The US real-estate market is headed for a correction, strategist Chris Vermeulen has said

America's real-estate market could be headed for a significant correction, according to veteran strategist Chris Vermeulen.

The chief market strategist of The Technical Traders highlighted concerning signals in the real-estate sector, particularly as borrowing costs are expected to remain high.

Construction starts for single- and multi-family homes have plateaued after a steep decline last year, a pattern reminiscent of the one preceding the 2008 housing correction, he noted.

Vermeulen suggested that the stabilization of construction activity might be due to a surge of investment in the sector. However, real estate is still at risk, especially if mortgage rates stay elevated.

"To me, this is a sign that things are really breaking down, and this is just a bounce," Vermeulen said about the recent stabilization in construction activity.

"It's the last spot right now," he added, where "you can squeeze a little bit of profits out of these buildings." With material and labor costs rising, he warned that "the financial sector and real-estate pricing could really fall apart."

While most single-family homes in the US are financed with a 30-year fixed mortgage, higher rates could pose a problem for property owners needing to refinance sooner. This is particularly true for many commercial property owners, with $900 billion of debt maturing this year, according to Bloomberg data.

Continued interest-rate pressure could trigger a wave of distress, Vermeulen said. Data from ATTOM shows that commercial-real-estate foreclosures jumped 117% year over year in the first quarter alone.

In residential real estate, a crash similar to the 2008 bust is unlikely, Vermeulen said. However, further weakening could lead to a panicked sell-off among investors who have been putting money into real-estate companies and real-estate ETFs.

"People don't realize real estate is primed and ready for another major leg down," he said. "They're buying right now because there's been a pullback, but the reality is that I think we're going to see this collapse," he added.

Real-estate veterans have been warning about a correction in property prices for the past year, especially in commercial real estate. Office values have plummeted since the COVID-19 pandemic, dropping 35% through late March. The sector likely faces more downside as remote work increases vacancies and property owners refinance debt at higher interest rates and lower property valuations, Fitch Ratings said.