September 2022 housing data: inventory ticks up a bit, prices drop a bit

Submitted by Rich Toscano on October 17, 2022 - 7:58pm

I don't have much to add to the title, so I will leave it at that.

Oh actually one thing I want to note: the 30-year mortgage (per FRED) averaged 6.1% in September, so that's what's reflected in the monthly payment related charts. As of last week, the mortgage rate was up to 6.9%. So that's going to put further upward pressure on monthly payments, unless rates drop pretty hard at this point.

OK, carry on. Charts below.































(category: )

Submitted by bibsoconner on October 18, 2022 - 6:54am.

Please make sure you post something in all CAPS when PRICES HIT BOTTOM and I should buy a rental property. I'm not unreasonable. I'm not looking for you to call the exact day when prices are at a minimum. A one week time period will be sufficient. Meantime, I'll keep reading your articles with great interest. Seriously, I should have bought when you did!

Submitted by evolusd on October 18, 2022 - 1:52pm.

Have been patiently waiting for this update. It's like turning a ship...will be very interesting to see how things look in 6-12 months. Thanks for the update, Rich!

Submitted by sdrealtor on October 18, 2022 - 10:07pm.

evolusd wrote:
Have been patiently waiting for this update. It's like turning a ship...will be very interesting to see how things look in 6-12 months. Thanks for the update, Rich!

Nah the ship turned fast its just the data and reporting that take time to turn

Submitted by an on October 19, 2022 - 3:50pm.

The most interesting chart for me is the monthly payment chart. Given how most home buyers borrow money to buy, that chart is more important IMHO than the price of the home. With rates going bonkers, which drives up monthly payments to a level we haven't seen since maybe the stagflation era of the late 70s, yet prices haven't cratered. The biggest question is why? What's even more interesting is, not only did it not keep on crashing, it actually reversed.

Submitted by Pbranding on October 19, 2022 - 9:57pm.

Once supply increases (which I think it will), things are really going to go south fast.

Submitted by an on October 19, 2022 - 10:54pm.

Pbranding wrote:
Once supply increases (which I think it will), things are really going to go south fast.

Why would anyone sell right now, unless they have to.

Submitted by sdrealtor on October 20, 2022 - 7:53am.

Pbranding wrote:
Once supply increases (which I think it will), things are really going to go south fast.

Nah I think the worst is over. They already went “south fast”. If you were out there actively shopping you’d realize that prices adjusted quickly. Give the data time to catch up. There will be more declines but there is no additional south fast coming around here. Just not seeing that in data

Submitted by Pbranding on October 20, 2022 - 8:19am.

an wrote:
Pbranding wrote:
Once supply increases (which I think it will), things are really going to go south fast.

Why would anyone sell right now, unless they have to.

Well heading into a recession, increasing number of people will “have to”. Also, not unreasonable to try to capture whatever equity you’ve been able to build especially if you believe things will look worse for several years.

Submitted by Pbranding on October 20, 2022 - 8:26am.

sdrealtor wrote:
Pbranding wrote:
Once supply increases (which I think it will), things are really going to go south fast.

Nah I think the worst is over. They already went “south fast”. If you were out there actively shopping you’d realize that prices adjusted quickly. Give the data time to catch up. There will be more declines but there is no additional south fast coming around here. Just not seeing that in data

Respectfully disagree. The data is still based on lower interest rates and months behind. Until interest rates start trekking back down I don’t think you can say the worst is behind us. Also the recession hasn’t really impacted employment yet but I think it will.

Submitted by sdrealtor on October 20, 2022 - 9:59am.

Pbranding wrote:
sdrealtor wrote:
Pbranding wrote:
Once supply increases (which I think it will), things are really going to go south fast.

Nah I think the worst is over. They already went “south fast”. If you were out there actively shopping you’d realize that prices adjusted quickly. Give the data time to catch up. There will be more declines but there is no additional south fast coming around here. Just not seeing that in data

Respectfully disagree. The data is still based on lower interest rates and months behind. Until interest rates start trekking back down I don’t think you can say the worst is behind us. Also the recession hasn’t really impacted employment yet but I think it will.

