Housing Analysis

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Compressed-Village said:
https://www.housingwire.com/articles/are-home-prices-about-to-fall/


For those who like charts.

Thanks to Logan Mohtashami, his works is unbias and truly data driven.
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Great article, he talks about in detail what I've been talking about for years....it's all about INVENTORY and watch inventory levels like a hawk because it's a tell to where prices might be heading.  Think about this for a second, we aren't even back to summer 2021 inventory levels yet, let alone summer 2019 which had about 3x more inventory than we had today (over 1,000 active listings). Talking about month-over-month inventory level increases doesn't mean much, you have to compare it to pre-Covid levels to get a real gauge of where we stand.  Can we see a pullback in pricing?  Sure.  Will it be a crash?  Highly unlikely unless inventory levels triple of today's levels (I'm speaking about Irvine, not other markets).
 
Well, this pretty much settles the debate about cash rich buyers being immune to rising interest rates.

Bloomberg: Luxury-Home Sales in US Plunge Most Since Start of the Pandemic

Luxury-home sales in the US are sinking as inflation, economic uncertainty and the stock-market slump push wealthy buyers to the sidelines.

In the three months through April, sales of high-end homes in the US fell 17.8% from a year earlier, the biggest drop since the start of the coronavirus lockdowns, Redfin Corp. said Friday in a report that measured the top 5% of listings in each of 50 large metropolitan areas. Non-luxury transactions slipped just 5.4%, according to the brokerage.

The US housing market is cooling fast, but it?s not just first-time buyers who are pulling back as surging mortgage rates cut into their purchasing power. Buyers who could afford million-dollar homes a few months ago now have to look at cheaper options or put their searches on hold.
https://www.bloomberg.com/news/arti...in-us-plunge-most-since-start-of-the-pandemic


WSJ: Even Deep-Pocketed Buyers Are Starting to Back Away From the U.S. Housing Market
Economic uncertainty fueled by rising interest rates, volatile stocks and frothy prices is leading to a luxury slowdown, with a housing bubble in Austin near bursting

?There?s a sense that prices are frothy in many markets across the country,? said Ryan Serhant, CEO of real-estate brokerage Serhant, who says the market is normalizing after a period of rapid appreciation, fueled by heightened demand. ?You?re now starting to see buyers become a little hesitant to be caught at the top,? he said.

Richard Steinberg, a luxury real-estate agent at Compass, said he has been having ?the price-reduction conversation? with clients on at least 50% of his exclusive listings. Without offers or the promise of deals, many of them will have no choice but to listen, he said.

Mr. Steinberg said he sees the greatest reduction in activity on properties priced between $2 million and $5 million, a price range in which he says buyers typically rely on mortgage financing and are dealing with increased interest rates.
https://archive.ph/QfUKQ#selection-541.0-545.239
 
There is a fantastic almost 5000 square foot house near me on a ~10,000 square foot lot, with a backyard oasis.  The owners fancied it up to sell it, touched everything inside and out and made it really nice.  Listed it for $4.4m early in the year, which I thought was a bit optimistic, but plausible.  Several price drops and a new agent later, it's now listed at $3.1M, which is almost what much lesser houses were selling for before rates took off. 
 
daedalus said:
There is a fantastic almost 5000 square foot house near me on a ~10,000 square foot lot, with a backyard oasis.  The owners fancied it up to sell it, touched everything inside and out and made it really nice.  Listed it for $4.4m early in the year, which I thought was a bit optimistic, but plausible.  Several price drops and a new agent later, it's now listed at $3.1M, which is almost what much lesser houses were selling for before rates took off.
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Could it be grossly over price to begin with? What about location, is it next to a major commerce intersections that deem as a high traffic area? Yes, it could be upgraded with big bucks and all but if not done well, it still an eyesore to buyers.

At more than a million discount in a matter of months tell me that its not just high rate that cause the huge change in price, its the realization of mispriced and the want to get the heck out quick decision. When you have an drop in value this quick and this high, I bet there are more price drop to comes to this one as potential buyers shy away of the big drop.
 
