Optimism about dropping mortgage rates drove up its Home Purchase Sentiment Index, but the poll occurred just before mortgage rates exploded.
By Wolf Richter for WOLF STREET.
Fannie Mae said today that its Home Purchase Sentiment Index (HPSI), which has several components, increased in September to 73.9, a 30-month high “as consumers reported survey-high optimism that mortgage rates will decline over the next 12 months.”
A record 42% said they expect mortgage rates to decline, up from 39% a month earlier and up from 24% two months earlier.
Most of the polling occurred in the first two weeks of September with some data collection through September 19, thus largely when mortgage rates were falling into the low 6% range ahead of the intensely anticipated rate cut by the Fed on September 18.
But mortgage rates have exploded since the rate cut, along with the 10-year Treasury yield, on renewed inflation fears, and on the complication that a whole bunch of rate cuts and 2% inflation had already been priced in to even get to the low 6% range. Today the daily measure of the 30-year fixed mortgage rate by Mortgage News Daily jumped to 6.62%, up by 51 basis points since the day before the rate cut (6.11%).
This iffy hope for further declining mortgage rates from the low 6% range where they had been in the first half of September was largely responsible for the increase in the HPSI to a still-low level but a 30-month high (73.9), when it was at 91.5 in September 2019.
Great time to sell, terrible time to buy: that doesn’t work.
Two of the other components of the HPSI look very funny in combination: Consumers think it’s a great time to sell a home and a terrible time to buy a home. And that is a prescription for more inventory, lower sales, and lower prices.
65% said it’s a “good time” to sell a home, and so there has been this surge in inventory for sale because sellers feel emboldened by lower mortgage rates, and so they’ve started to put their vacant homes on the market that they could have sold some time ago but didn’t because they wanted to ride the price spike up all the way.
The “good time” to sell a home sentiment had hit survey highs of up to 77% in 2021 and early 2022 when mortgage rates were still ultra-low, but people didn’t put their moved-out homes on the market because they wanted to ride the price spike up all the way, and so inventories dried up at the time. This time, they’re putting their homes on the market.
But a near-record 81% said it’s a “bad time” to buy a home. That’s the buyers’ strike, and they are still on strike because prices are too high, and so demand for existing homes has collapsed.
Buyers’ strike because prices are too high: Fannie Mae
“Although most consumers continue to think it’s a ‘bad time’ to buy a home, the recent shift in attitude toward mortgage rates” – if only mortgage rates would play along – “is pushing overall housing sentiment higher, and a growing share are now pointing to high home prices rather than high mortgage rates as the primary sticking point for affordability,” the report said.
“We’ve yet to see consumers’ newfound rate optimism translate into a meaningful increase in home sales activity,” the report said.
“Existing home sales are on pace to record their lowest annual total since 1995. This signals to us that consumers are paying attention to the easing interest rate environment but still feel stymied by the considerable run-up in home prices over the last four years,” the report said.
But mortgage rates have re-spiked. So that’s going to put the onus on prices to jar loose the people on buyers’ strike.
And yet, we knew it, consumers have it drilled into them endlessly that home prices can only go up:
“A plurality of consumers also indicated that they expect home prices to increase over the next 12 months, which would offset some of the expected rate-driven improvement to affordability,” the report said.
But rates have spiked since the survey. So where should the improvement in affordability come from? Prices? No way Jose…
In September, at the time of the rate cut, Fannie Mae’s economists got even gloomier about home sales, though at the time, mortgage rates had dropped into the low 6% range: They noted that buyers were waiting for even lower mortgage rates, lower home prices, and higher wages.
Here is Austin demonstrating how home prices can start to become more affordable when buyers go on strike, regardless of mortgage rates:
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So who is going to blink first?
My bet is on the buyers unless we get a major recession or something that shifts the home prices will go up forever gospel from the general public..
The sellers already blinked. Months ago.
Isn’t this just three peaks? With a predictable trough between each?
Wolf, with all due respect, that chart portrays the standoff over the last 2 years. Virtually the same highs in June and lows in the winter, no?
These are LISTING prices — what sellers want, not what buyers have agreed to pay. Listing prices in September were lower than in Sep 2022. Sellers already blinked. If homes don’t sell at those prices, there are price cuts — lots of them already, sellers blinked again, see the article I linked — and if that doesn’t work, they’ll blink again, and so it goes. Little blinks at a time.