That’s my point! What’s closing today and even more so happening out there pricewise already reflects a retreat back to the end of last year. Gonna take a while for data to reflect that reality. Throw another 10%ish nominal decline on top of say 20% inflation over what will be the last 3 years and we’ll be back where we should be in real terms. Not Armageddon but back to balance. That’s what matters

FWIW sitting where i do and looking at real time data the way i do gives me a really good feel for these things. I think my track record of predictions shows that pretty clearly

Submitted by an on October 20, 2022 - 11:51am.

Pbranding wrote:
an wrote:
Pbranding wrote:
Once supply increases (which I think it will), things are really going to go south fast.

Why would anyone sell right now, unless they have to.

Well heading into a recession, increasing number of people will “have to”. Also, not unreasonable to try to capture whatever equity you’ve been able to build especially if you believe things will look worse for several years.


Why would you sell? Where would you live? It is easier to keep a roof over your head by renting out the other rooms and potentially live there for free while you're unemployed. You've locked in extra low rate and housing cost for the next 30 years while rent is going bonkers. Also, if you sell, who will rent it to you if you have no job? Unless you think all these people will sell and be homeless or sell and buy in a much cheaper place for cash? No bank will loan to you if you have no job.

Submitted by sdrealtor on October 20, 2022 - 12:34pm.

FWIW for anyone that says no one would do that, I had clients that were in late 50's during last downturn. They lost their jobs and lived in a nice 5BR 4,000 sq ft. They had 2 or 3 tenants renting rooms for a few years to get them through it. Once prices recovered enough they sold and retired. With rates as low as they were the last few years they would have been in a far stronger position to get through it but they made it anyway. People will do what they have to to keep what they have here

Submitted by pluto on October 26, 2022 - 4:51pm.

Hey Rich, do you think that it may be time to call the housing market as being frothy? Considering the serious reversals in sales and inventory, coupled with monthly payment on par with the last downturn.

Submitted by Rich Toscano on October 28, 2022 - 5:59pm.

bibsoconner wrote:
Please make sure you post something in all CAPS when PRICES HIT BOTTOM and I should buy a rental property. I'm not unreasonable. I'm not looking for you to call the exact day when prices are at a minimum. A one week time period will be sufficient. Meantime, I'll keep reading your articles with great interest. Seriously, I should have bought when you did!

That one was a lucky shot, I'm afraid... I do however remind my wife of it on a regular basis. :-)

Submitted by Rich Toscano on October 28, 2022 - 6:03pm.

pluto wrote:
Hey Rich, do you think that it may be time to call the housing market as being frothy? Considering the serious reversals in sales and inventory, coupled with monthly payment on par with the last downturn.

I'm not sure what that question means... are you asking whether I think housing was in a bubble? The answer is no, I do not, and did not think that -- I thought housing was very overpriced and very risky, but not a bubble in the "irrational mania" sense. Much more on that topic here: https://pcasd.com/whats-going-on-with-ho...

Basically there was a lot of interest rate risk embedded in house prices; what we are seeing is that risk coming to the fore. That's different from a bubble in my view.

Submitted by Pbranding on October 28, 2022 - 6:23pm.

Rich Toscano wrote:
pluto wrote:
Hey Rich, do you think that it may be time to call the housing market as being frothy? Considering the serious reversals in sales and inventory, coupled with monthly payment on par with the last downturn.

I'm not sure what that question means... are you asking whether I think housing was in a bubble? The answer is no, I do not, and did not think that -- I thought housing was very overpriced and very risky, but not a bubble in the "irrational mania" sense. Much more on that topic here: https://pcasd.com/whats-going-on-with-ho...

Basically there was a lot of interest rate risk embedded in house prices; what we are seeing is that risk coming to the fore. That's different from a bubble in my view.

