OT: Why the real estate market is not in a bubble: Q1 2023 update video added to OP

[krup]

- Inventory is actually ticking down, peaked about a week ago and were still at about 60% of 2019 inventory which at the time was a 4 decade low
- average days on market is still only 17 days, now that is up from the prior 14 days but still wildly low
- price reductions are happening on 42% of homes nationwide, above the 33% historic average

most unique market of all time. No where was it ever close to a bubble tho imo, the fundamental backdrop is just the strongest its ever been due to balance sheets, locked in rates and demographics

Some of that inventory ticking down is people who had no event compelling them to move but who were motivated to put their house on the market by the prices they heard other people in their area were getting.

Now as the realization is in that they didn’t get multiple offers over asking on the first weekend, and they aren’t going to get the type of prices they were fantasizing about, they have retrenched and will stay out of things for now.

Their taking their house off the market reduces inventory, but it also reduces demand because they don’t have to look for a property to move into.

 

[anon_0k9zlfz6lz9oy]

Some of that inventory ticking down is people who had no event compelling them to move but who were motivated to put their house on the market by the prices they heard other people in their area were getting.

Now as the realization is in that they didn’t get multiple offers over asking on the first weekend, and they aren’t going to get the type of prices they were fantasizing about, they have retrenched and will stay out of things for now.

Their taking their house off the market reduces inventory, but it also reduces demand because they don’t have to look for a property to move into.

This isnt true. Withdrawn inventory stats are not reflecting that. Contrary to popular belief, your shelter isnt treated like a stock. People dont just sell because they think its a good time

 

[anon_0k9zlfz6lz9oy]

I dont hold their same belief if rates stay this high but fwiw. My call of 0-3% yoy was under the assumption mortgage rates hovered around 5.5-5.75

 

[pmvon]

False. People were saying we are in a bubble at 5% rates haha, we are still not in a bubble. If/when prices go negative because rates hit 7-8% that is not a bubble bursting. Again, rates hit about 5.25% late july/early august and sales data was .1% off august 2021. What does that tell you?

Im data driven, youve never posted any data your time here. Not being a dick just calling balls and strikes

If rates hit 7-8 a lot more that’s going down than real estate. I think your original point that real estate was/isn’t in a bubble is a good one. Fundamentals are very good, it’s not a mirage like what most true bubbles are. Nothing can survive the magnitude and pace of this rise as rates determine the pricing for everything. When rates moved to 350 in June and the market thought it was over (wrongly) I wasn’t worried about values. At 450 and spreads gapping it’s a different story. Of course 100 bps move at
A 4 cap starting rate is a 25% decline offset by income and NOI growth which continue to be positive in almost all sectors. For now.

 

[anon_0k9zlfz6lz9oy]

If rates hit 7-8 a lot more that’s going down than real estate. I think your original point that real estate was/isn’t in a bubble is a good one. Fundamentals are very good, it’s not a mirage like what most true bubbles are. Nothing can survive the magnitude and pace of this rise as rates determine the pricing for everything. When rates moved to 350 in June and the market thought it was over (wrongly) I wasn’t worried about values. At 450 and spreads gapping it’s a different story. Of course 100 bps move at
A 4 cap starting rate is a 25% decline offset by income and NOI growth which continue to be positive in almost all sectors. For now.

If rates this high break things i do wonder when it would cause the fed to pivot. Catch 22 because if they pivot its rinse repeat all over again

 

[S_Janowski]

It isnt a bubble and wont be a bubble. We sit at 3.2 months supply nationwide. Which is flat month over month. Total inventory actually down month over month. And yes, supply and demand reign supreme. It’s the #1 stat you can look at. Disregard the arrow thats from July

essex county burbs sitting at 1.22 months supply. Luxury home market is the one that has been least effected as well

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I never said it would be a bubble and if you read what I reposted from 6/10 the point I made then is these are precedented times and the whole economy has been complete out of balance….anyone trying to take a hard stance using historical data or simple supply/demand on housing isn’t gonna tell the whole story of how this plays out.

You seem surprised rates are at 7% and are changing your stance a bit but many people in this thread aren’t surprised.

