Any guesses on a correction? Timing and severity?

[LargeOrangeFont]

In that case it leaves just the mortgaged primaries and vacation homes. If I had a vacation house and faced a jobless situation, that might be one of the first items to cut if I couldn't otherwise swing it.

I don't really think we see another significant foreclosure event without job loss. Even then I think the .gov would step in somehow. Although I'm not sure how palatable another foreclosure/eviction/rent moratorium or mortgage forbearance would be so close to the expiration of those recent measures.

I don't know anything about the Mass/CT locations.... I haven't ever considered Merced as a vacation destination for myself personally Prescott may have some Phoenix area vacation houses, i kind of considered it another victim of CA refugees.

Agreed on all counts. Depending on the house, it could be easy to rent if you lost a job, depending on how hard Havasu was hit. Havasu is not the same town it was in 2009. Lots of people with healthy fixed income streams.

 

[Havasu blue label]

havasu Keep telling yourself it’s not the same as 2009 it’s going to drop in value it’s a weekend party then go back to Calif

 

[zhandfull]

Gas at $5 a gallon isn’t going to help the weekend crowd. Could be the best summer in Havasu in a long time.

 

[LargeOrangeFont]

havasu Keep telling yourself it’s not the same as 2009 it’s going to drop in value it’s a weekend party then go back to Calif

Place is just as busy during the week with locals as it is on the weekend with tourists.

2009 will never be seen again there. Too many people with money waiting to buy up stuff to let that happen.

Will it drop? Sure back to 2019 levels when everyone thought it was too expensive.

 

[c_land]

The Fed cancelled purchases today due to technical difficulties? Now that is interesting, someone much smarter than me is going to have to explain that one.

https://www.newyorkfed.org/markets/desk-operations/treasury-securities

QE is back on today and treasury yields are on a slight decline.

I feel like yesterday we got a taste of what March will look like as QE ends.

 

[HTMike]

Agreed on all counts. Depending on the house, it could be easy to rent if you lost a job, depending on how hard Havasu was hit. Havasu is not the same town it was in 2009. Lots of people with healthy fixed income streams.

Lots of people with unhealthy revenue streams fully expecting home prices to double from where they are at today. When interest rates inevitably sky rocket and our economy cools way down.. how many people are going to want to pay a 7-10k a month nut just to keep that Havasu vacation house. They will dump them. Then the rush for the exit will happen as FOLE sets in.

 

[LargeOrangeFont]

Lots of people with unhealthy revenue streams fully expecting home prices to double from where they are at today. When interest rates inevitably sky rocket and our economy cools way down.. how many people are going to want to pay a 7-10k a month nut just to keep that Havasu vacation house. They will dump them. Then the rush for the exit will happen as FOLE sets in.

The VAST majority of loans are all fixed rate. Interest rates are not going to have an effect. Their job/income has an effect.

Once again, a lot of the housing activity there is due to cashout. More people are living there.

If you hold your breath waiting for another 2009 you will pass out and die. Not that situations you outline don't exist, but I don't know anyone sitting around banking on housing to double again in the next few years.

 

[HTMike]

The VAST majority of loans are all fixed rate. Interest rates are not going to have an effect. Their job/income has an effect.

Once again, a lot of the housing activity there is due to cashout. More people are living there.

If you hold your breath waiting for another 2009 you will pass out and die. Not that situations you outline don't exist, but I don't know anyone sitting around banking on housing to double again in the next few years.

Interest rates are going to be a problem for the stock market and all other types of lending after the inevitable hike. Lots of people working remotely is going to change, its happening here in Chicago already and also in NY. I was never waiting for another 2009. I just look at home prices in 2019 and that I feel is the real number because we had an actual economy and people were working. Wages as a whole have been stagnant. It does not make sense.

 

[Ace in the Hole]

Lots of people with unhealthy revenue streams fully expecting home prices to double from where they are at today. When interest rates inevitably sky rocket and our economy cools way down.. how many people are going to want to pay a 7-10k a month nut just to keep that Havasu vacation house. They will dump them. Then the rush for the exit will happen as FOLE sets in.

I don't think many people have adjustable rate mortgages anymore... Interests rates can skyrocket but for those who already bought it won't changes their monthly expense (if they have a loan on the house) so there won't be that increase in "nut" so to speak.

Doing some research I noticed something someone else stated...a lot of people cashed out in CA etc and paid cash in Havasu with the proceeds...however they have fixed interest/payments so it won't make much difference unless there is a major income shift. A lot of just cash purchases were made as well of people trying to buy assets while inflation continues to rise vs holding it.

I highly doubt a crash similar to 08 happens...the circumstances are far different... There isn't a glut of homes there or nationwide...theres a severe shortage.. Until that stabilizes prices will stay stable (within 10-15%) unless interest gets above the 5-6% range then you will see a larger correction.

None of what has happened in the last 18 months makes sense though so who really knows.

 

[HTMike]

I don't think many people have adjustable rate mortgages anymore... Interests rates can skyrocket but for those who already bought it won't changes their monthly expense (if they have a loan on the house) so there won't be that increase in "nut" so to speak.

None of what has happened in the last 18 months makes sense though so who really knows.