Compressed-Village said:
daedalus said:
There is a fantastic almost 5000 square foot house near me on a ~10,000 square foot lot, with a backyard oasis.  The owners fancied it up to sell it, touched everything inside and out and made it really nice.  Listed it for $4.4m early in the year, which I thought was a bit optimistic, but plausible.  Several price drops and a new agent later, it's now listed at $3.1M, which is almost what much lesser houses were selling for before rates took off.
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Could it be grossly over price to begin with? What about location, is it next to a major commerce intersections that deem as a high traffic area? Yes, it could be upgraded with big bucks and all but if not done well, it still an eyesore to buyers.

At more than a million discount in a matter of months tell me that its not just high rate that cause the huge change in price, its the realization of mispriced and the want to get the heck out quick decision. When you have an drop in value this quick and this high, I bet there are more price drop to comes to this one as potential buyers shy away of the big drop.
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I'll submit I'm in a better position to judge the relative value of homes I see listed in my neighborhood on a daily basis.  Nothing wrong with the location of the house and it really is gorgeous.  No exaggeration: the most expensive house on I think the 2nd largest lot in this zip code faces this house in question from across the street. Another house just listed in the same zip code, not as nice, not a better location, under 2900 square feet, on a 5200 square foot lot and they want $2.9M.  That would have made sense 6 months ago.  I think it's going to sit for a while today.

SFR sold comps for the past 6 months:
$2.7M  2100 sq ft, 3500 sq ft lot
$3.1M  2600 sq ft, 6600 sq ft lot
$3.1M 3000 sq ft, 6000 sq ft lot
$3.4M 4200 sq ft, 7300 sq ft lot 

No question to me that the $3.1M house for sale is better than all of those.  That last one is the highest price sale in 6 months, and went pending in early feb, before everyone started buzzing about rates.  A house that's better in all respects has to drop its price to $3.1M.  Maybe they're looking for a bidding war, but I doubt they go above $3.4M at this rate.
 
Enough discussing the past (and the very wrong Housing Analysis calls), let's look to the future again.

Let's all agree there is a slowdown coming... as has been said numerous times before, the more pertinent questions are, what is the extent and for how long?

And... everyone is pointing to a high rate environment as major impediment... but a few enough are old enough to remember 7/8s were the norm and if that kills housing... guess what the Fed will do?
 
https://www.yahoo.com/finance/news/crying-loud-survey-says-most-191424173.html

We are in a savagely unhealthy housing market. Higher rate will bring equilibrium.


USA TODAY

For many, purchasing a home is the American dream. But the road to homeownership can be so draining that it moves many to tears, according to a study by Zillow.

The real estate website found that half of U.S. homebuyers cry at least once during the exhaustive process. Additionally, almost 90% of recent buyers surveyed said at least one aspect of buying a home proved stressful.

Zillow surveyed about 2,000 Americans who either bought or intended to buy a house in the past two years as housing costs became ? and remains ? at a premium.

What replaced the tears of joy that can come when purchasing a house? Zillow found that about 62% of potential homebuyers were stressed about being able to find a home within their budget; about 61% were stressed about not having enough houses to choose from; and 58% were stressed about finding a home in their desired neighborhood.

"I think we were surprised by the share of recent buyers who said they cried at least once, as there were some who cried at least five times while looking for a home," Zillow home trends expert Amanda Pendleton told USA TODAY.

The Zillow survey comes at a time when the median sales price of homes in the U.S. reportedly reached a record $428,000 in the first quarter of this year and the 30-year fixed mortgages soared above 5%.

Zillow said nearly half of all homes sold in the U.S. in April sold for over the asking price, a 37% increase from a year ago. Kleenex anyone?

Here's more from the survey:

Gas hits record: Gas prices surge again to record high but the driver is refineries, not oil prices

This demographic cries most over homebuying
It turns out that Gen Z and millennials ? many seeking to become first-time homebuyers ? are far more likely to cry at least once during their journey, the Zillow survey said.