 

[anon_0k9zlfz6lz9oy]

I never said it would be a bubble and if you read what I reposted from 6/10 the point I made then is these are precedented times and the whole economy has been complete out of balance….anyone trying to take a hard stance using historical data or simple supply/demand on housing isn’t gonna tell the whole story of how this plays out.

You seem surprised rates are at 7% and are changing your stance a bit but many people in this thread aren’t surprised.

Many people in this thread threw shit against the wall haha, no one used data. And yes, I am surprised rates are at around 7.5%. In the history of the US weve never had rates on mortgages jump this fast. History typically is a good barometer to bade predictions on.

 

[RUskoolie]

But how much have prices actually come down? From 6-12 months ago.
I'm hearing not a lot, if at all in desirable neighborhoods and towns

Not yet but they're getting soft. More price reductions. Most realtors aren't too bright they don't understand economic indicators, the economy etc. I have personally been listing homes 5-10% lower than I would have 9 months ago and have encouraged my staff to do the same.

 

[RUskoolie]

Many people in this thread threw shit against the wall haha, no one used data. And yes, I am surprised rates are at around 7.5%. In the history of the US weve never had rates on mortgages jump this fast. History typically is a good barometer to bade predictions on.

I'm not attacking you but you shouldn't be relying on data. We dumped trillions upon trillions into the economy. 80% of all dollars in circulation were created after 2020. Inflation was easy to see coming, a recession was easy to see coming and the fed hiking hard and fast was easy to see coming. They won't stop hiking until inflation cools and that's not happening with our current admin who can't get out of their own way.

 

[anon_0k9zlfz6lz9oy]

I'm not attacking you but you shouldn't be relying on data. We dumped trillions upon trillions into the economy. 80% of all dollars in circulation were created after 2020. Inflation was easy to see coming, a recession was easy to see coming and the fed hiking hard and fast was easy to see coming. They won't stop hiking until inflation cools and that's not happening with our current admin who can't get out of their own way.

I saw the fed hiking. At the time this thread was started the market and the fed (not me) had the fed funds peaking around 300-325. The fed dot plot was around 300-325 peak at the time of this thread. That has obviously changed.

I’m not gonna sit here and pretend to be smarter than billion$ worth of markets setting projections and I dont think others should either. Fed funds at 325 would imply even with a fatter than usual spread on the 10Y treasury to 30 year fixed rate mortgage that mortgage rates were safe to assume they wouldnt really get above 5.75%.

 

[brgRC90]

Now is not the time to buy houses, it's the time to buy stocks/mutual funds, which have dropped a lot in the past year, more than the usual bear market.

 

[krup]

This isnt true. Withdrawn inventory stats are not reflecting that. Contrary to popular belief, your shelter isnt treated like a stock. People dont just sell because they think its a good time

That is absolutely true when prices got to the point they did recently. I personally know multiple people here in Maine who have pulled their house off the market because the price they envisioned justifying a move has escaped them, so they are just settling in to see what the next few years brings. That’s a sale AND a purchase leaving the market, you can’t just look at the supply side and ignore demand.

 

[anon_0k9zlfz6lz9oy]

That is absolutely true when prices got to the point they did recently. I personally know multiple people here in Maine who have pulled their house off the market because the price they envisioned justifying a move has escaped them, so they are just settling in to see what the next few years brings. That’s a sale AND a purchase leaving the market, you can’t just look at the supply side and ignore demand.

If youre saying there were people who were going to sell who have opted not to, sure, I agree. If youre saying people are actively withdrawing homes from the market in masses, its not true.

 

[krup]

If youre saying there were people who were going to sell who have opted not to, sure, I agree. If youre saying people are actively withdrawing homes from the market in masses, its not true.

I think it is different by individual market.

For example the tristate area has such a demand for housing because of employment that I think it is cushioned from the worst of the impacts. A market like Maine that I know, and somewhere like Boise I have only read about, had demand driven not so much by employment but people wanting a “safer”, more relaxed environment (or a second house to escape to) where houses were still very cheap compared to MA,CT,CA, etc. and you had a lot of sellers in these lesser populated states who weren’t even thinking of selling their house until they saw the crazy increase in prices they could get.

Those sellers who didn’t move in time are just retreating back to what they were going to do all along, stay in their house.