I was talking about finance rates for business and new home buyers after the rates go up. If you bought a house for 1M at 3%, it is not worth 1M when rates are at 6% and especially not when rates are at 10%. House prices will drop like a rock. If you paid unlevered cash and you plan to stay there that's fine but what about the guy who put 10% down and now his house lost 50% of its total value. What will he do ?

What about businesses that rely on lending and those rates 2 or 3x. What happens to all the disposable income everyone had ?

I also cannot make sense of the last 18 months either but I am very fearful of the future.

 

[HTMike]

I highly doubt a crash similar to 08 happens...the circumstances are far different... There isn't a glut of homes there or nationwide...theres a severe shortage..

I have read that hedge funds and other investment groups have bought 25% ( with speculated numbers of 40% ) of homes in 2021.

 

[LargeOrangeFont]

I was talking about finance rates for business and new home buyers after the rates go up. If you bought a house for 1M at 3%, it is not worth 1M when rates are at 6% and especially not when rates are at 10%. House prices will drop like a rock. If you paid unlevered cash and you plan to stay there that's fine but what about the guy who put 10% down and now his house lost 50% of its total value. What will he do ?

What about businesses that rely on lending and those rates 2 or 3x. What happens to all the disposable income everyone had ?

I also cannot make sense of the last 18 months either but I am very fearful of the future.

Rates aren't doubling overnight. We are still at historic lows.

Your guy who put 10% down likely can't rent for much if any cheaper. Where is he gonna go? There are likely few options other than staying the course at that low rate he is locked into.

 

[LargeOrangeFont]

I have read that hedge funds and other investment groups have bought 25% ( with speculated numbers of 40% ) of homes in 2021.

That just builds the case against your point, and helps keep housing prices higher.

 

[HTMike]

That just builds the case against your point, and helps keep housing prices higher.

Right.. until they dump all their inventory at all time highs. Same goes with the stock market which has happened several times in the last 100 years.

 

[OldSchoolBoats]

I was talking about finance rates for business and new home buyers after the rates go up. If you bought a house for 1M at 3%, it is not worth 1M when rates are at 6% and especially not when rates are at 10%. House prices will drop like a rock. If you paid unlevered cash and you plan to stay there that's fine but what about the guy who put 10% down and now his house lost 50% of its total value. What will he do ?

What about businesses that rely on lending and those rates 2 or 3x. What happens to all the disposable income everyone had ?

I also cannot make sense of the last 18 months either but I am very fearful of the future.

It is still shocking to me that people still believe that housing could drop 50% again. You are living in a dream land. The supply issue today is worse than it was in 2019 when rates were 3.75 - 4%. Don't know if you recall that market, but it was HOT too!!

Between LA, Orange and San Diego County there are currently a little over 6,600 homes for sale..........6,600!!!

Think supply gets better with higher rates?? LOL......it gets worse because now people who are in sub 3% rates aren't going to sell to move up.


I am sure you were one of the forbearance crash bros, that failed dramatically in 2021.

 

[OldSchoolBoats]

Right.. until they dump all their inventory at all time highs. Same goes with the stock market which has happened several times in the last 100 years.

Why would they dump them when there is a list of qualified renters a mile long that will pay the exorbitant rent prices that don't seem to be leveling off at all in the near future.

 

[HTMike]

Rates aren't doubling overnight. We are still at historic lows.

70's/80's they jumped over 10% in just a few months. Technically not overnight.

 

[HTMike]

I am sure you were one of the forbearance crash bros, that failed dramatically in 2021.

Not at all.

 

[HTMike]

Why would they dump them when there is a list of qualified renters a mile long that will pay the exorbitant rent prices that don't seem to be leveling off at all in the near future.

I get it. House prices will continue to sky rocket forever. I mean a shit hole in the middle of nowhere that was 175k not even two years ago is listed for 800k. Seems like solid growth. Hell, Im looking at houses in SW FL and one was bought 3 months ago for 995k and was just relisted last week for 1.3m. That is SOLID 3 month growth. Maybe I should buy it and then list it for 2m next month.

Honestly, I hope we go back into some pandemic lock down situation again because everyone sitting at home tends to make real estate sky rocket.

FWIW, I own my house, its on the water and its worth between 1.6 and 2 million in this market not to mention several other residential and commercial properties all paid for. I'm not some broke dick hoping for a decline so I can finally move up in the world. Hyperinflated growth with stagnant wages scares the hell out of me and my investments.

 

[OldSchoolBoats]

I get it. House prices will continue to sky rocket forever. I mean a shit hole in the middle of nowhere that was 175k not even two years ago is listed for 800k. Seems like solid growth. Hell, Im looking at houses in SW FL and one was bought 3 months ago for 995k and was just relisted last week for 1.3m. That is SOLID 3 month growth. Maybe I should buy it and then list it for 2m next month.

Honestly, I hope we go back into some pandemic lock down situation again because everyone sitting at home tends to make real estate sky rocket.

FWIW, I own my house, its on the water and its worth between 1.6 and 2 million in this market not to mention several other residential and commercial properties all paid for. I'm not some broke dick hoping for a decline so I can finally move up in the world. Hyperinflated growth with stagnant wages scares the hell out of me and my investments.

Can you really say that wages are stagnant? I just drove by a drive thru Mexican joint in Temecula offering $18/hour to start. Seeing this everywhere.

As someone who looks at income everyday I can tell you that people are making a lot more money today then they were 5 years ago in a variety of sectors. The growth will level off at some point, prices can't skyrocket forever, but a severe drop in real estate like 2008, will probably never be seen again in our lifetime.

