OT: House Pricing, Part Whatever

[johnson86-1]

https://fred.stlouisfed.org/series/ASPUS
https://fred.stlouisfed.org/series/MSPUS

Haven't seen the price run up in housing in graphic form, and it was striking to me.

Average:
Q1 2020: 383k
Q1 2022: 507k

Up 32.4% over two years. About 15.25% annualized.

Median
Q1 2020: 329k
Q1 2022: 428k

30% over two years. A little over 14% annualized.

Looking at the trend line, we're way above trend. Not sure that means anything compared to supply and demand, I was just surprised by how sharp the increase has been. Granted, some of the steepness is because you're doing a percentage increase on a higher base on top of having a higher CPI value, so that probably distorts it some. (although here's a version that has prior median prices deflated by CPI. https://dqydj.com/historical-home-prices/).

Not sure any of this means much in the context of underbuilding housing and new housing being expensive because of higher labor costs, but it does make me think maybe we actually do see an actual small pullback and not just a leveling off.

 

[GloryDawg]

New homes sales decline 17% in April. They were expecting 1.7% decline. Expectation is going to be off on everything going forward. Not necessarily bad.

 

[stateu1]

https://www.foxbusiness.com/economy/new-home-sales-plunge-april

 

[dorndawg]

New homes sales decline 17% in April. They were expecting 1.7% decline. Expectation is going to be off on everything going forward. Not necessarily bad.

The large homebuilder companies simply will not - and for that matter can not - overbuild right now.

 

[Go Budaw]

https://fred.stlouisfed.org/series/ASPUS
https://fred.stlouisfed.org/series/MSPUS

Haven't seen the price run up in housing in graphic form, and it was striking to me.

Average:
Q1 2020: 383k
Q1 2022: 507k

Up 32.4% over two years. About 15.25% annualized.

Median
Q1 2020: 329k
Q1 2022: 428k

30% over two years. A little over 14% annualized.

Looking at the trend line, we're way above trend. Not sure that means anything compared to supply and demand, I was just surprised by how sharp the increase has been. Granted, some of the steepness is because you're doing a percentage increase on a higher base on top of having a higher CPI value, so that probably distorts it some. (although here's a version that has prior median prices deflated by CPI. https://dqydj.com/historical-home-prices/).

Not sure any of this means much in the context of underbuilding housing and new housing being expensive because of higher labor costs, but it does make me think maybe we actually do see an actual small pullback and not just a leveling off.

Those 30% numbers are actually low for my area. My previous home just went under contract in 48 hrs after being listed at a 48% higher list price than what I sold it for in late 2019. My neighbor just went under contract in selling his house in about 10 days at a list price that is 65% higher than what he paid in January 2020. In both cases, there were no significant updates done to either property. Based on the low time on market, it is certain that both went for list price at the absolute minimum.

 

[jethreauxdawg]

Explain further, please

The large homebuilder companies simply will not - and for that matter can not - overbuild right now.

They won’t because they are carefully watching and choosing to build less? Or they cannot overbuild because of some factor such as lack of materials?

 

[aTotal360]

It's obviously going to vary from market to market. Buying a home in Marietta, GA is different than buying one in West Point, MS.

On the whole, the amount of willing and able buyers in the space has dropped. Interest rates and closing costs (on conventional loans) have doubled since March 15th.

Sellers have had their party for the past 3 years. Buyers might be able to have small one in Q4.

 

[Faustdog]

I’m much more pessimistic than I was even two months ago. That “able” part is about to rear its head.

Today’s $500k mortgagor will have to pay in the neighborhood of $1,000.00 more every month in P&I than a buyer who financed the same amount at this time last year.

 

[aTotal360]

I haven't done the math, but I bet buying power has been cut by 20% or more.

 

[Faustdog]

Yep. People can just afford far less house. Starter houses are still flying off the shelves but you’re starting to see the more expensive houses sit for a minute in the Jackson Metro.

 

[PooPopsBaldHead]

Agreed. I follow a service called Altos Research. He's giving real data weekly vs monthly. The last 2 weeks we finally have more available inventory nationally than we did same week last year.

That said, there are currently 330k homes available in the entire country (normal this time of year is 750k.) 30% of homes going in the market are under contract within 5 days (normally less than 10%.) And median prices are up to $443k this week vs $400k a year ago.

The top is in on growth of home price percentage. Before we start seeing "declines we need to get back down to year over year growth in the mud single digits.

The seasonality of home price declines is usually peak prices in June and slow decline to December. This year it will start a few weeks early in most markets.

Inventory is the real problem still. Good homes are selling quick, but I see stupid stuff getting listed. I mean really stupid.

 

[dorndawg]

They won’t because they are carefully watching and choosing to build less? Or they cannot overbuild because of some factor such as lack of materials?

Both - it's not to their advantage to overbuild. And even if they could, they are both labor and material constrained.

 

[Maroon Eagle]

The same can be said for other industry sectors as well.

 

[johnson86-1]

Both - it's not to their advantage to overbuild. And even if they could, they are both labor and material constrained.

