April housing data: some slowing but still low inventory/higher prices; real monthly payments surpass bubble peak

Submitted by Rich Toscano on May 11, 2022 - 8:51pm
I don't have too much to add to what I wrote last month, so I'll mostly stick to charts for now and refer people to last months' writeup for the color commentary.

Just a couple quick notes on April:

1. There was was a notable drop in pending sales:



2. This pushed months of inventory above last year's level (but still extremely low in the grand scheme of things):



3. Inflation-adjusted monthly payments are now comfortably above the bubble peak:




Given the lags in real estate transactions (rate locks, escrow periods, etc.), it might take some time for the full impact of the higher rates to be realized. The next couple months should be more informative on that front.

In the meantime - more graphs below and some thoughts/ranting on these valuations in the prior entry.


























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Submitted by sdrealtor on May 12, 2022 - 9:32am.

I think we’ll still have another strong month or two until we begin finding out where we’re going. Demand is definitely slowing but its impact will continue to be muted unless we get a surge of inventory of which there has been no signs of yet

Submitted by gzz on May 12, 2022 - 7:40pm.

Mortgage rates are probably at or near cycle’s peak.

1. Giant demand destruction in every rate-sensitive borrower.

2. Decreased supply of government debt. 2022 will be the single largest reduction in both US and global government borrowing ever.

3. Inflation will drop as business investment drops.

4. The wealth effect of ~15 trillion in losses in the stock and bond markets worldwide will lead to decreased spending by both businesses and consumers.

5. The massive temporary COVID transfer payments are wound down and now largely spent.

6. Mortgage/treasury spreads will decrease as refi demand is very low without a concomitant decrease in investor demand for GSE and private MBS.

I think we are still midway into a huge housing boom, and in the early stage of an energy boom.

Oil is still way below prior real price peaks, and the world economy is larger and demand is just as inelastic as ever.

I think the Saudis and Gulf states don’t like Biden (“soft on Iran” in their view) and will be disinclined to help his re-election by increasing production. They are also the only producers operating below capacity.

Submitted by bewildering on May 13, 2022 - 6:55am.

sdrealtor wrote:
I think we’ll still have another strong month or two until we begin finding out where we’re going. Demand is definitely slowing but its impact will continue to be muted unless we get a surge of inventory of which there has been no signs of yet

IIRC in 2010-11 the only people selling were deaths, divorces and debt.

The debt problem in 2008 (overstretched people, speculators) might not be so bad this time? Considering Rich's chart shows that non-investor folks are locked at historically normal monthly payment levels. No idea about investors, are they all using margin to buy up houses? will the lack of appreciation affect their portfolio and prevent further purchases.

Submitted by sdrealtor on May 13, 2022 - 7:58am.

bewildering wrote:
sdrealtor wrote:
I think we’ll still have another strong month or two until we begin finding out where we’re going. Demand is definitely slowing but its impact will continue to be muted unless we get a surge of inventory of which there has been no signs of yet

IIRC in 2010-11 the only people selling were deaths, divorces and debt.

The debt problem in 2008 (overstretched people, speculators) might not be so bad this time? Considering Rich's chart shows that non-investor folks are locked at historically normal monthly payment levels. No idea about investors, are they all using margin to buy up houses? will the lack of appreciation affect their portfolio and prevent further purchases.

Nationally I have no idea but around here I think the impact of investors is overstated. It seems that most homes were sold to people who wanted to live in them. We don’t have nearly the debt situation we had back in the bubble. As much as anyone wants to think they know what’s gonna happen this is not like the bubble and things should progress very differently. It’s hard to imagine a surge of sellers under current market conditions but inventory will still grow simply with declining demand to balance out the market. Where we go from there will just have to wait and see

Submitted by an on May 13, 2022 - 9:30am.

Given how much rent has increased (it didn't increase much during the last bubble), where would people move to if they sell? Not to mention, what a few people have been saying here already, that most of the people have locked into a 30 years fixed at a much much lower rate.

Submitted by sdrealtor on May 13, 2022 - 11:17am.

If i had to pick a wild card it would be long time owners of rental properties exiting particularly heirs of such properties. Not a huge impact but could bring some more unexpected supply. I seem to be hearing more stories from tenants that owners are selling around me

Submitted by gzz on May 13, 2022 - 3:54pm.

SDR, death rates of the elderly are probably going to get much lower the next couple years, as Covid pulled forward deaths that otherwise would have happened in 2022-2025. So we had a wave of more inheriting heirs in 20 and 21 now we’ll see the opposite.

CalcRisk is getting mildly bearish:
https://calculatedrisk.substack.com/p/wh...

Maybe he’s right for national prices, but I don’t agree for San Diego.

Submitted by gzz on May 13, 2022 - 4:06pm.

Just did a guesstimate of the effect of Covid deaths on the local market. In an average month, based on excess mortality estimates, about 70 extra SHFs were inherited by non-spouses in Sam Diego county over pre March 2020 baseline.

Of course such heirs often hold, so the effect is even lower. But as we transition from elevated to depressed death rates among seniors, that’s another small bullish factor.

It is also possible I suppose Covid could be some combination of Epstein Barr virus and permanently harm health for many and the flu that reoccurs each winter in mutated form, and permanently increases mortality.

Submitted by sdrealtor on May 13, 2022 - 9:10pm.

gzz wrote:
SDR, death rates of the elderly are probably going to get much lower the next couple years, as Covid pulled forward deaths that otherwise would have happened in 2022-2025. So we had a wave of more inheriting heirs in 20 and 21 now we’ll see the opposite.

CalcRisk is getting mildly bearish:
https://calculatedrisk.substack.com/p/wh...

Maybe he’s right for national prices, but I don’t agree for San Diego.

Maybe other places but In SD particularly up by me COVID deaths were very subdued relative to the rest of the country.

I’ve been reading CR. He’s not bearish at all he’s data based and pragmatic. I agree with his rational

He laid out three possible scenarios and put odds on each one happening. What more balanced could you ask for?

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