 

[EmpirE231]

Gas at $5 a gallon isn’t going to help the weekend crowd. Could be the best summer in Havasu in a long time.

It has not slowed down the Glamis crowd unfortunately! Visa Mastercard bro.... charge it!!

 

[HTMike]

Can you really say that wages are stagnant? I just drove by a drive thru Mexican joint in Temecula offering $18/hour to start. Seeing this everywhere.

As someone who looks at income everyday I can tell you that people are making a lot more money today then they were 5 years ago in a variety of sectors. The growth will level off at some point, prices can't skyrocket forever, but a severe drop in real estate like 2008, will probably never be seen again in our lifetime.

I can say they are, in fact I can say they are down. Inflation is up 20%+. Did everyone get 20%+ raises this year ?

$18 burger flipping means the end of fast food joints. $15 big mac's is not sustainable. People will be forced to do something else for food.

 

[EmpirE231]

RDP 2022

"what goes up, always continues to go up"

 

[hallett21]

I get it. House prices will continue to sky rocket forever. I mean a shit hole in the middle of nowhere that was 175k not even two years ago is listed for 800k. Seems like solid growth. Hell, Im looking at houses in SW FL and one was bought 3 months ago for 995k and was just relisted last week for 1.3m. That is SOLID 3 month growth. Maybe I should buy it and then list it for 2m next month.

Honestly, I hope we go back into some pandemic lock down situation again because everyone sitting at home tends to make real estate sky rocket.

FWIW, I own my house, its on the water and its worth between 1.6 and 2 million in this market not to mention several other residential and commercial properties all paid for. I'm not some broke dick hoping for a decline so I can finally move up in the world. Hyperinflated growth with stagnant wages scares the hell out of me and my investments.

I don’t know of any location that 4x from 2019 to today. Unless at 175k it was a shack and someone built a new home on it?

Was the 995k Florida property remodeled? Updating a 1970s home will certainly gain equity.

 

[sirbob]

Can’t help but notice the last 3 posts in the RDP Realitor thread were price reductions...

Other than the last post which just went up with a new listing.

 

[c_land]

https://www.fanniemae.com/research-and-insights/forecast/emergence-new-normal-housing-market-begins

If you're going to read one article on the housing situation let it be this. Pretty well balanced opinion.

...there is also risk that some of the hottest metro areas of this past year have overheated and will experience at least modest price declines over the next year...

 

[LargeOrangeFont]

I can say they are, in fact I can say they are down. Inflation is up 20%+. Did everyone get 20%+ raises this year ?

$18 burger flipping means the end of fast food joints. $15 big mac's is not sustainable. People will be forced to do something else for food.

I was just at McDonalds getting a 1$ drink and Big Macs were 2 for $6. An $18 dollar burger flipper does not mean the end of fast food, It means there will be 20% fewer of them in the back because of more automation and you will order from an app or a kiosk instead of a person.

I agree with your basic premise, that there will be some pain at some point, but housing hasn't jumped 4X in 2 years, save for a couple localized areas. In any term longer than about 6-7 years housing has done nothing but gone up forever. It is going to continue to go up. In 10 years we will have wished we could buy at 2022 prices. You are wishing for 2019 prices and the naysayers then said prices could not go any higher and housing was going to collapse.

 

[c_land]

It is still shocking to me that people still believe that housing could drop 50% again. You are living in a dream land. The supply issue today is worse than it was in 2019 when rates were 3.75 - 4%. Don't know if you recall that market, but it was HOT too!!

Between LA, Orange and San Diego County there are currently a little over 6,600 homes for sale..........6,600!!!

Think supply gets better with higher rates?? LOL......it gets worse because now people who are in sub 3% rates aren't going to sell to move up.


I am sure you were one of the forbearance crash bros, that failed dramatically in 2021.

I don't see supply being the issue rather than a symptom. Inflated home prices and accelerated appreciation in our current climate is a demand issue that has created a supply issue.

Demand was pulled forward by people leaving cities fleeing a virus and working from home, both which have waned. Demand was further pumped by record low interest rates, causing bidding wars for primary residences, purchases of second+ homes (for vacation or investment), and investor activity that has been pushed towards RE with artificially low yields in other investment vehicles.

Supply on the other hand was not an overt issue in Q1 2020. What changed so dramatically in demographics in Q2 2020 -> Now to cause such an abrupt supply issue? Unprecedented stimulus, quantitative easing, and suppressed interested rates have enhanced demand for a once-marginally-adequate supply.

It should be considered that people listing their homes aren't always ONLY considering a payment/rate in their decision to list. Job Change, relocation, divorce, Escaping California (RDP), etc. can necessitate the need to move. Rates and prices in those cases are probably given little consideration when you really need to relocate.

 

[bk2drvr]

Fast food is beyond a rip off. Laughable really. I guess with the exception of InNOut but even their combos are like $8 now. Chic Filet is what gets me the most pissed off. I won’t buy their food out of principal. Tiny chicken sandwhich, frys and a drink for like $12. Church going folks they claim to be also.

 

[OldSchoolBoats]

https://www.fanniemae.com/research-and-insights/forecast/emergence-new-normal-housing-market-begins

If you're going to read one article on the housing situation let it be this. Pretty well balanced opinion.