It will be interesting to see what happens next.
The past two years have been rate cut mania and people hyping up the next run up in real estate. Well, rate cuts are here and the mortgage rates went the wrong way.
What happens when sellers and buyers realize that 6%+ rates are here to stay?
Why would buyers blink if they can rent cheaper
Owls can blink one eye at a time. Maybe the home sellers are doing this, giving the home buyers the “one eye”. But whatever the strategy, “if you want it here it is come and get it, make your mind up fast…..you’d better hurry cuz it may not last”
The betting odds on Wolf Street, the buyers now trump the sellers.
Back in 2022 I was going to buy a nice spacious apartment with sunset views for around 250k. Now uglier but similar units are starting to reach 400k
So…prices of homes will have to make the long and difficult trip down to Porky’s tavern if it wants a date with Mrs piggy. Even then mrs piggy might decline the advances unless chocolates are offered up.
Prices need to come down to where they are affordable to the buyer I would think, but it the Twilight zone expect the unexpected.
The question is….what is affordable? We have been exporting deflation over the last 15 to 20 years to China. It looks like that is ending. These prices may be the new normal unless we can get construction cost to decrease and labor to take a hit in pay?
IMHO….these prices will be sticky. Sure. Some bubbly places will fall.
Why….the FED wants a no landing or soft landing. A recession with house prices dropping would ruin their plan.
What we need is more supply (new builds) of lower cost housing. Not the 2400 to 3000 sq ft McMansions new builders are building but the 1000 sq ft to 1500 sq ft 2 bd room or 3 bd rm homes. Well, that is sort of happing but these new builds appear to be build for rent. LOL
Politicians are not pushing for a recession to knock prices down because you do not get re-elected during a recession. Instead, they will push for free government down payments or government subsidies to build new smaller homes. Since the GSEs back most mortgages, maybe they will reduce principle loan amount on a loan so it can be sold less than market value. There are lots of things the government can do for housing that we are not even thinking about.
Anyone notice what China did. They dropped cuts rates but also told the banks to refinance all mortgage loans at 50 basis points below the prime lending rate. I think they are making the owners of the loans take a profit hit to support housing. Guess what, the GSEs could probably do the same thing. They are also reducing requirements for people to buy 2nd homes.
The falling Yuan means they can only buy in China not abroad.
Its the stuff that the government *does/did* that has totally messed housing, number one probably all the mortgage backed securities they created money to *buy* and still hold a ton of, that are fortunately decreasing slowly. So to fix housing, the government shouldnt do any more bad wealth illusion schemes and should continue shedding mbs all the way to zero. Then our society couid finally be free of this ball and chain.
and yet you still see A$$hat sellers pulling funny tricks like price increases..still see price increase on Redfin in SoCal listings from time to time and these aren’t houses that listed for way too low, case in point. a 1500 sqft house in Placentia listed for $1.15M but now increase to $1.2M if demand is not through the roof, really don’t know what a seller like this is hoping to achieve…Nevertheless still comical to see and this will be a long battle until one side blink in mass….I just don’t have that much faith it will be sellers first at least in some of the markets…
It’s not just sellers. I recently got a notice that my city is trying to assess my house up 90k – and they’ve already assessed it up 115k over the last couple years.
Needless to say I’m appealing the new assessment – there’s no way my house is worth what the city is trying to claim it is.
Municipal govts seem to be a beneficiary of these insane bubble prices.
either way the city/county is going to get its vig in full
keep assessed price high – helps keep mil rate lower
keep assessed price low – mil rate will have to rise
budget = assessed valuations x mil rate
guess what is set in stone – the budget
“Municipal govts seem to be a beneficiary of these insane bubble prices.”
And, amazing to relate, munis have used zoning restrictions to make it very difficult (and more crucially, *expensive*) to add new housing.
How abusive have these trends been over 20 years?
So bad that the ***California*** state government felt it needed to force its munis to cut the crap – economic flight tends to concentrate the minds of state government wonderfully.
To reiterate – the ***California*** state government felt compelled to free up the housing mkt.
*That’s* how f’ed up muni zoning can be.
So much for date the rates, marry the house….not that the RE agents pushing for this narrative have any shame….maybe they can just tell their customers this is still the case except no one wants to date you…
It’s the other way around: you’re married to the purchase price, and divorce can be painful. But you can date the rates.