In the article above, you write “If the inflation-worriers turned out to be right, and rates broke above their pre-pandemic range, perhaps mortgage rates might rise to 6%… To offset the affordability hit from a 6% mortgage rate, home prices would have to drop by 30%.” Now that we’ve passed 6%, and at 7% do you envision a 30%+ price decline?

Submitted by an on October 28, 2022 - 7:06pm.

Pbranding wrote:

In the article above, you write “If the inflation-worriers turned out to be right, and rates broke above their pre-pandemic range, perhaps mortgage rates might rise to 6%… To offset the affordability hit from a 6% mortgage rate, home prices would have to drop by 30%.” Now that we’ve passed 6%, and at 7% do you envision a 30%+ price decline?

In October 2021, small 3/2 houses in Mira Mesa were in the high 700k. If we see a 30% decrease, those houses should be in the mid to high $500k range. I sincerely hope that Rich is right. Right now, those houses are going for mid to high 800s.

Submitted by Rich Toscano on October 28, 2022 - 7:17pm.

Pbranding wrote:

In the article above, you write “If the inflation-worriers turned out to be right, and rates broke above their pre-pandemic range, perhaps mortgage rates might rise to 6%… To offset the affordability hit from a 6% mortgage rate, home prices would have to drop by 30%.” Now that we’ve passed 6%, and at 7% do you envision a 30%+ price decline?

No, that was not a prediction about prices, it was just meant to illustrate the huge impact that rising rates could have, given how low rates had gotten. There are multiple ways for monthly payments to get more affordable, of which outright price declines are just one. The other two being an increase in fundamentals (rents/incomes), and rates declining. I am guessing it will be a combination of all 3.

Submitted by Rich Toscano on October 28, 2022 - 7:18pm.

an wrote:
If we see a 30% decrease, those houses should be in the mid to high $500k range. I sincerely hope that Rich is right.

I did not predict a 30% price decline; see my comment above.

Submitted by Rich Toscano on October 28, 2022 - 7:33pm.

PS I'm not ruling it out either; I just think it's futile to predict nominal price changes if we don't know the future path of the other two factors (rates, and nominal rents/incomes).

FWIW a 30% price decline would take us back to pricing only 2 years ago, Oct 2020. That just goes to show how crazy the last couple years were.

Losing 2 years' worth of appreciation (less actually as the peak was a few months ago) doesn't seem particularly implausible to me, generically speaking. There are a couple good counterpoints this time around.

- First, there was likely a one time step-up in the fair value of home prices, due to the remote work revolution. It's unclear how much of the rise was due to that.
- Second, inflation has raged during that time, so there's been unusual growth in incomes/rents.

There's also a good counter to the counter: two years ago, 30 year rates were 2.8%. Now they're over 7%.

Anyway these are just idle musings, I guess the point being to illustrate that a 30% decline isn't actually a crazy forecast. But I'm not making that forecast. Again, there are 3 moving parts here: nominal prices, fundamentals, and rates. You can't predict one without knowing what the other two will do. (And even if you did know that... it's still pretty hard).

Submitted by an on October 28, 2022 - 9:00pm.

I fully agree with what you said Rich. I'm 100% happy with price dropping or rent rising to the same rent vs PITI as it was 1-2 years ago. Only time will tell which of the 3 we'll get. I don't expect rates to go down in the next year, so, let's see which will happen over the next year.

For some context, small 3/2 house in MM PITI was about 5-10% above rent last year. So, the same house today has a PITI of ~$5600/month. The rent of a similar house is currently $3800/month. So, rent would have to rise another 32% to get back to the same rent vs PITI ratio as it was a year ago.

So, either rent increase by ~30% or price dropping by ~30%...

Submitted by sdrealtor on October 28, 2022 - 10:21pm.