Here is an article from Housing Wire that is a great read. Hope everyone enjoys this!! It is long but full of SOLID information




Early in 2021, when I was talking about how people should worry about home prices overheating, I had a glimmer of hope that maybe toward the end of 2021 we would be spared another seasonal collapse of inventory. Inventory always falls in the fall and winter, but I hoped it wouldn’t be a repeat of 2020.

Unfortunately, that didn’t happen and recent data shows that we are at fresh new all-time lows in housing inventory, with mortgage rates and the unemployment rate both under 4% currently.

Houston, we have a problem.

I have always been mindful that the years 2020-2024 have the potential for unhealthy home-price growth, but now that we are entering year three of this unique five-year period, it’s time to see when mother economics will give us clues about when this madness with meager inventory will end. We are in the middle of January 2022 and spring selling season isn’t too far away. I don’t believe any of us want 2023 to start off with new fresh all-time lows in inventory.

Mortgage demand needs to slow down

A big theme of my work here at HousingWire has been to show you that since 2014 purchase application data has been rising just as total inventory has been slowly moving lower. Demand is growing and stable, excluding the COVID-19 pause. Unfortunately, we need to see weakness in demand for inventory to rise and get into a range that I am 100% rooting for, between 1.52- 1.93 million. This level, while historically still low, will mean the days on market will go higher, and this will give people choices.

Here are two charts from the National Association of Realtors that will show that homes simply come off the market too fast to give housing a breather.

This data comes from the recent existing home sales report which has been outperforming lately.

The best way to track whether mortgage demand is slowing down is to look at the MBA mortgage purchase application data from the second week of January to the first week of May. Typically, this data line falls in volume past May, so February to April are the real key months to focus on.

For some perspective, you really only want to look at the year-over-year data with this data line and also realize that we are still dealing with COVID-19 comps until mid-February: after that, we should be fine on a year-over-year basis. For example, today, purchase application data is down 17% year over year and has been showing negative year-over-year trends since the middle of 2021. However, once you make COVID-19 adjustments, the demand was stable in 2021 and picked up toward the end of the year.

My 2022 existing home sales range is lower than what we are currently trending at: I am looking for a sale range between 5.74 million and 6.16 million.

If housing is really getting softer, you will see year-over-year declines of 15%-30% in this data line. We had this happen only two times in the past eight years excluding the recent data that need COVID-19 adjustments.

In 2014, purchase application data on-trend was down 20% year over year because rates had spiked up higher in the second half of 2013. We saw softness in housing toward the second half of 2013 as well. Total inventory levels rose in 2014 and adjusting to population, that was the lowest level in MBA purchase application data ever. Still, with that slowdown in demand, monthly supply never broke above six months. However, the rate of price growth cooled down and days on market grew.

Higher rates created balance in the marketplace in 2013-2014 and also in 2018-2019. While I do believe the rate of growth of home prices are cooling, it’s still well above my comfort zone for the years 2020-2024. I don’t want it to seem like I am rooting against housing, I just would like to see more balance in the marketplace. There is a reason I was warning about home price growth with inventory and mortgage rates low amid stable demand.

In 2020, for about six weeks purchase application data took a dive as Americans were pausing due to the first experience of COVID-19. Back then people took their homes off the market so the inventory data didn’t move too much higher outside a brief increase as people realized the world wasn’t ending. We had purchase application data down over 30% year over year, which took sales down as buying paused. However, sales shot right back up higher, quickly.

So, for 2022, you want to keep an eye on the year-over-year data, especially past mid-February toward April. If you see year-over-year declines in the data, then the days on market should grow. I am not talking about 5% – 8% year-over-year declines, I am talking more like 15%-30% year-over-year declines after COVID-19 adjustments are made. When it really matters, this data line will show you double-digit percentage moves both positive and negative. If you’re looking for balance like I am, this is where you want to look. This data line looks out 30-90 days as well, so you get the picture: the critical time for this data line is coming up in 2022.

Don’t spend too much time on mortgage credit getting looser or tighter

One area that you don’t need to focus too much on is mortgage credit availability. I know many housing bears had hoped that credit getting tighter in 2020 and 2021 would crash the housing market. However, credit is very liberal today, as it always has been. However, since we’ve had no exotic loan debt structure post-2010, credit looking tight on paper just doesn’t have the same impact as it did from 2005-2009. At that time sales were declining from a high level and credit was getting very tight from the standards that facilitated the demand from 2002-2005.

From the chart below, it looks like credit got very tight from the start of COVID-19 and not much has been happening after that. In reality, most loans in America were basic vanilla 30-year fixed loans, and credit flowed for the most part during the COVID-19 crisis and recovery, all the way from 2021 to 2022. So if credit availability grows or declines, it’s only on the marginal loan products that are being used to buy primary residence homes. This isn’t like the peak of the housing bubble where 35% of the loans that were being done were ARM products. That number is below 5% now, so you don’t need to worry about the 30-year fixed loan being shut down. Or you don’t need to concern yourself that exotic loan debt products are coming back into the system pushing credit availability up

From the MBA:

Lastly, it falls back on the bond market

As you can probably tell from my writing, I believe and love a balanced housing market. What we have currently isn’t a balanced market. I really didn’t need to worry about this from 2008-2019, because I never believed we had the demographic demand to push total sales over 6.2 million to drive inventory levels to such low levels.

