Friday Update September 9, 2022

Hey guys.  Last Friday was my birthday and between working the first roughly 8 hours of the day and then working my liver for the balance of it I just didn't get to a computer for long enough to write an update.  My bad.

Last week was a holiday 3 day weekend and generally with 3 day weekends we see a dip in listing activity and also in showings.  Regardless of the market people like to go camping for Labor Day.

So last week we saw a little dip in listings, this week we're back up to 1,709 single family existing homes available for sale in El Paso County.  This is slightly lower than a couple weeks ago, slightly more than last week and statistically flat.  I am curious to see how the historically slow months coming up act on inventory levels.

New listing activity nationwide is down something like 16% over last year as most sellers come to terms with the fact they missed this top of the market.  I say this top because there were tops before it, and there will be tops after it.  The trick is having your poop grouped well enough to ride through the valleys in between the peaks.

Valleys.  Peaks.  Our local median price point peaked in May at just over $500,000.  We finished August with a median sold price of $480,000 on just shy of 1,300 units sold.  Our average price was $533,000 for August.

August 2021 we saw over 1,800 sales and a median price of $445,000.  The slowdown in sales activity is very obvious and anyone that tells you they haven't noticed it doesn't do enough business to have an opinion.

So, going into September.  So far on just over 250 closed transactions we have a median sold price of $450,000.  That is a pretty noticeable drop and puts us at 10% off the peak in May and just 5k over the median this time last year.  That would mean that theoretically, total blanket statement, but the median buyer of the median house last year would have a tough time breaking even on a sale today.  That's the first time this has been the case in years.  This is a very small sample size and we will see how this stat progresses.

If the above statistic is part of a trend of declining prices, like the 542 price decreases over the last 7 days also suggest, then there is some good news to that.  In 2008-2011 we fell 22% from our peak median pricing.  So we're almost half way there!  

Smarter people are invited to please complicate the overly simple point I'm about to make.  The crazy rally in real estate pricing from 2020 to 2022 was powered almost exclusively by cheap mortages.  Rates in the 2s and 3s fueled the kind of FOMO that only free money can.  Now with rates in the high 5s and 6s that FOMO is gone, afforadability is more of a problem than ever and the morning after a 2 year long rager is now upon us.

Yields on the 10 year T note are 3.31% and I'm hoping for my own sake and wallet that they pull back after the Fed speaks next week.  Usually the bond market breathes kind of a sigh of relief after the FOMC meetings.  We will see and I'll make sure to rant about it.

We've got lumber trading at just over $500/1000 board feet.  Before 2020 it traded around $300-400.  In 2021 it hit as high as $1,800.  So at least that part of the housing supply chain seems to be normalizing.  And it would surprise me to see lumber go much lower than this, maybe to like 450ish, due to the amount of M2 money now in existence.

Copper traded around $2.80 a pound before 2020 and spiked as high as $5 last year.  It is currently at about $3.50.  The cost of copper directly dictates the cost of materials for your electrician.  This drop is a welcome but double edged sword.  It's welcome because paying more for wire sucks.  It's double edged because generally when we see copper pricing falling it is a leading indicator of an economy in decline as well.

Here is something kind of crazy to consider.  Year to date we've seen interest rates on mortgages basically double.  We have seen the SP500 drop about 16%, the nasdaq dropped about 22.5%.  We're starting to see real estate pricing across the country come under pressure.  And all of this has happened while the Fed Balance sheet has gone from 8.95 trillion USD to 8.825 trillion.  Like they haven't unwound shit and we're seeing this type of fallout over basically nothing.  For perspective going into 2020 the Fed held under 4 trillion in assets.  Brave new world we're in.

Let's look at where we stand in the macro picture as we wrap up the 3rd quarter.  Total household debt is in excess of 16 trillion USD.  Of this number almost 12 trillion of it is mortgages.  This is a record.

Now it's not like complete doom and gloom because Americans in 2022 also have a record amount of over 27 trillion dollars in equity in their real estate holdings.  The negative Nancy in me though would like to point out that equity is something you only get to realize when you sell, and your equity position can change very rapidly in a changing market.  Your debt however will be there for you on the 1st of every month.

The higher cost of borrowing isn't limited to just real estate and impacts any and all businesses that need financing.  Without going too deep into it the debt squeeze tends to be bad for business and things that are bad for business are generally bad for job creation and job stability.  Our unemployment rate which is crazy manipulated still sits below 4% but did recently move up slightly showing that there may be a bit of weakness in the job market.  This is important for housing because it is super hard to get a mortgage without a job.

The Fed seems to be dead set on defeating the inflation that they themselves created and so for the next 3 to 6 months I don't expect any kind of substantial relief and/or good news to hit the housing market.  I think that 2023 is going to be a year where we truly get to struggle with affordability of housing while at the same time seeing equity fizzle and go poof.

I think we will see some kind of crazy and memorable event or series of events that will lead to a true bottom in both the stock and housing markets.  Whether that is triggered by what's happening in Europe of by something else I have no idea.  I just know that things will have to get substantially bad before we can launch the money printer on full blast again.

But we will absolutely run that printer.  Until we can't.  For now though it's attrition season baby!