The unhealthy housing market is now a nightmare

The housing nightmare continues. That Federal association of real estate agents (NAR) reported that April Existing Home Sales came in at 5.41 millionLow 3.4% from the previous month and 8.6% from last year. But the most unhealthy data line was that house prices have risen 14.8%.

Now that we’re almost into July, it’s safe to say that mortgage rates have been hit once 4%, The panic sale by American homeowners who must get out at all costs, pushing the total inventory into the millions, did not happen. In truth, that was always a terrible premise.

My nightmare scenario, on the other hand Has happens and that’s bad news for everyone. The overall housing stock has collapsed to an all-time low since 2020 and because this happened in 2020-2024 it led to forced bids and pushed prices well above mine 23% five-year house price growth model in just two years.

Now that mortgage rates have risen, demand is being hit while we still show 14.8% Data on home price growth. Oops!

NAR research: The median price of existing homes for all apartment types in May was $407,600, up 14.8% from May 2021 ($355,000) as prices rose across all regions. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record.

As of the summer of 2020, I’ve been adamant that once the 10-year yield breaks above 1.94% — meaning 4% plus mortgage rates — the real estate narrative would change. Since then, house prices have spiraled out of control, causing more damage from interest rate movements than would have traditionally been the case.

When rates go up we see that impacts demand and mortgage rates are 6% not 3% anymore. This is real demand destruction; Prices and tariffs are a double whammy and why I stressed we need to increase stock as soon as possible. This only happens through higher rates.

Since March of this year, the demand for housing has been falling more and more, but the stock is still below that 2010, 2013, 2016, and 2019 levels, which is a nightmare. Because housing means shelter, people don’t sell their homes to become homeless; there they live. Of course, if you are trying to sell your home, you are also a home buyer.

Interest rates have risen at an all-time high, making homes more expensive and theoretically preventing some homebuyers from moving. High net worth home sellers are not as sensitive to higher interest rates as they bring a more significant down payment. Inventory snaps back towards historical norms of 2 million to 2.5 million, what I consider to be the best thing ever for housing isn’t happening this year.

NAR total holdings dates back to 1982:

Reaching this historic inventory level will take more time. I stressed that real estate doesn’t move like the stock market. Homeowners are in a better financial position than stock traders, so the idea of ​​panic selling doesn’t reflect the realities of home construction. You don’t get a margin call at noon and you’re forced to sell your house in seconds. A real estate investor, on the other hand, doesn’t have the kind of protective relationship with a home that a homeowner has.

The goal is simple: we need a total housing stock to reach a range of 1.52-1.93 million return to normal. We are currently at 1.16 million. Weak demand, time, and the massive drop in affordability will get us there, but not at the speed people were touting last October.

Keep in mind that stocks are very seasonal and over the next few months seasonal stocks will ease off, but before that happens we should surpass last year’s high. We should all be looking for more inventory to end this madness.

As for the monthly supply of housing, we want this to go beyond four months as soon as possible. This would be a more traditional level for the housing market; We’re making some progress here, but not where we want to be yet.

Monthly supply data from NAR prior to this report

As a nice increase in monthly supply, we see the seasonal inventory surge associated with falling sales, meaning months of supply should be increasing. This is the best part of today’s home report.

NAR research: Total housing stock registered at the end of May was 1.16 units, up 12.6% from April and down 4.1% from May 2021. Unsold stock stands at 2.6 months supply at the current sales pace , versus 2.2 months in April and 2.5 months in May 2021.

Additional bad news from the report is the data that has been on the market for days. The frustrating data line during this unhealthy housing market was days in the market that stubbornly stayed at teenage levels. We want this to go much higher to get back to something normal.

We have recently paid a heavy price for home price growth nationwide, and while this data line is still at teenage levels, we will not achieve the equilibrium in the housing market that we need. We need house prices to fall 17% to return to the peak growth model for the years 2020-2024 – just to have a regular market.

NAR research: First-time buyers accounted for 27% of sales in May; Private investors bought 16% of the houses; Cash sales accounted for 25% of transactions; Distress sales accounted for less than 1% of sales; Properties usually stayed on the market for 16 days.

In terms of selling trends, this data line is still lagging the reality of the rising interest rate environment, giving us much more room to cut selling. When mortgage rates were in between 4%-5%, it looked more like a traditional, higher-rate sales decline adjusting to the massive price gains since 2020.

However, with mortgage rates above 6%, we see real demand destruction as America’s top home buyers, the mortgage buyers, take a double whammy.

While the four-week trend of the moving average of the purchase application data hasn’t reached a level I thought I’d see with mortgage rates so high, that was in between 18%-22% Down year on year, we are picking up the pace now and the four-week moving average has come down 16.75% Year for year. Keep in mind that starting in October this year, the comps will be a lot harder to work with, so they’re going down every year 25% to 35% are then in play.

The extremely unhealthy housing market will continue until we can reach inventories to bring prices down and hopefully reverse some of the extensive physical housing price damage in America post 2020. If you want more of a guide to know when we’ll see a major change in this discussion, I recently wrote this article to explain what to track. A good rule of thumb is the inventory between 1.52 – 1.93 million and over four months of supply, and then we’re back to a normal marketplace.

Imagine how much more damage we would have had this year if mortgage rates hadn’t gone up. For my part, I totally agree with Fed Chair Powell: we need a rebalancing of housing because nothing good will happen with such an unhealthy rise in home prices.

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