Well, that isn’t the case in the years 2020-2024, hence why I have always separated these two periods: from 2008-2019 and then from 2020-2024. With that said, in the past, higher mortgage rates, while never crashing the existing home sales market, have been able to cool things down and create more days on the market. The only problem is that this will require the 10-year yield to break over 1.94% and keep rising with some duration. This obviously hasn’t happened and this hasn’t been part of my forecast in 2021 or 2022. You can see why I am concerned.

Even with the hottest economic growth in decades, smoking hot inflation data — like we saw in the CPI report today — and all the talk about the Fed rate hike and taper, the 10-year yield currently right now is at 1.72%. Don’t forget, with the bond market, the trend is your friend, as I talked about in a recent article on jobs data.

What we know today is that we are starting 2022 spring at fresh new all-time lows in inventory for single family homes. Mike Simonsen, a friend from Altos Research creates weekly charts on the meager supply of inventory.

Here in Southern California, the amount of inventory in Los Angeles County is 4,432 homes, in Orange County it’s 954, and In San Diego it’s 1,254. Think about the millions of people who live in these areas and we are looking to start the year at 6,640 homes for sale.

Now, seasonality works both way. Inventory will pick up in the spring and summer and fade in fall and winter. However, as you can see, we are far from levels I would consider to be balanced, where days on market grow and people have choices. Since we are in year three of my five-year unique housing demographic period, demand being stable means getting the velocity of inventory to rise in a big way is difficult. The only way we can get some relief is if mortgage demand fades because that is the primary driver of housing demand. As we all know, the forbearance crash bros failed dramatically in 2021.

I would keep a close eye on mortgage demand, especially from mid February to April, to gauge whether mortgage demand is fading, which would allow days on market to grow. If this doesn’t happen, we are going to have another year of unhealthy home-price growth. Mother economics, she is a serial killer and will leave clues on what the economy is doing — the trick is always looking in the right spot. Remember, always be the detective, not the troll.

 

[c_land]

I was talking about finance rates for business and new home buyers after the rates go up. If you bought a house for 1M at 3%, it is not worth 1M when rates are at 6% and especially not when rates are at 10%. House prices will drop like a rock. If you paid unlevered cash and you plan to stay there that's fine but what about the guy who put 10% down and now his house lost 50% of its total value. What will he do ?

What about businesses that rely on lending and those rates 2 or 3x. What happens to all the disposable income everyone had ?

I also cannot make sense of the last 18 months either but I am very fearful of the future.

Something else not commonly considered are the Impacts of Wealth Effect and the Stock Market on the real economy.

Wealth Effect (from google) "is the notion that when households become richer as a result of a rise in asset values, such as corporate stock prices or home values, they spend more and stimulate the broader economy." Spending will deteriorate when home prices begin to fall that will be felt across the entire real economy.

Stock Price also will impact the real economy. Economist Danielle DiMartino-Booth has maintained that CEO's and CFO's have more and more been considering share price when evaluating head-count. Lower share prices are going to lead to layoffs. We are seeing this now with Peloton. Job loss at publicly traded companies may be shrugged off by some, but again, consider the macro-effect as those losses reverberate throughout the real economy. The impact to 401k or other individual investment accounts would further enhance the market's impact to the real economy.

 

[78Southwind]

Our burger flippers are getting ripped-off.

 

[HTMike]

Was the 995k Florida property remodeled? Updating a 1970s home will certainly gain equity.

Nope. Full on hot potato.

 

[pronstar]

As an investor, there are massive supply shortages for entry-level homes and this is where our opportunities are.

Builders have no incentive to build cheap houses in this market, which compounds the problem.

And holding assets at long-term, fixed interest rates is a massive hedge against inflation, because you not only get a rate of return that outpaces inflation, but it makes the loan shrink in terms of real dollars.

For example:
I take out a loan for $100 to buy an asset, which I rent for $5/month.

Inflation hits, and in a year I rent this same asset for $10.
But I still only owe $100 and can pay off the loan in half the time.

Many fortunes are made this way during inflationary times.

 

[DLC]

Can’t help but notice the last 3 posts in the RDP Realitor thread were price reductions...

Other than the last post which just went up with a new listing.

Some if those listings are high!

$210,000 for a 16x65 storage Unit. That’s big bucks !

they just reduced it 25,000 !

 

[c_land]

Here is an article from Housing Wire that is a great read. Hope everyone enjoys this!! It is long but full of SOLID information




Early in 2021, when I was talking about how people should worry about home prices overheating, I had a glimmer of hope that maybe toward the end of 2021 we would be spared another seasonal collapse of inventory. Inventory always falls in the fall and winter, but I hoped it wouldn’t be a repeat of 2020.

Unfortunately, that didn’t happen and recent data shows that we are at fresh new all-time lows in housing inventory, with mortgage rates and the unemployment rate both under 4% currently.

Houston, we have a problem.

I have always been mindful that the years 2020-2024 have the potential for unhealthy home-price growth, but now that we are entering year three of this unique five-year period, it’s time to see when mother economics will give us clues about when this madness with meager inventory will end. We are in the middle of January 2022 and spring selling season isn’t too far away. I don’t believe any of us want 2023 to start off with new fresh all-time lows in inventory.

