Home Market Update – The National Association of Realtors’ Affordable Fixed Mortgage Index for Homebuyers plummeted to its lowest level since 1989.
The late 1980s was what was then considered the housing bubble. Much smaller than the two housing bubbles of this century. But here’s the kicker. At the time, the average interest rate on a 30-year fixed-rate institutional mortgage was close to 10% for him. Rising prices and deteriorating household finances have made home buyers much more sensitive to small changes in interest rates than they were 33 years ago.
This explains why July’s new home sales report was a total disaster. His SAAR (Seasonally Adjusted Annual Rate) in the headlines dropped him 12.6% from June. His SAAR of 511,000 units sold fell short of Wall Street’s forecast of 520,000 homes. The year-over-year SAAR plunged 29.6% and the home sales rate is at his lowest since January 2016.
However, YoY unadjusted monthly sales showed July new home sales were down 32.2% from July 2021. Unadjusted figures are statistically much “cleaner” than his SAAR, as they are not subject to seasonally adjusted modeling errors, only estimation errors in data collection. Monthly supply jumped from 9.1 months in June to 11.2 months in July. This chart should scare anyone who recently overpaid for a new home or was thinking of buying one.
The supply of new homes is about as high as the previous high since the housing bubble burst. The “low stock” story wasn’t entirely valid, but now it’s ridiculous.
July pending home sales were down 1% from June and 20% year-on-year. On a monthly basis, pending has decreased in 8 of the last 9 months and 9 of the last 12 months. On a YoY basis, pending has been declining monthly for over a year. Excluding the pandemic lockdown period, the pending home sales index is at its lowest level since October 2011.
The increase in mortgage purchases decreased by 0.5% from the previous week. Excluding the pandemic lockdown period, the mortgage purchase index has fallen to its lowest level in almost six years.
In a recent issue, we mentioned that Wall Street/corporate homebuyers are rapidly exiting the housing market.BX) announced that its subsidiary, Home Partners of America, will stop buying homes in 38 cities starting September 1. We will stop buying in 10 more cities on October 1st. In addition to Blackstone, Invitation Homes (INVH), American Homes 4 Rent (AMH) and My Community Homes (owned by: KKR) announced that it has significantly delayed home purchases.
Until recently, buy-to-let-let or flip homebuyers accounted for well over 20% of all home sales in the past two years. Giraud (Z.) will exit the home flipping business in late 2021.Open) stop buying houses. One difference between the 2008 bubble and the current bubble is that corporate buyers were largely unpopular until the 2008 bubble burst. But corporate homebuyers were he one of the main drivers of the housing bubble. Removing corporate demand from the market equation accelerates the market’s downward momentum, which is one reason I believe this housing collapse will be worse than 2008.
The chart below shows a compelling argument that house prices will plummet.
The light blue line is the average Case-Shiller house price. The dark blue line is a regression indicator that consists of current mortgage rates and monthly supply. The two lines are highly correlated going back to 1998, the start date of the study. I can’t foresee any scenarios that would prevent the light blue line from quickly ‘catching up’ with the dark blue line. The 60% year-over-year decline in new orders in the third quarter reported by TOL (see below) suggests that a price collapse is imminent.
This chart supports that claim.
Unfortunately, Redfin’s chart only goes back to 2015. However, this chart shows the percentage of active listings across the country that have had their prices cut. Some of the biggest bubble cities (Boise, Austin, Denver) have over 50% of active listings with discounts.
A longtime colleague of mine knows the CEO of a large drilling company in Colorado. They mostly do “dirt work” for new home builders. They are busy finishing existing projects. However, there will be no new business on the books for 2023 or 2024. The CEO said, “It’s like someone turned off the fountain.” If the Fed only sticks to the message delivered by Jay Powell at Jackson Hole on Friday over the next four to six months, the carnage on the housing market will be biblical.
Editor’s Note: The summary bullet points for this article were selected by the Seeking Alpha editors.