 

[Frida's Boss]

What was unprecedented was a decade long period of zero or near zero fed funds and $17 trillion, at the peak, of negative yielding fixed income instruments globally (Not to mention negative real yields on the 10 year). That truly was unprecedented and obviously unsustainable, The only question was when it would unwind and reverse. Now, to expect immediate mean reversion after a period of such loose monetary conditions. was unrealistic. When under or overvalued markets adjust, they seldom mean revert and remain. They more typically overshoot in the opposite direction, with the amount of overshoot normally driven by the magnitude of excess at the start of the process. Think of the swing of a pendulum.

on another note, I agree with the comments on Rolex watches. Many are beautiful, but they are a little too much for my taste. I do like Omegas (have a railmaster and a speed master with glass backing to watch the movement.). Great watches, better price point although they don’t have the potential to hold value over time like a Rolex.

 

[greenknight]

Another housing collapse is loomng IMO. People are overpaying for houses not by a couple bucks but by Thousands in bidding wars great for seller not great for buyers. Once recession kicks in and peeps start losing jobs bankruptcies will happen again. I forget who it was whether it be BofA or Wells that was introducing zero down...obviously nothing was learned from 2008. If you cant afford the ability to own a house you shouldnt buy a house. It is putting the buyer in a lose lose situation. It seems the market wants to go back to following the car buying method that may be ok on a 25k car but not ok on a 400k house. I see stupidity repeating itself

 

[Plum Street]

Another housing collapse is loomng IMO. People are overpaying for houses not by a couple bucks but by Thousands in bidding wars great for seller not great for buyers. Once recession kicks in and peeps start losing jobs bankruptcies will happen again. I forget who it was whether it be BofA or Wells that was introducing zero down...obviously nothing was learned from 2008. If you cant afford the ability to own a house you shouldnt buy a house. It is putting the buyer in a lose lose situation. It seems the market wants to go back to following the car buying method that may be ok on a 25k car but not ok on a 400k house. I see stupidity repeating itself

I believe credit checks and the like were more stringent this time around

 

[RU Cheese]

What was unprecedented was a decade long period of zero or near zero fed funds and $17 trillion, at the peak, of negative yielding fixed income instruments globally (Not to mention negative real yields on the 10 year). That truly was unprecedented and obviously unsustainable, The only question was when it would unwind and reverse. Now, to expect immediate mean reversion after a period of such loose monetary conditions. was unrealistic. When under or overvalued markets adjust, they seldom mean revert and remain. They more typically overshoot in the opposite direction, with the amount of overshoot normally driven by the magnitude of excess at the start of the process. Think of the swing of a pendulum.

on another note, I agree with the comments on Rolex watches. Many are beautiful, but they are a little too much for my taste. I do like Omegas (have a railmaster and a speed master with glass backing to watch the movement.). Great watches, better price point although they don’t have the potential to hold value over time like a Rolex.

Great to see you posting, Frida

 

[RUTGERS95]

I believe credit checks and the like were more stringent this time around

not really, lots of bad credit has too big a mtg

spot on Frida

 

[RUskoolie]

I saw the fed hiking. At the time this thread was started the market and the fed (not me) had the fed funds peaking around 300-325. The fed dot plot was around 300-325 peak at the time of this thread. That has obviously changed.

I’m not gonna sit here and pretend to be smarter than billion$ worth of markets setting projections and I dont think others should either. Fed funds at 325 would imply even with a fatter than usual spread on the 10Y treasury to 30 year fixed rate mortgage that mortgage rates were safe to assume they wouldnt really get above 5.75%.

Dot plots don't mean shit. They can change like the wind blows. At the end of the day the analysts on the street are mostly mid 20s and mid 30s kids who don't know as much as they think. Don't treat data that these people parrot as gospel. I was around people like this for 10 years. They're not as smart as they pretend to be.

It's history repeating in some respects. The FEDs only weapon is to raise rates and we keep printing massive CPI numbers because Biden is a total economic disaster for many reasons and everything he does pushes CPI in the wrong direction. So we keep pushing rates higher while our admin wants to crush oil and push more spending. Bad bad combo.

They will keep pushing rates higher until unemployment starts to rise.