More than 65% of Gen Z buyers, those in their 20s and 30s, and 61% of millennial buyers, those in their 30s and 40s, cried at least once when trying to buy a home, Zillow said.

Further, 44% of Gen Z buyers surveyed say they cried two to four times. Millennial buyers are slightly ahead at 45%
 
The data says there is no housing shortage.  This chart shows more housing units per person than at any time since the year 2000.  The number of units per person just surpassed the peak in 2008, but unfortunately we still have the largest number of housing units under construction in US history!!!  The US population, on the other hand, has flat-lined...

We had the lowest interest rates in 5,000 years which pulled demand forward like nothing ever before (not even the bogus mortgages of the mid-00's) and we will soon have a glut of inventory as "investors" unload their unprofitable properties.  AirBnB hosts are in a state of panic right now as summer bookings dry up!!! 

If you know anyone that owns real estate in Big Bear, Lake Arrowhead, Palm Springs, or Joshua Tree, tell them it's time to SELL SELL SELL!!!

 

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household is getting smaller; % of wealthy people that own second and vacation homes are also higher


Liar Loan said:
The data says there is no housing shortage.  This chart shows more housing units per person than at any time since the year 2000.  The number of units per person just surpassed the peak in 2008, but unfortunately we still have the largest number of housing units under construction in US history!!!  The US population, on the other hand, has flat-lined...

We had the lowest interest rates in 5,000 years which pulled demand forward like nothing ever before (not even the bogus mortgages of the mid-00's) and we will soon have a glut of inventory as "investors" unload their unprofitable properties.  AirBnB hosts are in a state of panic right now as summer bookings dry up!!! 

If you know anyone that owns real estate in Big Bear, Lake Arrowhead, Palm Springs, or Joshua Tree, tell them it's time to SELL SELL SELL!!!
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The California Court Company said:
household is getting smaller; % of wealthy people that own second and vacation homes are also higher


Liar Loan said:
The data says there is no housing shortage.  This chart shows more housing units per person than at any time since the year 2000.  The number of units per person just surpassed the peak in 2008, but unfortunately we still have the largest number of housing units under construction in US history!!!  The US population, on the other hand, has flat-lined...

We had the lowest interest rates in 5,000 years which pulled demand forward like nothing ever before (not even the bogus mortgages of the mid-00's) and we will soon have a glut of inventory as "investors" unload their unprofitable properties.  AirBnB hosts are in a state of panic right now as summer bookings dry up!!! 

If you know anyone that owns real estate in Big Bear, Lake Arrowhead, Palm Springs, or Joshua Tree, tell them it's time to SELL SELL SELL!!!
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The demand for second homes skyrocketed during the pandemic as evidenced by the fact that second home markets rose more in value than non-second home markets.

prices-in-second-home-markets.png


The problem now is that demand has flattened out and probably started declining.  (They haven't released data for May, but in April second home demand was already almost down to pre-pandemic levels.)  As the economy worsens, second homes & vacation rentals will get hit the hardest because it's a luxury not a necessity like owner-occupied housing.  This is going to lead to a flood of supply in places like Idaho, Utah, Nevada, Arizona, and Florida, along with the aforementioned vacation rental markets in California.

second-homes-april-2022.chart_.png
 
Here's the thing, not all second homes are vacation home rentals.  I have a second home in Las Vegas and that's not rented out.  Sure there's going to be many that are vacation rentals but most are not is my guess.
 
The "housing shortage" is a myth perpetuated by the National Association of Realtors.

The MYTH of the US Housing Shortage

Housing-Shortage-MYTH-1.jpg


What you really want to pay attention to are the Green Bars ? they measure the ratio of Population Growth to New Housing Permitting in the US. The higher this figure is, the more pent up demand is being created for real estate. The lower the figure? The more supply is being delivered relative to people being gained.

An equilibrium Population / Permitting ratio is about 1.5, meaning 1.5 people added for every 1 permit (equilibrium is above 1 because not every new person needs their own home or apartment).

