Friday Update February 18, 2022
262 is the number of existing single family homes active on our MLS today. Same as last week basically and the overall market conditions haven't changed at all. People keep talking about how interest rates, which have gone up since 2021, are going to squeeze people out the market. That may be true for some buyers, but not enough to matter or be noticeable in the market overall.
Month to date we're doing something maybe significant. So far in our MLS we have over 500 closed sales in February with a median sold price of $465,000. This is our first time breaking through the 450k mark and I'm curious to see if this holds for the month. I'll keep you posted but long story short we just set a new record high median sold price here. That's coming out to $209 a square foot for you engineer minds and statisticians. Anyone that tells you that our housing market is softening in any way is not in this market, or is lying.
Interest rates did soften a tiny little bit especially today. All this drama surrounding the Ukraine is taking its toll on the stock market and in turn driving interest rates on treasury notes down. Earlier this week we had the 10 year notes at over 2.05% and at this moment their yield is closer to 1.92%. That leaves 30 year conventional fixed mortgage rates right around 4%. It's not 2.75%, true, but it's also at half the rate of inflation.
I'm a nerd and I watch all kinds of YouTube videos about economics, I read all kinds of articles and just in general I immerse myself in this pseudo science. Because while the psychology of individuals doesn't interest me much the psychology of markets does. Media manipulation of data drives the narrative that impacts the psychology of markets and there are a couple things I'd like to address that have come up recently.
Wave of evictions and a flood of foreclosures coming any day now. After all states and municipalities are lifting restrictions and people are indeed getting kicked out of their houses. If you look at headlines like
"U.S. Foreclosure Activity In January 2022 Highest Since Beginning Of COVID-19 Pandemic"
you might think we're fucked. This is 2008 all over again right? And that's exactly how headlines work and how the average discussion between regular people goes too. Headlines are swapped, hey did you hear that something something key word, and opinions get formed without facts.
Now if we read the same article we find out that despite the fact that foreclosure filings are up across the country it's not actually bad news. There were essentially no foreclosures in 2020 and very few in 2021, not because people weren't failing to pay their bills but because of the extraordinary overreach by the CDC. (Ruled illegal by SOTUS) And now that things are kind of getting back to normal foreclosure filings are picking back up.
According to this same article from ATTOM data dated February 10, 2022:
"Nationwide one in every 5,922 housing units had a foreclosure filing in January 2022. States with the highest foreclosure rates were New Jersey (one in every 2,336 housing units with a foreclosure filing); Illinois (one in every 2,740 housing units); Nevada (one in every 3,119 housing units); Michigan (one in every 3,127 housing units); and Ohio (one in every 3,251 housing units)."
Large metro areas such as Miami, Detroit, Philadelphia, Chicago and New York are seeing some of the higher foreclosure numbers across the country.
What about the Colorado Springs area though? We had 33 foreclosure filings in January 2022, compared to 77 in January of 2020. In January of 2017 we had 87 filings. For the year 2009 El Paso County averaged 441 foreclosures a month. Today if you look at the El Paso County trustees website they have so few foreclosures that every other auction gets cancelled because there is nothing to sell.
So what I'm getting at here is that while macroeconomic nerdery applies to national and global issues housing markets are still local. When "the housing market crashes" it does not necessarily apply to the entire country like it did in 2008 when a stripper could finance 4 houses with adjustable rate mortgages. (Bless her rotten little heart)
Also it doesn't hurt that year over year national real estate prices are up an average of 15.4%. So folks who would normally be facing foreclosure are usually still able to sell their houses and end up right side up.
The above illustration is something most of us in Colorado are acutely aware of. Californians don't know how to drive in the snow and New York drivers are rude AF. I don't think I need to elaborate too much on how markets where people are leaving are more fragile than the markets to which people are moving. Supply and demand kind of deal.
The other component of all this madness that makes me think we're not going to see a flood of foreclosures any time soon is the corporate money. There has been a lot of chatter on the book of Face about the fact that in the recent year or so roughly 1 in 7 single family homes was sold to a large, often publicly traded company. A few local agents are up in arms about how unfair this is and the damage its doing to the "American Dream". Other agents are putting on their kneepads and capitalizing by working on behalf of these companies. Which group has the moral high ground?
Well neither in my opinion because this is economics we're talking about. It's not illegal for companies to buy houses, it's not illegal for sellers to sell to them, and its not illegal for tenants to rent from them. You buy your groceries at Walmart or Costco, get your trinkets from Amazon, put Exxon gas into your Ford or GM so why shouldn't you pay your rent to like Blackrock or Invesco or something? Seems to make sense? Maybe all those companies could just merge into one and provide us with Brawndo since it's got what plants crave.
Now let's say our supreme leader got together with his feared enemy, Corn Pop, and together they came up with an executive order banning corporations from owning single family homes. Let's say they forced those companies to offload their holdings to help average people buy a house. The amount of personal wealth that would be wiped out from American homeowners would be in the trillions of dollars and the amount of pain inflicted would certainly not lead to re election. Also the folks that have been on the fence about buying ever since the 2009 crisis would probably wait for the bottom to fall out further, not buy, and continue renting because of their inability to make adult decisions.
The bottom line is 6 out of 7 closings went to regular people. Do I feel like too much wealth and real estate is being held in too few hands? I do feel that way. But are these corporate buyers legitimately preventing individuals from buying a house? Maybe sometimes, but about 85% of the time they're not. One thing that these huge pools of money are doing is securing the bottom of the real estate market to keep it from falling out. That is unless one fine day they choose to sell everything, and that will be a very, very bad day.
But why would large funds buy single family real estate? Well probably for the same reason that I own it.
1. You buy something in today's dollars and pay for it in tomorrow's dollars.
2. You rent in out and the dollars you're using to pay off the loan are not only being devalued by inflation but are also coming from someone else's pocket. Rent=dividends for your investors.
3. Depreciation of the physical asset helps your tax bill.
4. They're not making land anymore, labor is not getting cheaper and building materials are up too. (lumber at $1265/1000 feet) So why not own a thing that combines all those factors into a cash flowing asset?
5. Worst case scenario you can probably sell it for profit later.
These companies see inflation for what it is. It's not transitory. They are picking up assets all across the nation as a form of diversifying. They are doing this because they know that rain, hail sleet or snow people will pay rent to have a place to call home.
I think as individuals we really need to take a long sober look at what smart money is doing and figure out a way to do the same. Do your best to remove emotions from the equation. Maybe I'll be the first agent to tell you this but if your idea of a dream home is keeping you from buying a home to begin with, you the dumb dumb.
On that note we got like 4 families under contract this week so I can tell you for sure that while it's not easy it is indeed possible to buy a house.