 

[RUskoolie]

Now is not the time to buy houses, it's the time to buy stocks/mutual funds, which have dropped a lot in the past year, more than the usual bear market.

Disagree. Much better to buy with rates at 7 and get a property under asking with no bidding war, where you're in a spot to refi when rates swing back in a few years, than buy with rates 3% pay 50k over asking, can never refi out and have to pray your home appreciates in value. The people who bought in 2020 and 2021 are not going to see that value on their home for another 5 years IMO

I believe credit checks and the like were more stringent this time around

Correct, most houses being purchased are with big money down, cash. Very few FHA and VA loans.

 

[anon_0k9zlfz6lz9oy]

not really, lots of bad credit has too big a mtg

spot on Frida

Credit scores are the best ever of borrowers and delinquency rates are at all time lows. Factually speaking. Nationwide LTV 42% on average and that doesnt account for 40% of homes not even having a mortgage.
This is what I mean when I say alot of people in this thread just throw shit against the wall and pretend they know what theyre talking about without ever having looked into the data.

 

[pmvon]

Disagree. Much better to buy with rates at 7 and get a property under asking with no bidding war, where you're in a spot to refi when rates swing back in a few years, than buy with rates 3% pay 50k over asking, can never refi out and have to pray your home appreciates in value. The people who bought in 2020 and 2021 are not going to see that value on their home for another 5 years IMO

Correct, most houses being purchased are with big money down, cash. Very few FHA and VA loans.

So, better to speculate on the direction of interest rates than home price appreciation?

 

[pmvon]

Credit scores are the best ever of borrowers and delinquency rates are at all time lows. Factually speaking. Nationwide LTV 42% on average and that doesnt account for 40% of homes not even having a mortgage.
This is what I mean when I say alot of people in this thread just throw shit against the wall and pretend they know what theyre talking about without ever having looked into the data.

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Fundamentals good, capital markets bad.

 

[anon_0k9zlfz6lz9oy]

So, better to speculate on the direction of interest rates than home price appreciation?

History is usually a good teacher imo. If we are afraid to follow historical trends and norms we will never act again in our lives.

The Bottom Will Drop Out Next Year

In today’s newsletter, we discuss how rates behave once the Fed stops hiking.

www.pensford.com

 

[pmvon]

History is usually a good teacher imo. If we are afraid to follow historical trends and norms we will never act again in our lives.

The Bottom Will Drop Out Next Year

In today’s newsletter, we discuss how rates behave once the Fed stops hiking.

www.pensford.com

I would predicate your strategy on rates reversing. I wouldn’t buy assets with negative leverage and refi risk over the next 5 years. Think you should lock for 10.

 

[Knight Shift]

Pending home sales fell 10% in September, much worse than expected

Pending home sales suffered a worse decline than expected from August to September, as mortgage rates surged.

www.cnbc.com

 

[RUTGERS95]

Ouch, wells fargo mtg applications down 90% yoy and 50% reduction in all mtg and re staff on deck

On top of 6% reduction in national staff level yoy. Not good

 

[anon_0k9zlfz6lz9oy]

Ouch, wells fargo mtg applications down 90% yoy and 50% reduction in all mtg and re staff on deck

On top of 6% reduction in national staff level yoy. Not good

Mortgage apps down about 41% yoy. Mortgage apps are below 2008 levels despite having the largest demo ever at peak household formation age. Tons of demand sitting on the sidelines due to rates rising so fast.

 

[RUTGERS95]

Mortgage apps down about 41% yoy. Mortgage apps are below 2008 levels despite having the largest demo ever at peak household formation age. Tons of demand sitting on the sidelines due to rates rising so fast.

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Reading is still fundamental for you? Slow down sport, read what i posted again

 

[superfan01]

@kyk1827 I saw a lot of people become real estate agents k we the last two years. Bored Housewives, gym teachers, people who wfh all day as a side hustle. Is the broker indistry over saturated? Will the next year cleanse the market?
While this year might be bad for you would assume long term this is good if it gets alot of new agents out of market.