I bought my house in central Austin for $115K in 1993. The market was hot even then. Now, the neighborhood’s 6700-square-foot lots go for $750- $800K. Spec builders built monstrous homes on these tiny lots during the pandemic to make the square footage math work with the lenders. The music has stopped on these $2M+ homes, and they sit there.
I spoke with a local, experienced realtor, who said he’s starting to see a lot more short selling.
It’s going to get worse.
They’re selling 1/3 acre lots 15 minutes from where I live for 2M. That’s just the land although I think it comes with a water meter. HOA is 3500/mo. My rent for a 2 bedroom house on .2 of an acre is less than 1/3 of that monthly fee. That’s how far out whack prices have gotten relative to incomes.
6,700 SF is about .15 of an acre, not 1/3.
I didn’t say 1/3 of an acre was 6700 sq ft, was just giving a buy vs rent comparison. Try harder or cry harder!
I like Austin, but paying $2M to access food trucks, BBQ, and a sleazy downtown, does not compute.
You forgot the bats. Surely that’s worth $200k right?
but the stock options keep flowing to wokies
free money
remember in 2000 when lots of .dot bombers were cashing out big $$$
they bought SF RE – didn’t care about price given their free stock options
And the traffic. It used to be easy to get around bur now is congested all day long. Heading up there today and leaving lots of extra time…
It’s never not been terrible.
“and a sleazy downtown”
Sleazy was 1970’s Times Square.
Funky is South of the River “Downtown” Austin.
Real Estate Skeezy is North of the River “Towers” Downtown Austin – in the WeWork-grifter/Why Leave SF Just to Recreate the Prices Here sense of the term.
SV/SF is largely landlocked in terms of available land – thus the wackadoodle prices.
Texas is the exact opposite…unless you insist on living in a 2 mile by 2 mile square in downtown Austin (North of the River).
And yet somehow, the Austin boom era SV refugees really, really insisted on that 4 mile Square – importing SF prices into Austin (defeating the whole point of fleeing CA).
Go 5 miles north, or especially south or east…and the prices/environments are much more…Texan.
I have often wondered what magic act keeps Austin real estate prices twice as high as San Antonio just 60 miles down the road. Quality of life? I can see nothing in Austin that makes living there worth it. San Antonio has numerous gorgeous old neighborhoods like Monte Vista, King William, Olmos Park, Alamo Heights etc that Austin cannot match. Hipsters have lost their minds.
My prediction is sideways movement in housing prices for a long time. Banks and institutional investors don’t want to lose money on falling home prices. They will start buying inventory if they have to in order to keep prices up. But they also know they can’t push them higher because they’ll be stuck with that inventory for too long.
Prices are falling because the job cuts are increasing and nobody has confidence in the current economy.
The home we purchased 3 months ago is down 10K and will probably go down 20K by next year. We expected this downturn when we purchased it, but didn’t care because we were tired of being gouged in the rental market.
We also expected interest rates to be in the 5% range by 2026 and will refinance when it makes sense. Our aim was to control expenses, not to grow equity.
The money for RE investors now is in funding the shadow mortgage market. The short term returns are better and they can resell the loans at any time into the secondary market.
Nobody has confidence in the current economy? LOL. Wolf has been writing for months that this is the BEST ECONOMY in years!!!
NVDA to 150 :]
NVDA to 150? Nah, dream big Cathie Woodshed style, I call NVDA to $2K by end of next year..
I thought the jobs reports were revised upward for the last two months and the latest one was off the maps up? Where are these job cuts?
According to Zillow, our condo’s Zestimate is up $43K since we bought it in June 2023.
And the house we sold is up $40K
Western suburbs of Chicago.
Location? Location? Location?
Zillow values aren’t real. They sure do make people feel good though
I predict that nobody wants to lose money, but lots of businesses and people do, all the time.
https://i.imgur.com/7uPztOT.png
Think this is the perfect graph for the downside from the housing bulls perspective or a majority of the people who bought in the last couple of years. Think most of them think the worst worst case is that price will just stay flat and their upside thesis is that it will beat inflation in % gain every year…Let’s just say none of them can imagine we will ever have a correction similar to last time….
Time will tell
I don’t think there would be sideway movement in prices.
I think prices would decline.
Just look at the state of housing market with hot job market
Just think what it’d do if and when the recession hits.