Mortgage demand needs to slow down

A big theme of my work here at HousingWire has been to show you that since 2014 purchase application data has been rising just as total inventory has been slowly moving lower. Demand is growing and stable, excluding the COVID-19 pause. Unfortunately, we need to see weakness in demand for inventory to rise and get into a range that I am 100% rooting for, between 1.52- 1.93 million. This level, while historically still low, will mean the days on market will go higher, and this will give people choices.

Here are two charts from the National Association of Realtors that will show that homes simply come off the market too fast to give housing a breather.

View attachment 1081712

This data comes from the recent existing home sales report which has been outperforming lately.

View attachment 1081714

The best way to track whether mortgage demand is slowing down is to look at the MBA mortgage purchase application data from the second week of January to the first week of May. Typically, this data line falls in volume past May, so February to April are the real key months to focus on.

For some perspective, you really only want to look at the year-over-year data with this data line and also realize that we are still dealing with COVID-19 comps until mid-February: after that, we should be fine on a year-over-year basis. For example, today, purchase application data is down 17% year over year and has been showing negative year-over-year trends since the middle of 2021. However, once you make COVID-19 adjustments, the demand was stable in 2021 and picked up toward the end of the year.

My 2022 existing home sales range is lower than what we are currently trending at: I am looking for a sale range between 5.74 million and 6.16 million.

View attachment 1081715

If housing is really getting softer, you will see year-over-year declines of 15%-30% in this data line. We had this happen only two times in the past eight years excluding the recent data that need COVID-19 adjustments.

In 2014, purchase application data on-trend was down 20% year over year because rates had spiked up higher in the second half of 2013. We saw softness in housing toward the second half of 2013 as well. Total inventory levels rose in 2014 and adjusting to population, that was the lowest level in MBA purchase application data ever. Still, with that slowdown in demand, monthly supply never broke above six months. However, the rate of price growth cooled down and days on market grew.

Higher rates created balance in the marketplace in 2013-2014 and also in 2018-2019. While I do believe the rate of growth of home prices are cooling, it’s still well above my comfort zone for the years 2020-2024. I don’t want it to seem like I am rooting against housing, I just would like to see more balance in the marketplace. There is a reason I was warning about home price growth with inventory and mortgage rates low amid stable demand.

View attachment 1081716

In 2020, for about six weeks purchase application data took a dive as Americans were pausing due to the first experience of COVID-19. Back then people took their homes off the market so the inventory data didn’t move too much higher outside a brief increase as people realized the world wasn’t ending. We had purchase application data down over 30% year over year, which took sales down as buying paused. However, sales shot right back up higher, quickly.

So, for 2022, you want to keep an eye on the year-over-year data, especially past mid-February toward April. If you see year-over-year declines in the data, then the days on market should grow. I am not talking about 5% – 8% year-over-year declines, I am talking more like 15%-30% year-over-year declines after COVID-19 adjustments are made. When it really matters, this data line will show you double-digit percentage moves both positive and negative. If you’re looking for balance like I am, this is where you want to look. This data line looks out 30-90 days as well, so you get the picture: the critical time for this data line is coming up in 2022.

Don’t spend too much time on mortgage credit getting looser or tighter

One area that you don’t need to focus too much on is mortgage credit availability. I know many housing bears had hoped that credit getting tighter in 2020 and 2021 would crash the housing market. However, credit is very liberal today, as it always has been. However, since we’ve had no exotic loan debt structure post-2010, credit looking tight on paper just doesn’t have the same impact as it did from 2005-2009. At that time sales were declining from a high level and credit was getting very tight from the standards that facilitated the demand from 2002-2005.

From the chart below, it looks like credit got very tight from the start of COVID-19 and not much has been happening after that. In reality, most loans in America were basic vanilla 30-year fixed loans, and credit flowed for the most part during the COVID-19 crisis and recovery, all the way from 2021 to 2022. So if credit availability grows or declines, it’s only on the marginal loan products that are being used to buy primary residence homes. This isn’t like the peak of the housing bubble where 35% of the loans that were being done were ARM products. That number is below 5% now, so you don’t need to worry about the 30-year fixed loan being shut down. Or you don’t need to concern yourself that exotic loan debt products are coming back into the system pushing credit availability up

From the MBA:

View attachment 1081717


Lastly, it falls back on the bond market

As you can probably tell from my writing, I believe and love a balanced housing market. What we have currently isn’t a balanced market. I really didn’t need to worry about this from 2008-2019, because I never believed we had the demographic demand to push total sales over 6.2 million to drive inventory levels to such low levels.

Well, that isn’t the case in the years 2020-2024, hence why I have always separated these two periods: from 2008-2019 and then from 2020-2024. With that said, in the past, higher mortgage rates, while never crashing the existing home sales market, have been able to cool things down and create more days on the market. The only problem is that this will require the 10-year yield to break over 1.94% and keep rising with some duration. This obviously hasn’t happened and this hasn’t been part of my forecast in 2021 or 2022. You can see why I am concerned.

Even with the hottest economic growth in decades, smoking hot inflation data — like we saw in the CPI report today — and all the talk about the Fed rate hike and taper, the 10-year yield currently right now is at 1.72%. Don’t forget, with the bond market, the trend is your friend, as I talked about in a recent article on jobs data.

