Friday Update June 17, 2022

720 four weeks ago, 759 three weeks ago, 927 two weeks ago, 1007 last week was our inventory of single family existing homes.

Today we have 1118.  Also the absorption rate has dropped significantly and  most of us can see houses are sitting on the market longer and going through more price reductions.

In the last 7 days on our MLS we saw 370 price decreases.  I don't have an easy way to compare that data to anything historic but considering where we were a month ago it  seems like a lot.

First two weeks of June we are still seeing pretty strong sales figures with just shy of 800 units closed month to date.  Median sold price on those is $490,000.  I am going to be keeping an extra close eye on this, as I have been, because I fully anticipate that median price is going to come down.  Maybe significantly.  Time will tell.

The whole story here is really just a Fed rug pull.  Had our response in 2020 been a medical and rational one rather than a monetary ridiculous one I would not be telling the story I'm telling here.  What we're seeing today is the beginning of seller FOMO, the undoing of the last 2 years worth of an irrational and artificial market.  

Just think about the market in terms that the vast majority of buyers thinks about it.  How much is it a month?

Really simple math here to drive the point home.  1% up in interest rates means a 10% loss in buying power.

We have seen rates basically double since the start of the year going from around 3.25 to over 6%.  Again lenders, I know, your rates are special and nobody else has the super secret rates you do.  This is a generalization.

So on the super simple math buyers in the last 5 months lost about 30% of their buying power.  Since most people can't just create money out of thin air like our central bank does they don't have the financial ability to suddenly pay 30% more for housing.  Numberwise the median house today costs something like $1,200 more monthly than 2 years ago.  That's not trivial to most people.

I think over the course of the last month or so the reality of these new interest rates is fully setting in.  The bond market seems to be taking this to heart and suddenly it seems that sellers, at least many sellers, are too.  This week we saw a lot of volatility with the Fed meeting on Wednesday and had the yield on the 10 year treasury briefly hit over 3.5%.  As I write this it's pulled back to 3.21% which is higher than last week. 

Mortgage rates saw a lot of volatility this week as well but have settled at higher than you and I would like.

I've seen a lot of really misleading anecdotal shit data all over social media lately trying to argue how these rates really aren't that bad.  "When we were kids we had to walk 40 miles just to get to school and rates were 18%.  6% is nothing to complain about."  That type of wisdom.  Not taking the loan amount or payment amount into consideration is an example of extemely poor and stupid reasoning, and overall just shows how many morons inhabit our industry.  Learn to math, yall.

Now let's talk about knives specifically falling ones.  In markets, real estate included, there is this concept of catching a falling knife.  It's like when NFLX rips down from $400 something to $200 a share, and you think its a smoking good deal and so you buy shares.  And then it falls further to $176 where it is today.  See if you're speculating rather than buying to hold then you would suffer a quick and brutal loss.  That's what I mean by catching a falling knife.

Let me tell you about the falling knife I caught in 2010.  My first house.  I bought the property for $125,000 at 5.25% interest.  For all of 2011, 2012 and 2013 I was upside down on that house.  Could not sell it to break even if I wanted to.  But here is the part where you catch the knife gracefully.  You don't sell.  It's relatively easy with a house as compared to stocks or whatever because people need a place to live.  So you just live in the house, make the payments, and don't stress about what the house is worth.  Because you need a place to live.

What I'm leading to here is that Americans' obession with their home values is a symptom of the wealth effect.  People have a lot of equity in their homes and they feel rich, and so they spend more money.  When values go down people feel poor, and so they spend less money.  And this consumer behavior impacts the economy in both the booms and the busts and reinforces itself.  Companies like Zillow capitalize on people's obsession with their home value by providing click bait like weekly market reports and the Zestimate.  Shit I send out monthly market updates to my clients because I'm a thirsty realtor that needs closings to put food on the table!

But none of this shit matters.  What matters is that you and your family need a place to live.  If you're here for a little while like a year or two that place should be rented.  You should not speculate on real estate values in the short term unless you have the experience and capital to do that.  If you're gonna be here a while or are good with becoming a landlord then you should buy.  Now, later, whatever.  You'll always need a place to live.

Is today the best time to buy a house?  I don't know.  It sure is getting a lot easier than it was 4 weeks ago.  But rates are high and there is no guarantee that they will come down any time soon.  So is it a great time to buy?  You tell me, how's renting going?

Here is my stance on the short to medium term.  Shit is gonna get messy as it's already getting messy quick.  Today I'm showing my first ever house being sold, yes sold not bought, by home partners of America.  I'm going to track this super close as the implications of hedge funds selling off their holdings will have an immediate and serious impact on the market.  Now, this is the first and only house being sold by them in our market.  Will there be more?  I'll keep you posted.

So short term outlook is like if you step in dogshit and then struggle to get it off your shoe on a curb.  Medium term outlook there will be some kind of crisis.  Maybe hedge funds dump assets, maybe one goes insolvent and needs rescuing, maybe something worse than that.  Nobody knows.  But the response is predictable.  The Fed will drop rates and print money, buy bonds, buy MBS.  Because all they really can do is print money and buy shit no one else wants with it to suppress rates and support prices.

What we're seeing now is the Fed trying to get rates as high as possible before having to drop them again to deal with the next crisis.  You should get as high as possible too, as it is the weekend.  I'm gonna go play in this chaos.