The reason is very simple.. home prices are way out of line in comparison with income.
Are you a landlord like me ?.
If house prices move sideways then the best time to sell was two years ago. Inflation and carrying costs will continue to chip away at speculators, investors and flippers. Property taxes and insurance are on a tear and will further erode prices.
Anyone know what happened to home prices in the 70’s when interest rates spiked? Was there a buyer’s strike and how was it resolved? I assume very high wage inflation gave buyers somewhat of a boost.
There was not a buyer’s strike in the 70’s overall, except when Volker rates went to 18% for a few months, then declined within a year. Overall, the 70’s had rising prices and rising incomes because jobs were plentiful compared to today. Now everybody is a couple of paychecks away from trouble.
Savers earning double digit rates and have rising incomes and pensions that is the fairy tale only the boomers got to live through. Jobs are not plentiful, unions can’t save you, sfh re doesn’t make sense anymore as an investment, AI is busy cutting many jobs, and the market imo is overvalued in most sectors – there is no where to go for returns. This is my sentiment but the general public doesn’t pay much attention until they’re in the Unemployment line.
As I stroll peacefully past the ribeye steaks, not looking at the price, knowing I could but also knowing I won’t. I shuffle over to glance at the dead birds instead. Chicken and rice sounds good, avocado and a glass of wine.
What about Crystals comment?
Her points are depressing, that’s why I’m out shopping for some food. But I was wondering, do they still have an unemployment line?
Jim and Petunia-
I can’t speak to home prices, but there were certainly some dramatic “buyers’ strikes” in bonds (when rates peaked at various points) and stocks (when many price-earnings ratios bottomed in single digits).
The inflation of the 1960’s and ‘70’s mucked up all prices (e.g. stocks, bonds, commodities). Hard to imagine it didn’t cause severe volatility in single-family housing too…
Also, was there “real” wage inflation, or just nominal?
Finally, look up “Misery Index” for context.
mortgage assignment was more common back then
https://fred.stlouisfed.org/series/MSPUS
Rates should depress housing prices in the current environment. But this is not the “Great Inflation”. The 70’s was buffeted by the monetization of time deposits which increased the velocity of circulation, or AD.
C-19 is being buffeted by the change in the composition of bank deposits, from TDs (time deposits) to DDs (demand deposits).
Government overspending is the cause of elevated home prices and all the buyers enthusiasm in the world won’t stop prices from rising higher. Our national debt jumped 200b in one day according to Elon musk. Prices are very likely to move higher irrespective of what happens.
“… according to Elon Musk” 🤣 made my day
Since when do we have to ask Elon Musk how much the government debt is? The Treasury department publishes a detailed total every day.
Do you believe prices for housing are coming down amidst hyper spending? 50b here, 50b there, it all adds up. You’re making it sound like this is something unusual that’s about to settle. But there’s no reasoning to support your claim.
You’re the one who quoted Elon Musk as some sort of authoritative source like a moron lol. Take your L and move along
haha Elon Musk the economist now? Is there anything this real-life Tony Stark can’t do
Elon Mush is now the self declared expert on everything.
Historically speaking, and we only have government real estate tracking going back to the 1960s, real estate has been on a steady growth. In the 1960s, a young family starting out could buy a small bungalow in the 15K to 20K range. I recall growing up in the 1970s going with my parents to look at brand new homes in the late 20Ks and early 40Ks. About 10 years ago one of these homes, which I recall was 29K in 1972, sold for 750K.
Of the 5 homes I bought and sold in the past 35 years, my first home, a charming Cape Cod in the countryside is the only one that I did not make money on. After putting 6 years of improvements and upgrades inside the house and the land, I broke even when I sold it. Lesson learned. Don’t buy a house in the middle of nowhere and don’t sink so much money into it like you plan to live in it forever. Forever was 6.5 years, before I moved to Florida.
I made money on the next 4 homes in Florida. I stole my current retirement home from the previous owner who had been relocated to Texas by his work. The house had sat empty for six months after the rental tenant got kicked out for whatever reason. The house spoke to me and I made an offer. The offer was accepted. Two weeks later, after the roof failed 2 inspections I further negotiated the price lower by 5K. The new roof cost 7,500.00 and was replaced 7 years ago at this time after hurricane Irma went by us.