So the interesting thing is during the last bubble I thought worst-case scenario around me was 30% decline and that we would get less and we did. That’s because the big percentage gains came at the beginning when prices were lower. This time I pretty much guarantee that 30% declines are in the bank. That’s because the big gains happened at the end when prices were higher. It’s all about math and the later gains being easier to concede

Submitted by an on October 28, 2022 - 11:52pm.

sdr, I'm talking about 30% from here, not 30% from peak. If we're taking about from peak, it would have to be 50% at today's rate.

Submitted by sdrealtor on October 29, 2022 - 8:27am.

Agree 100%

Submitted by drboom on November 2, 2022 - 1:51pm.

sdrealtor wrote:

FWIW sitting where i do and looking at real time data the way i do gives me a really good feel for these things. I think my track record of predictions shows that pretty clearly

You're looking at consumer/retail buyers, but that's not who will move the market this time around.

The past decade has seen a ton of investment/speculation buyers, including big funds and corps, and they don't act like consumers.

I've been watching for a rush to the exits by this group for years, and now I'm seeing signs of it in the financial press.

Submitted by sdrealtor on November 2, 2022 - 3:32pm.

drboom wrote:
sdrealtor wrote:

FWIW sitting where i do and looking at real time data the way i do gives me a really good feel for these things. I think my track record of predictions shows that pretty clearly

You're looking at consumer/retail buyers, but that's not who will move the market this time around.

The past decade has seen a ton of investment/speculation buyers, including big funds and corps, and they don't act like consumers.

I've been watching for a rush to the exits by this group for years, and now I'm seeing signs of it in the financial press.

Meh. I’m talking about around here and they are not big players here. real estate is local to a large extent

Submitted by drboom on November 2, 2022 - 5:13pm.

sdrealtor wrote:
drboom wrote:
sdrealtor wrote:

FWIW sitting where i do and looking at real time data the way i do gives me a really good feel for these things. I think my track record of predictions shows that pretty clearly

You're looking at consumer/retail buyers, but that's not who will move the market this time around.

The past decade has seen a ton of investment/speculation buyers, including big funds and corps, and they don't act like consumers.

I've been watching for a rush to the exits by this group for years, and now I'm seeing signs of it in the financial press.

Meh. I’m talking about around here and they are not big players here. real estate is local to a large extent

In God We Trust. Everyone Else Bring Data:

https://www.sandiegouniontribune.com/bus...

Submitted by sdrealtor on November 3, 2022 - 8:25am.

Meh I’m the only one here who brings that level of data. The cash rich investors are mom and pops that hold homes as long term passive income or flippers that get in and out quickly. There are few if any large investor groups with significant portfolios of investment homes here. They just don’t exist to even a moderate level and won’t have an impact on our market. Other things have and will

Submitted by sdrealtor on November 3, 2022 - 11:36am.

From a call I was on today. An incredible 89% of everyone with a mortgage in California has a fixed rate of 5% or lower. Unbelievably 71% have a rate of 4% or lower. Nearly a third, 29% have a rate of 3% or lower (Im one of them). As a result of rates at around 7% today, more and more homeowners are opting to not move. They are "hunkering down"

Submitted by drboom on November 6, 2022 - 11:49am.

sdrealtor wrote:
Meh I’m the only one here who brings that level of data.

You haven't done so here. That which can asserted without evidence can be dismissed without evidence.

Now, is there something wrong with either the U-T's data or analysis? They gave some detail on both.

As for your other post, people can hunker down for only so long. These arguments for the alleged upward stickiness of real estate prices aren't any more persuasive in 2022 than they were in 2005/6--or the early 90s, for that matter.

Just like the stock market, assets are valued based on the sale of other similar assets. If a small fraction of owners decide to bail at the same time, it will represent a large fraction of price movement and will have ripple effects throughout the economy.

The fact that the sales in question do not represent someone looking for another place to live (because they are investments) means more "retail" inventory is being added to the market and thus further depressing prices.

The coming recession will just add to all of this.

But by all means, present data to the contrary since that's what this site is all about.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.