View attachment 1081718

What we know today is that we are starting 2022 spring at fresh new all-time lows in inventory for single family homes. Mike Simonsen, a friend from Altos Research creates weekly charts on the meager supply of inventory.

View attachment 1081719

Here in Southern California, the amount of inventory in Los Angeles County is 4,432 homes, in Orange County it’s 954, and In San Diego it’s 1,254. Think about the millions of people who live in these areas and we are looking to start the year at 6,640 homes for sale.

Now, seasonality works both way. Inventory will pick up in the spring and summer and fade in fall and winter. However, as you can see, we are far from levels I would consider to be balanced, where days on market grow and people have choices. Since we are in year three of my five-year unique housing demographic period, demand being stable means getting the velocity of inventory to rise in a big way is difficult. The only way we can get some relief is if mortgage demand fades because that is the primary driver of housing demand. As we all know, the forbearance crash bros failed dramatically in 2021.

I would keep a close eye on mortgage demand, especially from mid February to April, to gauge whether mortgage demand is fading, which would allow days on market to grow. If this doesn’t happen, we are going to have another year of unhealthy home-price growth. Mother economics, she is a serial killer and will leave clues on what the economy is doing — the trick is always looking in the right spot. Remember, always be the detective, not the troll.

An opinion piece from Logan Mohtashami? No way he would be incentivised to create content that his company's clients can use as talking points to generate sales...

I think i'll take the more current data from FannieMae that was aggregated by multiple economists.

If there is any entity most exposed to the mess of the mortgage markets, it’s Fannie and Freddie. They have more incentive than anyone to ensure their borrowers do not go underwater because their return is abysmal. Any downward pressure, and that system quickly turns negative and the taxpayers are on the hook.

 

[EmpirE231]

If it is a "supply" issue....... where did all the demand come from? Is it it a supply issue in states outside of CA?... because CA actually had a population decline (first decline since 1850's I believe) So can population shrinking actually cause less "supply", or would that cause more supply?

They used the same "supply" line back in 06,07...as the reason prices were going to the moon. and for some reason, nobody wanted that supply between 2010,11,12 etc... even though the supply was available at some serious discounts.... It only became a supply issues again, when prices started going to the moon again lol what a coincidence.

what is happening is rapid inflation.... so if you are on the side of the fence where you are excited about real estate prices going to the moon... it is not because real estate alone is performing so well etc. ... it is because your money is being de-valued, everything is going up OR your money is just buying you less of everything.... however you want to look at it, whatever makes you feel better.

I love how anyone can make the bold prediction of "2008 will never happen again" especially after living through 2020

 

[OldSchoolBoats]

Can’t help but notice the last 3 posts in the RDP Realitor thread were price reductions...

Other than the last post which just went up with a new listing.

Easier to climb down a mountain than up.

An opinion piece from Logan Mohtashami? No way he would be incentivised to create content that his company's clients can use as talking points to generate sales...

I think i'll take the more current data from FannieMae that was aggregated by multiple economists.

Well I tend to listen to and lean more towards people that have been correct in their forecasts with a proven track record.

Fannie Mae and the Mortgage Bankers Association have been wrong time and time again with their rate and housing market forecasts..............

 

[OldSchoolBoats]

If it is a "supply" issue....... where did all the demand come from? Is it it a supply issue in states outside of CA?... because CA actually had a population decline (first decline since 1850's I believe) So can population shrinking actually cause less "supply", or would that cause more supply?

They used the same "supply" line back in 06,07...as the reason prices were going to the moon. and for some reason, nobody wanted that supply between 2010,11,12 etc... even though the supply was available at some serious discounts.... It only became a supply issues again, when prices started going to the moon again lol what a coincidence.

what is happening is rapid inflation.... so if you are on the side of the fence where you are excited about real estate prices going to the moon... it is not because real estate alone is performing so well etc. ... it is because your money is being de-valued, everything is going up OR your money is just buying you less of everything.... however you want to look at it, whatever makes you feel better.

I love how anyone can make the bold prediction of "2008 will never happen again" especially after living through 2020

Where did all the demand come from??

Pretty simple, the biggest home buying generation in history that is now in a position to buy a home.

Same conversation EVERY YEAR.

What would be the catalyst to cause another 2008? I would really be interested to hear what you think would cause that, from a real estate pricing standpoint......not the economy.

 

[EmpirE231]

Where did all the demand come from??

Pretty simple, the biggest home buying generation in history that is now in a position to buy a home.

Same conversation EVERY YEAR.

What would be the catalyst to cause another 2008? I would really be interested to hear what you think would cause that, from a real estate pricing standpoint......not the economy.

if there was a supply issue in 06 & 07... why did prices go down?


re: what could be a catalyst
1. Most people cannot "afford" to buy a house right now.... sure some people qualify, but we all know by now there is a big difference between being able to afford a house vs. qualifying for a house.

 

[LargeOrangeFont]

If it is a "supply" issue....... where did all the demand come from? Is it it a supply issue in states outside of CA?... because CA actually had a population decline (first decline since 1850's I believe) So can population shrinking actually cause less "supply", or would that cause more supply?

They used the same "supply" line back in 06,07...as the reason prices were going to the moon. and for some reason, nobody wanted that supply between 2010,11,12 etc... even though the supply was available at some serious discounts.... It only became a supply issues again, when prices started going to the moon again lol what a coincidence.

what is happening is rapid inflation.... so if you are on the side of the fence where you are excited about real estate prices going to the moon... it is not because real estate alone is performing so well etc. ... it is because your money is being de-valued, everything is going up OR your money is just buying you less of everything.... however you want to look at it, whatever makes you feel better.