I have been improving and upgrading the house for 7.5 years. This house has parts of me in it now, because of all the sweat, blood and tears I’ve put into it. I hope to live here to the end. I am in my mid 60s and will be on full SSI benefits soon. It’s been a heck of a real-estate journey.
Barring an event like the Great Recession, the Great Depression or the financial collapse of the economy, home prices will always appreciate as long as the owner maintains and improves his/her property. The historical appreciation is around 4.5%, which is slightly ahead of the Fed’s target inflation rate of 2%. Mortgage rates may or may not get down to 5%, but should that happen then demand will multiply and so will home prices. Classic supply and demand. It’s that simple, really it is. Did I mention I have an MBA with a concentration in Finance? Cheers.
Actually home prices tracked inflation for the entire 20th century, outsized real estate appreciation is an anomaly.
“How do you know it’s a bubble?”
Alan S. Blinder gives a convincing explanation:
(1) The historical data should be long enough to give us an historical perspective.
(2) The data should be deflated (using real prices)
(3) The data should be compared to the relative prices of other things.
“Using 120 years of historical home prices, the relative prices of houses in America barely changed over more than a century! The average annual relative price increase from 1890 to 1997 was just 0.09 of 1 percent. Then things changed dramatically.
According to the Case-Shiller index, real house prices soared by an astounding 85 percent between 1997 and 2000—and then came crashing down to earth from 2006 to 2012. This represented a large, long-lasting, and a sharp deviation from fundamental value.” Pg. 32 “After the Music Stopped”
Correct, over 8 billion reasons why their is plenty of demand for housing…
WB – …and freshwater, agriculture, energy…
may we all find a better day.
Home prices have never grown out of whack in comparison with income like now and when it does the end result is always the same .
I don’t say it just historical fact
No it does not take MBA in finance to see this.
Thanks
@vadertime it sounds like I am around your age (and have a BS in Finance). I agree with you that “home prices will always appreciate as long as the owner maintains and improves his/her property” but only “over the long term as the government keeps expanding the money supply to keep inflation going”. I just found out that a cousin and his wife bought a <2,00sf 2br $1.9mm "fixer upper" on a ~4,000sf lot in San Carlos (where almost every home was under $30K before 1970 and under $1mm before 2000). I think there is a good (almost certain) chance that the home would be worth less than they spent if they kept it as is over the next few years. Keep in mind that over 99% of the cars built in the 1960's are worth more than they sold for new "as long as the owner had maintaind and improved them over the past 60 years), but in the 1980's 99% of the cars buil in the 1960's were still worth less than they cost new. You said you bought your first house 35 years ago, that was 1989 and peak home buying time for most of my friends in the Bay Area, and like you almost everyone that needed to sell a home or apartment in the mid 90's was selling for a loss (I was buying CA REO homes and apartments and pools of underwater non-performing home and apartment loans from 1994-1998).
Apt. – kinda gives another meaning to the term: ‘garage queen’…(sidebar-does anyone know the current state of the plastic-slipcover for furniture industry?).
may we all find a better day.
$1.9 Million on a fixer upper with a small lot? Do they have money to burn, or are they just clueless? I figured (with a mortgage calculator) that that makes an approximate payment of $9118/month ($109K per year). I bet the seller was singing all the way to the bank. Oh…how much to fix up a ‘fixer upper’? $100k? $200K? The guy will never recoup his money. That’s why the Fed is ****ing their pants right now – they’ve created the biggest financial bubble in history and they know it’s gonna come crashing down.
Reminds me of the Dire Straits song ‘Money for nothing and your chicks for free.’
“The historical appreciation is around 4.5%,”
I agree, but the price increase since 2020 has been up to 100 times in some places, and this is not normal!
I agree hence why this is now known as the new normal. I think many buyers are counting this type of return over the next decades…who knows, they might be right despite my utter disdain and contempt…
Put it down to recency bias?
I suspect some buyers/sellers have become inculcated to antigravity in the markets. They seem to assume because the housing market was geared one way for so long, that it defines a new immutable baseline. It’s a bit like getting out of an airport after you’ve been traveling all day, paying treble for basic sundries like water, coffee, peanuts or a newspaper, but then forgetting once you’re on the ground and no longer on an expense account that you don’t have to pull out a vital organ at your local grocery store (then again…).
The pandemic mania was the airport mindset, and the expense account was in the form of 2.5% rates.