I think you're right just because most of the big builders remember the last crash, but otherwise businesses over expand capacity all the time, and it's also not easy to just slow down operations. If they slow down and let people go, they know they might not get them back with things normalize. Plus some of the builders (not big national ones but bigish, non-public regional ones) are probably at a point with debt that they can't slow down. Or maybe lenders have been better about not letting builders get to that point. I think banks probably have, but we have some local but pretty big tract home builders that get their funding from non-bank lenders, and I suspect they have been getting enough yield that they have not been adamant about limiting exposure in a downturn.

 

[dorndawg]

I think you're right just because most of the big builders remember the last crash, but otherwise businesses over expand capacity all the time, and it's also not easy to just slow down operations. If they slow down and let people go, they know they might not get them back with things normalize. Plus some of the builders (not big national ones but bigish, non-public regional ones) are probably at a point with debt that they can't slow down. Or maybe lenders have been better about not letting builders get to that point. I think banks probably have, but we have some local but pretty big tract home builders that get their funding from non-bank lenders, and I suspect they have been getting enough yield that they have not been adamant about limiting exposure in a downturn.

This, and also they are struggling to complete homes which holds up $ to start new houses.

 

[birdawg]

Each 100 basis point increase in interest rate decreases buying power by 10%

 

[johnson86-1]

This, and also they are struggling to complete homes which holds up $ to start new houses.

That's a good point. I've seen a couple of restaurants get to 90% finished (or maybe more) and not be able to get what they need to get to commercial operation for months. One of them at this point I assume is just not going to open. The other at least has another location open, so they are probably sucking wind, but at least have some cash flow.

 

[CochiseCowbell]

but I see stupid stuff getting listed. I mean really stupid.

 

[aTotal360]

Yeah. The seller that just saw his neighbor's house sell for an eyewatering amount 75 days ago and decided to list his for 5% over that, are the ones not selling. I think prices have plateaued for a bit.

I deal exclusively with investors, and I can tell you they are licking their chops. The competition is way down and they are bullish on getting their money out of the market and into real estate.

 

[PooPopsBaldHead]

Yeah. The seller that just saw his neighbor's house sell for an eyewatering amount 75 days ago and decided to list his for 5% over that, are the ones not selling. I think prices have plateaued for a bit.

I deal exclusively with investors, and I can tell you they are licking their chops. The competition is way down and they are bullish on getting their money out of the market and into real estate.

Good info.

That's really what I expect as well. There might be some good opportunities this fall as the market hits a breather, but most home buying is about family dynamics not economics. Dual income families in major metros can afford a lot of house and 2022 is wedding palooza. More weddings this year than anytime in the last 49 years. Demand is not going anywhere until unemployment rises.

I thought I would share this article with everyone. Read the article and then check out the spoiler.

WASHINGTON -- Home builders are cutting back on new construction because of a declining number of customers and high interest rates. At the same time, sellers of old homes have had to drop their prices.

The Commerce Department said Friday that housing starts, which have been generally falling for the past year, dropped another 11 percent last month.

At that rate, there would be 1,032,000 housing starts in a year's time. The industry's best year was 1972 when it had 2,357,000 housing starts.

Michael Sumichrast, chief economist for the National Association of Homebuilders, said 'Our major problem is money. Cash is not available.'

Herman J. Smith, the association's president, said 'There is no relief in sight from today's record high mortgage interest rates.'

If there was a silver lining in the latest housing news it was that used homes are getting cheaper as sellers are forced to reduce prices to get a sale.

'I've not seen it ever before in the data,' Sumichrast said.

He said government statistics show used homes have dropped by $1.08 a square foot from July of last year to April of this year.

In a move to make mortgage money more available, the National Credit Union Administration is considering lifting a ceiling for the institutions it regulates that restricts mortgage lending to 25 percent of credit union loans.

The action is expected Wednesday. The agency will also consider approving various kinds of variable rate loans for credit unions.

Spoiler

That article is from July of 1981. Circumstances were virtually identical to today as inflation had just peaked and housing had gone bananas, while interest rates on the 30 year doubled, and we entered a significant recession. Here's what happened to home prices

View attachment 24492

Home prices are about available inventory and demand. We need more homes. Construction slowing down is a bad deal for anyone that does not currently own a home. As dorn said, talk inside construction industry is about building fewer homes and ensuring better profits, which is the same thing big oil has done.... Drilling less keeps profits high.

 

[jethreauxdawg]

Am I reading that correctly?

They are going to remove the safeguard of limiting the amount a credit unit can risk in mortgages? And they are going to do this while values are starting to drop? So there is a legit risk mortgages could be underwater while the credit units are over invested in that area?
ETA: I posted this before you added the spoiler

 

[PooPopsBaldHead]

You read it before I put the spoiler in Jethreaux. It should be up now., Check it out.

It's amazing how relevant that article sounds though.

 

[jethreauxdawg]

Yeah, I was thrown off by the “record high interest rate” part, but everything else sounded like today

ETA: Do you know how it worked out for the credit unions?