 

[anon_0k9zlfz6lz9oy]

Reading is still fundamental for you? Slow down sport, read what i posted again

Haha you tried to mislead people with the 90% number from one bank (notoriously the last bank anyone goes to for a mortgage fyi). I showed the total big picture. Anyway, 2023 forecasts are beginning to come out. Consensus appears to be real estate prices being about flat for the year, wild considering my 0-3% june-22 to june-23 call was based on rates being around 5.5%. The bubble calls of a 25%+ dip were always absurd. https://open.substack.com/pub/calcu...asts?r=cm5bo&utm_medium=ios&utm_campaign=post

Guys like you dont have your ear to the street here, its not your line of business. Odds are most dont even know what a rate buydown is that is having buyers get 5% rates right now. Now go fetch coffee for your boss

 

[anon_0k9zlfz6lz9oy]

@kyk1827 I saw a lot of people become real estate agents k we the last two years. Bored Housewives, gym teachers, people who wfh all day as a side hustle. Is the broker indistry over saturated? Will the next year cleanse the market?
While this year might be bad for you would assume long term this is good if it gets alot of new agents out of market.

Its been over saturated since inception of the industry haha that wont change

 

[WhiteBus]

OP is a clown on so many threads. Saying he didn't see the possibility for an increase in interest rates in his industry is foolish. That is your job. It always happens. The ups and downs in the mortgage bond market are guaranteed. Some people have no clue.

 

[RUTGERS95]

OP is a clown on so many threads. Saying he didn't see the possibility for an increase in interest rates in his industry is foolish. That is your job. It always happens. The ups and downs in the mortgage bond market are guaranteed. Some people have no clue.

aside from an inability to read, ignorance and delusion, he mostly suffers from confirmation bias

 

[pmvon]

OP is a clown on so many threads. Saying he didn't see the possibility for an increase in interest rates in his industry is foolish. That is your job. It always happens. The ups and downs in the mortgage bond market are guaranteed. Some people have no clue.

Come on. No one predicted or saw, nor is there evidence in history of this kind of rate rise. The OP was staying correctly the fundamental underpinning’s of the real estate markets are stronger than prior cycles which should buffer against rising rates. But nothing can be agnostic to this level of increasing rates.

 

[RU848789]

Many people in this thread threw shit against the wall haha, no one used data. And yes, I am surprised rates are at around 7.5%. In the history of the US weve never had rates on mortgages jump this fast. History typically is a good barometer to bade predictions on.

Past performance is no guarantee of future returns. Every financial investment statement says that and for good reason, so relying on history is not necessarily a good approach. Many of us expected the fast rises in interest rates (and they're not done), but there was no guarantee of that either - just an educated guess given the Fed's strong desire to tame inflation. Financial markets share a lot with meteorology, where using past data sets similar to current data sets as a starting point (analog forecasting) to guesstimate the future can be helpful, but it can also be horribly wrong. Prices are have started dropping in some markets and 10-20% drops from the peak are at least likely. This is not 2008, when the housing market collapse (>20% drops) essentially caused the recession, whereas the predicted housing price drops are a result of inflation and a possible recession, so hopefully we won't see more.

 

[RutgersK1d]

I know nothing about the market but in September of 2021 I refinanced down to a 20 year mortgage from my previous 30 year and knocked off a bunch of years and got a 2.75 rate. I’m happy with my small home and easy mortgage lol. Now the rates are sky rocketing.

 

[WhiteBus]

Come on. No one predicted or saw, nor is there evidence in history of this kind of rate rise. The OP was staying correctly the fundamental underpinning’s of the real estate markets are stronger than prior cycles which should buffer against rising rates. But nothing can be agnostic to this level of increasing rates.

Totally disagree. Plenty of signs starting with the pandemic. Too many people look at the stock market and real estate market as a true indication of the economy. That isn't the case. There is plenty of historical incendents of rate rises. When inflation becomes a factor rates always go up. It's the Feds favorite move and the biggest card in their deck.

 

[bryanjints]

Totally disagree. Plenty of signs starting with the pandemic. Too many people look at the stock market and real estate market as a true indication of the economy. That isn't the case. There is plenty of historical incendents of rate rises. When inflation becomes a factor rates always go up. It's the Feds favorite move and the biggest card in their deck.

Plus there was nearly a decade of the fed refusing to mess with rates. Fed kept kicking the can till they couldn't. So of course it was going to hurt when they finally raised rates.