@Julian I think you mean “up 100%” (aka doubling in price) since 2020 not “up to 100 times” (aka the increase in most Bay Area home prices since 1955).
Yes, of course 100%
I know this is not comparing apples to apples. However, this an example of what has happened in Japan in the last 70 years.
Its SF real estate prices rose steadily for 35 years from 1955 to 1990. (All this information is off the FRED website.)
I remember at the time it had an economy that was not only the envy of the world, but also, it was poised to take over the planet.
Then in 1990 the shit hit the fan in Japan. SF declined the next 22 years, every year, until bottoming out around 2012. It then traded sideways for years and finally clawed back up to its present value at 75% of what it was in 1990.
So, in Japan in the last 35 years, if you bought at the peak, you “only” would have lost 25% of your homes present day value.
No one can predict the future. However, I just have a hard time buying, “it only goes up.”
@Observer the price of homes in SF took a little hit in the early 90’s but it did not “decline for the next 22 years”
1990 Median SF home price ~$300K
2000 Median SF home price ~$500K
2018-22 Median SF home price $1.3mm (from the Census site)
ApartmentInvestor,
I believed I prefaced my comment with “this is not comparing apples with apples.” And ended with “no one can predict the future.”
My example is what did happen, in my lifetime, to an entire country who’s economy at the time was the envy of the world.
If you choose to use a snapshot in time of SF as an example to prove to yourself that RE never goes down.
Well, good luck with that.
Okay boomer.
I’m a Millennial in age, here to tell you that you sound like an asshole.
If you were smart, you’d eek out any knowledge you can out of this older gentlemen’s anecdote and make the best of your own circumstances. You have the beauty of youth and an undefined future. Try to beat him at the game of life if you don’t like him for his age.
Meanwhile, I find this whole generational fight fascinating. Millennials hate boomers for some reason, and Boomers hate the generation they raised. Maybe there really is a conspiracy to screw over the youngsters since their whininess is unbearable? Then the Boomers can feel like God when they hand money to their own kids?
I have them all beat, so I really don’t care. Figure out your own way to wealth, Steveo.
I am a Boomer but my children are all Millennials. I wish them well and their children too! May they all prosper and thrive!
Interesting data. Are we finally back to a world where “the cure for high prices is high prices?”
The “Market” is also sending very/really confusing signals to buyers. 900k townhomes, then 2 miles up the road 900k SFH. 800k homes near high demand locations. 800K home 30 minutes away from high demand locations. And People are changing their buying patterns as they age too. Who wants a 10k sqft home at 65? I hear roughly 35% of “family” homes are institutionally owned in some of these areas, and there are 100% rental neighborhoods popping up as a result.
Reminds me of the $100 dollar oil fiasco. You know, it’s all supply and demand, well that is, until it’s not. The USofA managed to turn it’s very own housing supply into a tech stock. I’ll take the Nvidia plan with a basement pls.
In metro areas and less new build markets like NorCal and SoCal, you definitely see a lot “throw it at the wall” and see if it sticks type of greed in asking price, same can be said about rental asking price as well.
Funny, looking at my previous rental, the landlord probably thought he could get away with a much higher asking price and get it rented out right away after we moved out…almost 3 months later, have to lower it from $4900 to $4500 and who knows, might need to go even lower if it’s not rented out soon. You see a lot of sellers and landlords still hanging on to the craziness of the last 3 years as reference point..
@someGuy after Robert Mondavi died in 2008 just before his 95th birthday his widow put their 11,830sf Two Bedroom Six Bath home in the Napa Valley on the market and my favorite comment on a real estate blog was:
“Nothing says I don’t like overnight guests more than an 11,830sf home with just two bedrooms”…
Because of course that’s what they’d do. lol..
Well, maybe I ought to caveat rethinking the huge home @ 65 is for those folks who wanted a more full life.
A lot of this stuff is human nature. At least that’s what people have said. It’s like you give someone on a gameshow 200k now or they can press on to maybe win a million. Many of those folks went back home left with a t-shirt saying they were on the show. That is Human nature.
I see strange patterns as well. High end homes really change price with location in my area (although not as much as they probably should), but asking prices for starter homes (~1100-1500 sq.ft.) are never below 425k, whether it’s downtown or way out in the sticks. The downtown part of that equation doesn’t surprise me…
If Austin prices hit 345,000 I’d buy.
