Originally published on April 20, 2022 by TraderStef at CrushTheStreet
Estimates on the value of my single-family home have doubled since purchasing it four years ago in an all-cash deal. My personal situation back then was atypical, and I consider myself incredibly blessed to be living without a mortgage debt obligation. There are more all-cash sales now vs. when I shopped for the perfect girl cave, but they’re still lower than during the aftermath of the Great Financial Crisis.
Existing-Home Sales Report… “Individual investors or second-home buyers, who make up many cash sales, purchased 18% of homes in March, down from 19% in February but up from 15% in March 2021. All-cash sales accounted for 28% of transactions in March, up from both the 25% recorded in February and from 23% in March 2021. With rising mortgage rates, cash sales made up a larger fraction of transactions, climbing to the highest share since 2014. – NAR, Apr. 20
My abode is modest and was bought with plans to upgrade into a larger property in the not-too-distant future rather than taking on a burden of debt for a bigger home and downsizing later to less square footage with ample acreage. The dilemma of my unrealized gain vs. a bubblicious upgrade in the current market is that any realized gain will be negated due to the pandemic’s diaspora effect of rising prices in my exurbian slice of mountainous heaven.
“Almost half of buyers (44%) describe the area where they bought as suburban; 38% say they bought in an urban area, and the remaining 19% say they bought in a rural area.” – Zillow, Sep. 2021
If I owned a much larger house that was debt free, downsizing to fewer square feet and more acreage would be profitable right now. Such is life. Real estate truly is local, but the underlying circumstances with anyone seeking a home will have them buy and sell based on need without considering it as an investment. While on the topic of investment properties, large investment firms (like iBuyers) have been on a buying spree for years to convert single-family homes into rentals. That variable in the mix is outbidding homebuyers in a housing market that’s already overpriced and cursed with record-low inventory.
Homeowner Groups Seek to Stop Investors From Buying Houses to Rent… “Investor purchases have been rising in recent years and accounted for more than one in five home sales in December, according to housing research firm CoreLogic. Their effect on the housing market and local neighborhoods has become a hot-button issue across the country. Home prices have also risen at historically high rates during the pandemic, and would-be buyers say they have a hard time competing with companies that pay in cash.” – WSJ, Apr. 18
Record high house prices weigh on U.S. home sales… “U.S. home sales dropped to the lowest level in nearly two years in March as house prices raced to a record high, and could decline further with the fixed 30-year mortgage rate hitting 5%. Even with home sales falling back to their pre-pandemic level, the housing market remains hot. Houses sold in March typically stayed on the market for only 17 days and the share of all cash sales was the largest in eight years, the report from the National Association of Realtors on Wednesday showed.” – Reuters, Apr. 20
As economic conditions and monetary policy impact the socioeconomic spectrum that was covered in the “Growing Risk of Recession as Bread and Circuses Distract the Plebeians” Part 1 and 2, it’s no wonder that homebuyer sentiment has plunged to a record low.
National Housing Survey… “On net, the ‘Good Time to Buy’ component set a new survey low, with 73% of respondents reporting that it’s a bad time to buy a home. Year over year, the full index is down 8.5 points. The ‘Good Time to Buy’ component of the index reached yet another record low, with high home prices, rising mortgage rates, and macroeconomic uncertainty serving as consumers’ chief concerns… Only 24% of consumers believe it’s a good time to buy a home, with similar levels of pessimism expressed by nearly all of the demographic groups surveyed,” – Fannie Mae, Apr. 7
Consumer Pessimism Regarding Direction of Mortgage Rates Hits New Survey High… “If consumer pessimism toward homebuying conditions continues and the recent mortgage rate increases are sustained, then we expect to see an even greater cooling of the housing market than previously forecast.” – Fannie Mae, Apr. 7
“Mortgage Purchase Applications DOWN 14% From Same Week Last Year, Refi Applications DOWN 68% (Yet Fed Still Has Its Huge Foot On Monetary Gas Pedal). This One’s Gonna Hurt You For A Long, Long Time.” – Confounded Interest, Apr. 20
Automated trading platforms in the financial industry misinterpreted yesterday’s legacy media headlines on housing starts as bullish. It was actually bearish.
The American Dream Is Dead… “US stocks decided to stage a hefty rally yesterday ‘because stocks’. That’s not that unusual for said market, but the excuse for why this happened was intellectually lazier than usual. Apparently it was housing starts data that did the trick at 0.3% m/m rather than -1.6% expected. If so, we hardly have firm foundations for such optimism. First, it’s a volatile series. Second, builders reported soaring prices for the stuff needed to construct homes across the board. Third, starts of single-family homes –you know, the American dream– were -1.7% m/m, while starts of multi-family units –you know, the American nightmare– were up 7.5%. In short, fewer houses and far more luxury condos and low-end rental housing to squeeze all the people into who, despite living in a land with nothing but land, can no longer afford a home. But these rental units will be owned by Wall Street. And it’s a one-way street, as The Hill reports ‘More Americans losing confidence they will ever own a home’: NY Fed survey found only 43.4% of renters believe they’ll ever own a home, the first reading below 50% in the survey’s history.” – Michael Every at Rabobank
What’s brewing is a serious affordability issue with skyrocketing prices that are traveling straight into a massive trainwreck. It will make my next purchase of a single-family home with acreage more affordable, but timing will be tricky.
Demand Slips, Pushing More Sellers to Drop Asking Prices… “Early-stage homebuying demand continues to falter this spring as new listings fell 7% from a year earlier, the average 30-year fixed mortgage rate shot up to 5%, and the median asking price climbed to $397,747, sending the typical homebuyer’s monthly payment up 35% year over year to an all-time high of $2,288… We’re also closely watching the accelerating share of home listings with price drops, which is climbing at its fastest spring pace since at least 2015, another sign that demand is not meeting sellers’ expectations.” – REDFIN, Apr. 14
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