In the mid-2000s, right before the last housing crash, the Population / Permitting Ratio dipped below 1.5. This signaled that too many new homes and apartments were building built relative to how many people were being added to the US population. Sure enough, the Housing Market crashed shortly thereafter.

Lo and behold ? since 2018 the US is back below that 1.5 marker. Especially so in 2019 and 2020, when Population / Permit Ratio measured 1.1 and 0.8, respectively. To repeat ? that 0.8 figure in 2020, which means more units were permitted than population grew, is a first in US history.
https://reventureconsulting.com/the-myth-of-the-us-housing-shortage/
 
The price-to-rent ratio has never been so high.  It was somewhat defensible when interest rates were at 5,000 year lows, but now, not so much.

vb5rzy8q8s791.jpg
 
Ivy Zelman has a solid record of correct housing calls.

The housing market's next big crisis: too many homes

The US housing market went haywire over the past two years for a simple reason: There just weren't enough homes to meet overwhelming demand. But now one research firm is warning of a new threat looming on the horizon: too many houses.

At a time when most experts are honing in on supply tightness, CEO Ivy Zelman is concerned about longer-term trends that indicate housing demand is bound to weaken. Her firm's demographic analysis of the US reveals slowing household formation and population growth, as well as declining immigration levels. Sooner rather than later, Zelman says, we'll be left with more homes than people who want them.

That flies in the face of conventional wisdom today, particularly since the pandemic seems to have laid bare the need for more housing. But Zelman argues that the recent buying frenzy represents an anomaly spurred on by government stimulus payments, record-low mortgage rates, and heightened investor activity. As those factors fade and a record backlog of new housing construction comes onto the market over the next two years, demand might not be able to keep pace, according to Zelman.

"You start to think about the pipeline over the next few years ? you have all this supply coming, and it's not there yet," Zelman told me. "Will we be able to fill up all of these homes?"
https://www.businessinsider.com/next-housing-market-price-crash-too-many-homes-real-estate-2022-6
 
Liar Loan said:
Ivy Zelman has a solid record of correct housing calls.

The housing market's next big crisis: too many homes
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When this takes place, do you think certain areas will be hit harder than other areas? What areas/properties do you think will weather the downturn better?
 
zovall said:
Liar Loan said:
Ivy Zelman has a solid record of correct housing calls.

The housing market's next big crisis: too many homes
Click to expand...

When this takes place, do you think certain areas will be hit harder than other areas? What areas/properties do you think will weather the downturn better?
Click to expand...

I think the demographic headwinds will affect the entire nation to some extent, but the less desirable secondary markets will probably take the brunt of the damage because that's also where the most homes are being built.  SF, LA/OC, and SD will always be top tier markets that thrive no matter the demographic headwinds, because there are many priced-out people that would move here given the chance, and relatively few new homes being built.
 
In January, there were 28% fewer listings than the prior year.  Today, there are 19% more listings than the prior year.  Expect that trend to continue.

Home Listings Jump in Turnabout for Supply-Starved US Market

The housing slowdown is helping to solve the US real estate market?s most intractable problem: tight inventory.

With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said in a report Thursday. And new sellers entered the market at an even faster rate than before the pandemic housing rally began.


[size=13pt]Metro areas with biggest annual jumps in active listings

Austin-Round Rock, Texas 144.5%
Phoenix-Mesa-Scottsdale, Ariz. 113.2%
Raleigh, N.C. 111.7%
Nashville-Davidson--Murfreesboro--Franklin, Tenn. 85.6%
Riverside-San Bernardino-Ontario, Calif. 71.7%
Seattle-Tacoma-Bellevue, Wash. 65.6%
Sacramento--Roseville--Arden-Arcade, Calif. 65.0%
Dallas-Fort Worth-Arlington, Texas 61.6%
Denver-Aurora-Lakewood, Colo. 58.3%
Tampa-St. Petersburg-Clearwater, Fla. 55.9%[/size]
https://www.bloomberg.com/news/arti...rge-in-turnabout-for-supply-starved-us-market
 
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