One can trade home builders and suppliers or options on these. But, if the housing market collapses it will, like in the Financial Crisis, take the economy with it. Thus, trading the S&P 500 could work as well as worrying about individual home builders. Of course the S&P 500 will also be affected by pretty much everything that drives the US economy including the war in Ukraine, inflation, the likelihood of higher rates, the likelihood of a recession caused by higher rates, and global unrest due to food and fertilizer shortages.
Not the Time to Trade Options Alone
When markets become volatile there is more potential for profit but there is also greater risk of losses. Right now is not the time to be trading options alone. Sign up with one of the trading squadrons at Top Gun Options where we potentially print money no matter which way the market is headed. At Top Gun Options we called the Covid crash to the day and called the Covid recovery with a couple of days. In each case we were able to guide our members through blue collar trading on one hand and essentially printing money on the other. As Americans we are sad about the potential for more economic problems but as options traders, we recognize that someone will win and someone will lose in the coming weeks and months. It is our task to make sure that you as a Top Gun Options member come out on the winning side.