In my ongoing effort to exasperate Wolf, my response to a buyers strike is based on a strange old valuation metric for equity markets.
I think this post pandemic everything bubble has a general narrative that these things are normalizing — and adaption to the bubble prices in housing and stocks are something to get used to — and accept that every bear remaining is either dead, or will soon be deceased.
On that note, I’m ready to capitulate and join the long stream of lemmings walking towards the cliff side view —however, just checked my old barometer, called the Dr X Bubble Index.
Wolf has probably deleted this before reading…. Oh well.
There are still articles on this, but
We take the current value of S&P500 @ 5735.97 divided by current 10 yr treasury yield @ 4.036 = 0.07831
Next, we take 1 divided by personal income per capita (qtr) @ $73,242 = 0.2477
Finally, we divide 0.07831 by 0.2477 to get 0.2951
The bubble index had been as low as 0.05132 July 2012 and as high as 0.3005 at height of Dotcom insanity…
So, I’m now thinking, this is an extraordinarily stupid time to be dipping my toes into the water — I think the titanic will push higher with election seasonality — but then the risk within this little window, is exceedingly high!
As for housing, there’s glimmers of exuberance — which are probably influenced by equity speculation — and a sense of security that the Fed nailed a soft landing — but, I totally agree with Wolf on the buyer strike pushing prices lower — especially as equities reach their breaking point.
Dr X apparently was a Nobel guru, but who cares.
“and adaption to the bubble prices in housing and stocks are something to get used to ”
LOL, at least in terms of housing, no. Later today, I’m going to publish an article about Florida housing. Check out the asking prices. That’s what sellers want for their homes, and sellers have been lowering their asking prices for two years because they’re having trouble selling their homes — meaning, they cannot sell them for what they want — and those asking prices are now down 11% from over two years ago, and sliding at a steepening pace. That’s going to be the first chart.
Correct me if I am wrong, but about 75% of purchases are done with a mortgage. I would guess most of those buyers are only focused the monthly payment. So even if it fits in their budget, they are still overpaying for the house/asset. There is no sort of Kelly Blue book to look up a house price, the price is what someone is willing to pay. Home appraisals are based on comps from other recent sales, which are most likely too high. Will be interesting to see where the market is 6-12 months from now.
Applications for mortgages to purchase a home have collapsed to historic lows and have stayed there for over a year:
This chart is great, but it doesn’t do the situation justice. The decline is at a 30 year low. On just absolute numbers, not population adjusted numbers… this is the most concrete evidence you have that prices will come down.
“The decline is at a 30 year low. On just absolute numbers, not population adjusted numbers…”
That’s true. It’s a lot worse if adjusted for population growth – the entire home-sales plunge is a lot worse if adjusted for population growth.
Studies suggest that a 1 percentage-point increase in the projected deficit/GDP ratio leads to an increase of about 20 basis points in the 10-year Treasury yield.
“The US deficit to GDP ratio in 2024 is projected to be 7.0%. This is based on the Congressional Budget Office’s (CBO) projections for a $1.9 trillion deficit in fiscal year 2024, adjusted to exclude the effects of payment timing shifts“
“As of September 30, 2024, the US federal deficit is $1.9 trillion for the fiscal year (FY) 2024. This is an increase of $373 billion from the same period in the previous year”
Mortgage rates headed higher?
Also see: “With the Q2 GDP third estimate and the September close data, we now have an updated look at the popular “Buffett Indicator” — the ratio of corporate equities to GDP. The current reading is 196.9%, up from 194.9% the previous quarter.Sep 30, 2024”
“65% said it’s a “good time” to sell a home,”
This is a very precarious sellers’ market, much like musical chairs – it’s a great market if you act first – you get a chair (sell your house at a reasonable price). Act slower than the rest and you end up on the floor (you may end up with a house in a very sluggish market with falling prices). Smart sellers offer at a modest discount.
This is much different from the housing boom from 2002-2006 when the economy was like a freight train – unstoppable. We are currently on the cusp of a HOUSING DEPRESSION, the likes of which have never been seen before in this country. So yes, it is SOMEWHAT of a sellers’ market, but only for a while and only for smart sellers.
And it should be quite obvious the contradiction of a “good time to sell a home” while buyers are on strike. Something’s gotta give.
Supply is ultra low. It is not obvious that even amidst a severe slowdown in sales that prices will fall. Insurance, taxes and maintenance are all rising faster than in recent memory.