I love how anyone can make the bold prediction of "2008 will never happen again" especially after living through 2020

Millennials are the biggest segment of the population and are trying to buy houses. You can have a shrinking population and still have low supply and high demand. I small shack same floorplan but slightly larger than mine sold in my city for $1M in a couple days just this week. I'm getting ready to list mine. there is nothing for sale in that price range anywhere near my area. I'm worried it might sell too fast for my timetable.

No 2008 isn't going to happen again. Whatever might happen will happen because of a entirely different set of circumstances.

If your money is "in the system" and not in your pocket, it isn't being devalued....

 

[LargeOrangeFont]

if there was a supply issue in 06 & 07... why did prices go down?


re: what could be a catalyst
1. Most people cannot "afford" to buy a house right now.... sure some people qualify, but we all know by now there is a big difference between being able to afford a house vs. qualifying for a house.

Ummm people started loosing their jobs. There aren't car washers buying houses with 0 down on interest only loans this time around.

Anyone paying rent that has scraped a few dollars together is trying to buy a house because they have seen what happened with rents over the last 3 years.

I know half a dozen serial renters that are in their late 30s early 40s that have bought within the last 6 months just to get out of the rent game.

 

[OldSchoolBoats]

if there was a supply issue in 06 & 07... why did prices go down?


re: what could be a catalyst
1. Most people cannot "afford" to buy a house right now.... sure some people qualify, but we all know by now there is a big difference between being able to afford a house vs. qualifying for a house.

Prices didn't go down in 2006 / 2007, they rose through 2006, leveled off and then had a couple months of gains in the spring of 2007. Wasn't until Q4 of 2007 that the prices started to fall and everyone in here with half a brain should know what caused the fall in prices and the massive supply increase.

Most people CAN afford to buy a house from where I sit. Some run things kind of tight (house poor) but not a ton. You would be surprised........

 

[EmpirE231]

Prices didn't go down in 2006 / 2007, they rose through 2006, leveled off and then had a couple months of gains in the spring of 2007. Wasn't until Q4 of 2007 that the prices started to fall and everyone in here with half a brain should know what caused the fall in prices and the massive supply increase.

Most people CAN afford to buy a house from where I sit. Some run things kind of tight (house poor) but not a ton. You would be surprised........

yes so that half a brain of mine tells me that it could happen again.

I am assuming you are referring to the "half a brain" knowing that the stock market and economy collapsed, taking housing with it............ which can definitely happen again, is my point.

 

[EmpirE231]

Ummm people started loosing their jobs. There aren't car washers buying houses with 0 down on interest only loans this time around.

Anyone paying rent that has scraped a few dollars together is trying to buy a house because they have seen what happened with rents over the last 3 years.

I know half a dozen serial renters that are in their late 30s early 40s that have bought within the last 6 months just to get out of the rent game.

so people can't lose their jobs anymore?

and.... 2-3 families living under one roof isn't risky?

 

[LargeOrangeFont]

so people can't lose their jobs anymore?

and.... 2-3 families living under one roof isn't risky?

I've been saying it for 7 years now. Wake me up when people start loosing their jobs.

2-3 families living under 1 roof is diversified income streams paying the bills.

 

[EmpirE231]

Millennials are the biggest segment of the population and are trying to buy houses. You can have a shrinking population and still have low supply and high demand. I small shack same floorplan but slightly larger than mine sold in my city for $1M in a couple days just this week. I'm getting ready to list mine. there is nothing for sale in that price range anywhere near my area. I'm worried it might sell too fast for my timetable.

No 2008 isn't going to happen again. Whatever might happen will happen because of a entirely different set of circumstances.

If your money is "in the system" and not in your pocket, it isn't being devalued....

I am assuming you are gonna take all your profits and roll it straight into a new bigger home in the same area, or into an apartment complex? since rents only go up, and real estate will only go up in your optinion?

 

[c_land]

Can we keep this one from going off the rails, I really enjoy the debate without the animosity.

NASDAQ entered correction territory today:

https://www.cnbc.com/2022/01/19/stock-market-futures-open-to-close-news.html

 

[LargeOrangeFont]

I am assuming you are gonna take all your profits and roll it straight into a new bigger home in the same area, or into an apartment complex? since rents only go up, and real estate will only go up in your optinion?

Yea the profit will be going back into real estate, either the new house or rental properties.

Aside from the RE around Chernobyl, find me a greater than 10 year span of time where RE hasn't gone up aside from places that may have suffered some natural disaster.

 

[OldSchoolBoats]

yes so that half a brain of mine tells me that it could happen again.

I am assuming you are referring to the "half a brain" knowing that the stock market and economy collapsed, taking housing with it............ which can definitely happen again, is my point.

You have this completely wrong.......The housing market failed because of speculation and failing loans, which in turn took the economy and stocks with it, not the other way around. There is NOTHING in the housing market currently that could cause the failure seen in 2008........NOTHING.

Even if the stock market was to lose 20%, which would be a pretty massive slide, that would only bring us back to 2019 from a stock market standpoint. How would that stock slide bring housing with it?