 

[PooPopsBaldHead]

I imagine a lot of people think we have record high mortgage rates.**

The effect on affordability is similar though, interest rates increased 50% in 1981 from 1980 and it's been 70% so far this year. In 81' that meant a $250/month payment increase on an average priced home and today it's a $535/month payment increase.

 

[BoomBoom.sixpack]

That's a good point. I've seen a couple of restaurants get to 90% finished (or maybe more) and not be able to get what they need to get to commercial operation for months. One of them at this point I assume is just not going to open. The other at least has another location open, so they are probably sucking wind, but at least have some cash flow.

Sorry I don't have the graph to post, but there's been a growing divergence between housing starts and Housing completes. So there's some extra inventory that will come onto the market at some point. No idea if its enough to cause actual declines.

I'm guessing that we'll see a move towards more starter homes soon, as they'll be more profit in it.

 

[goindhoo]

Just interest. You aren’t paying more principal. The principal is constant.

 

[Smoked Toag]

So, the same old advice applies. When things get turbulent, just buckle up and ride it out. Take your seat belt off, you'll get jacked around.

I'll never understand why the sheep prefer to make moves during the turbulence. Most people who have made money in this recent economy were the ones who made moves decades ago - Californians who moved to Texas, etc. for example. They bought houses in the 80s and 90s. Then others who gobbled up rentals in the 2008-2012 time frame.

 

[johnson86-1]

Sorry I don't have the graph to post, but there's been a growing divergence between housing starts and Housing completes. So there's some extra inventory that will come onto the market at some point. No idea if its enough to cause actual declines.

I'm guessing that we'll see a move towards more starter homes soon, as they'll be more profit in it.

I would have guessed that those stalled houses were already under contract, but I just checked the inventory of one of our local builders that for the past couple of years has had like 6 houses available at a time that would be finished within a couple of months that aren't already under contract (and if I were going to guess, I'd bet those houses typically were under contract before they could even start them but that the contracts fell through for one reason or another), and they now have 30+. So apparently inventory is already not quite as tight. Or possibly thtey are just getting more aggressive with their pricing knowing they may be slowing down soon.

 

[fishwater99]

It's crazy here in Colorado. I bought a home in July 2018 and it is now worth over 37% more now.

 

[Smoked Toag]

It's crazy here in Colorado. I bought a home in July 2018 and it is now worth over 37% more now.

I'll do you one better. Some family bought a house in metro ATL in 2017, just sold in April for 58% more. When they bought we were concerned it was in an area that would lose value. Insanity. They sold and are living with some other family, and planning to build a monstrosity in another city.

Funny how dumb people can be with their good fortune. Of course they were in debt up to their eyeballs, so they probably will pay off their debt and then get right back into it.

 

[Temple of the Dawg]

Crazy here in FTW too

Bought in November 2015 for $112 sq/ft. House 2 doors down (200 sq ft smaller) is under contract for $204 sq/ft.

 

[johnson86-1]

Here's a market starting to see some sharp downturns, at least in some locations:

https://www.bloomberg.com/news/arti...ewsletter&utm_term=220526&utm_campaign=wealth

Canada, not the US, so not sure how relevant that is to the US

 

[jethreauxdawg]

Interesting

I spent some time with a few Canadians earlier this year. They were talking about how expensive it is to live in Canada. They said the average home price was $1million (I don’t know if this is true or what “average” is), but salaries weren’t much higher than in the US. They said it had a reached a point where most people simply could not afford to buy a house. I guess this article may be backing up their claim.

 

[johnson86-1]

I spent some time with a few Canadians earlier this year. They were talking about how expensive it is to live in Canada. They said the average home price was $1million (I don’t know if this is true or what “average” is), but salaries weren’t much higher than in the US. They said it had a reached a point where most people simply could not afford to buy a house. I guess this article may be backing up their claim.

From my extensive research watching HGTV, "everywhere" in Canada is basically priced like Manhattan.

 

[dawgstudent]

From my extensive research watching HGTV, "everywhere" in Canada is basically priced like Manhattan.

The wife is a waitress and the husband is a junior engineer. Budget - 1.5 million.

 

[patdog]

View attachment 24498

 

[ZombieKissinger]

In Spokane, the house I bought in Nov 2021 had increased 58% since it was last sold in August 2018. My current estimate is that it’s increased 7% in the last six months too

Edit: checked Realtor.com and there are three similar size/age/state houses in my neighborhood listed. two are pending for an average of $70k more than I paid 6 months ago. a third just went on the market for $80k more

 

[PooPopsBaldHead]

Closed on a house myself in October 21'. Up over 100%... Bought it for 5 Bitcoins and could currently sell it for 11 Bitcoins.

 

[ZombieKissinger]

It’s amazing how Bitcoin is immune to inflation but everything else has deflated over the last six months

 

[jethreauxdawg]

Closed on a house myself in October 21'. Up over 100%... Bought it for 5 Bitcoins and could currently sell it for 11 Bitcoins.

View attachment 24499