Friday Update June 24, 2022
Well the trend continues! We have 1276 single family homes on the market today. We had 1118 homes on the market last week and under 400 mid April. I'd say over a 300% increase in inventory is very noticeable.
What I'm seeing in these streets player is a little bit of everything. I saw a house with 7 offers on it the other day. It was cute as shit and probably 20-25k underpriced compared to its competition.
But much more often that that what I'm seeing is houses sit on the market longer and longer, with more and more price reductions. Last week on Friday we had 370 price decreases across the MLS in a 7 day period. It seemed like a lot and I promised to track it. Today we have 425 price drops in last week. Makes sense that with more standing inventory we see more price reductions.
The absorption rate is truly going to shit very quickly. If in January to about April we were absorbing around 200 or more single family homes between Friday and Monday then in the last few weeks I've seen the absorption rate as low as like 14 units. You interpret that how you will, but to me its not a sign of the seller's market partying on.
Month to date for June as we close out late April, May and early June contracts we have a total of 1,140 units closed out for a median price of $495,000. One thing that is coming down noticeably is the list to sold price ratio which is now barely over 100%. Last year it peaked around 104%.
So that's telling me that people bidding up the price way over list is becoming more and more rare. I'm really curious to see what July's median is going to look like because the June median to me seems like there hasn't even been a change in the market. But there has been, and the lagging indicator which is sold data will take a minute to reflect it. Or a couple months, you know what I'm saying.
Last week rates went to shit real quick. Like super historic rate of bad. This week, miraculously, the stock market rallied and rates at one point came down as much as 50 bps lower than last week's high. I'm referring to the yield on the 10 year US treasury but rates on mortgages also got a little bit more favorable. I wonder, how could that happen?
Well it's the Fed. Instead of continuing with their taper and reducing their balance sheet turns out in the last 2 weeks they've actually been buying bonds to stabilize pricing. And with a bit of a delay our managed market found out about it and got giddy again knowing that the money printer can't really stop. Not without this system failing that is.
So yea, Fed is talking tough but lying as usual. Let's see how this progresses and if it was a stop gap measure to keep the bond market from blowing up or if this is the beginning of yet another round of QE. It would be funny if it was because that makes our country look like a dope fiend for new debt, and the Fed is the dealer. Ugly.
For the time being though the sentiment in the market seems to have changed noticeably. For the most part and with few exceptions listing agents are being cool again. Folks are out there really trying to sell their clients' houses and I'm getting more calls for feedback and suggestions than I have since about 2016 or so. It's cool to see people out there really working.
I am seeing and will likely continue to see for the next several months if not longer a disconnect between seller's expectations and buyer's realities. Someone way smarter than me made this point and I want to reiterate it. If you owned a house and refinanced it anytime between 2020 and 2021 into a rate that started with a 2, or sometimes even with a 1, then you should seriously count your blessings. Yea? Because buyers today are coming in with a rate in the mid to high 5s, which is better than last week, and the affordability issue kicks them square in the teeth.
Example. Seller buys a house in 2018 for the median price at the time of roughly $350,000. Let's just say they buy VA with 0% down and for the sake of simplicity we say there is no funding fee to account for. We're gonna say their rate at time of purchase was 5% because in late 2018 we did have a pop in rates. Taxes and insurance are both $1500 a year for the sake of simplicity.
They end up with a payment of $2,128 in 2018 on that house.
Fast forward to 2020 and of all the bad things that can be said about that year interest rates towards the end of it are not one of them. Our seller wisely decides to refinance to lower their rate.
Their balance of the loan is just under 340k because they've been making minimum payments, and let's say their dogrocket.com lender charges them like $2,000 total for the refi and roll it into the loan. New loan balance of 342k in 2020, new rate of 2.5%, new monthly payment of $1,601. Dope AF you can now finance another $527 worth of shit every month! Or invest the money into crypto. Or save it. Or pay your loan off faster. Or whatever, this person is winning at life right now.
And then bang, just like that, 2022 comes and slaps us all across the face with a warm whole salmon. Our median house that our seller is now going to list goes for $495,000. Let's say our new buyer, the future owner of this house, is also buying VA. Once again lets not worry about funding fees and all that and we will keep escrow numbers the same for the illustration.
Our new buyer's payment for this very same house is $3,060 a month. We all know taxes went up quite a bit since 2018 as did insurance. And I'm not even accounting for those in this scenario. Apples to apples except price and rate.
So yea. Our seller is loving his $1,601 monthly payment while our buyer is shocked by his/hers/their payment of over $3,000 a month. Shitty. And there is a disconnect between the two until we make specific real life examples like this. Yea the house is the same, or better hopefully, but the sticker shock is a real real thing.
Add to that the cost of everything else. The $5 gas, the $4 milk, the $17 dollar burgers. I'd say the drinking must continue until morale improves but that's getting so expensive too that alcoholics may be forced to sober up. The inflation is everywhere squeezing everyday working people from all angles, and that is if you are able to find what it is you're trying to buy.
Things can not go on like this for very long without something breaking. I am seeing a lot of price reductions and I imagine here in the near future sellers are going to be taking some serious haircuts. I'm already seeing this happen and really the sole factor is affordability in general. The affordability of housing at almost 6% interest and the affordability of life after a pandemic that was resolved via money printer.
As always I have no concerns about real estate in the long haul. I think a fantastic opportunity is upon us, and will be with us for a little while, to accumulate real estate holdings. People are getting fearful therefore it's time to consider getting a little bit greedy. That being said though it needs to be done with care, with the end users like tenants in mind, and with a long term perspective.
All this shit on Facebook about "Marry the house and just date the rate" might end up with the house finding out about the rate and you not being able to get any from either one. You dig? Don't gamble with your livelihood and if you need to get your finances together a little bit better than you have them now in order to be able to buy something and be cozy, there is no shame in that.
Fuck the Joneses. And #fuckzillow