“Supply is ultra low.”
This is becoming more and more false.
Per Wolf’s last article, supply is increasing dramatically. Even in my market (Boston), where the only new construction are mansions or multifamily, listings are up 24% yoy. And per the Reventure app, new listings are +30% yoy.
“Insurance, taxes and maintenance are all rising faster than in recent memory.”
True – which means the carrying costs for a vacant home are higher, ergo sellers are more motivated to sell a vacant property.
supply is ultra-low, in pictures LOL
Wonder how the financialization of the fairly illiquid assets to being financial assets changed everything. Seems like the impact of that would drive prices up. That combined with a designed turnover in rental markets(making more money with 92% vacancy than 100%) keeps pressure there. I know when I used to live in apartments the increases were significant but so is moving.
Well, another day, another rate data point. Four-wheel bill rolled over at ~4.8% today, the ten year is at 4.03. Something is still wrong.
If bill are going to o stay at 4.8 then we need 6% ten years, 7% 30s, and 8% mortgages for a long time. Let savers make some money and let the housing market clear. No more “just refi when it goes ‘back’ to 5%”. That false promise will hurt a lot of people. Look what has already happened after the panic rate cut. What do the realtors and brokers say now?
Interesting somewhat related inventory thinking by Eric Basmajian, at least on new construction. The new builds will definitely be competitive on pricing, which will be an interesting dynamo as prices fall.
“Backlogs in the residential construction sector still exist and will remain for another 2-3 months before reaching a historically average level of completed inventory. Job gains in the sector will become more difficult at that point, and sharp job losses are a high risk in 6-8 months if current trends persist and push completed inventory north of 30%.
In the meantime, the durables manufacturing sector is shedding jobs, and an increased pace of job losses from here risks the recessionary warning zone, even without negative contributions from residential construction.”
Seems like turbulence ahead during the baby smooth soft landing.
Lots of segments of nonresidential construction are booming — factories, data centers, power plants, all kinds of stuff. There are huge investments going on. Residential construction spending had tanked from the peak in 2022, but has been rising from the ashes this year. Make sure you look at all the charts, for crying out loud:
https://wolfstreet.com/2024/09/03/construction-spending-squeaks-to-record-amid-eyepopping-boom-in-spending-on-factories-while-residential-construction-tries-to-dig-out-of-last-years-slump/
I live in Angel Fire, NM a ski resort town that boomed during the pandemic. There have been numerous housing starts this year near my home. I’ve been a little perplexed by it given the cost of construction is sky high and interest rates are as well. Maybe its a regional boom because people cashed out stock after last year’s run up.
As for data center construction, it will be interesting to see if this leads to idle capacity after all the profitless AI companies can’t get new rounds of funny. It sure feels like Field of Dreams mentality, if you build it they will come.
Really like the stuff Eric puts out. Some good data point and thoughtful analysis and he is not pushing the doom and gloom narrative, which even if there’s a nugget of truth, it gets old really quick.
“I’m going to publish an article about Florida housing. ”
Wolf won’t have much to publish after Milton hits Florida’s Tampa area. There may not be any housing left. I hope I am wrong.
I toured Biloxi, Miss after Camille hit there in 1969. There was nothing left. Total devastation.
Hurricanes are terrible and huge, and I wish everyone there the best of luck.
But here is the article anyway:
https://wolfstreet.com/2024/10/08/florida-housing-market-buckles-listing-prices-sag-to-30-month-low-but-are-still-way-too-high-inventory-piles-up-institutional-investors-turn-into-net-sellers/
In January of 2023, I had the choice to wait to sell a property for higher prices or take a loss. I choose the latter because I didn’t want to sink more money into a property via taxes and insurance that “may” go up in value. And, I have no regrets. I priced it to sell and had an offer in two weeks. Closed in two months. I assume there are many sellers who are trying to free up capital for other investments who are willing to take a short term loss instead of risk waiting. Too many people got caught up in the sunk cost fallacy, and now it’s obvious the market hasn’t improved.
It looks to me that the percentage of folks who want a home today but who will NEVER actually own a home is going up all over.
Been trying to buy a house in San Diego. It’s mission impossible. Inventory is still low, and prices are so high that the differential between renting and buying is sometimes 3:1 in favor of renting in terms of monthly costs. It’s nuts