Yesterday I mentioned that sales of new homes had fallen over the past couple of years. Today the Wall Street Journal passes along the news that existing home sales have plummeted as well:
Home sales fell in September to the lowest rate in 13 years, showing the corner of the economy most weakened by high interest rates remains in decline. For all of 2023, sales of previously owned homes are on track to be the lowest since at least 2011, because increased rates are weighing on demand.
The housing market isn't declining the way it did in 2007, posing a risk to the entire economy, but it's declining enough to do some damage. Just wait.
Housing prices that are in themselves too high do damage to the economy. If they're dropping, that's not a bad thing per se.
On the other hand, it's a golden age for someone rich enough to be able to pay cash for a great house and not have a mortgage. One reason realtors in Florida are royally pissed with DeSantis and the legislature's crackdown on Chinese nationals owning property in the state.
https://www.nbcnews.com/news/asian-america/desantis-ban-chinese-homeownership-impacted-buyers-real-estate-agents-rcna119027
This isn't anything like 2007-2008. There is a fundamental economic difference between prices falling due to a glut of people who cannot afford adjustments in their ARM vs. existing homeowners who qualified as borrowers in a post-Great-Recession world who are now going to hold on to their existing home as the rise in interest rates means selling it and buying, even a cheaper home, is more expensive.
I don't know if it is a golden age for cash buyers since the inventory is so crazy low.
It depends on where your employment lies. I work in real estate and this is the worst time I have been through since I started in 1998. Employees at mortgage lenders, builders, real estate agents, title companies, etc. are being starved right now. There having been a lot of layoffs aleady. Another six months of this is going to be catastrophic for a lot of people. Yes the actual homeowners are in much better shape than 2007-2008 but a lot people in the real estate industry are teetering on the edge right now.
I can only imagine. A couple of those categories can pivot, but I don't know if, in my corner of SoCal, there has ever been fewer sales than now.
That sucks, because we actually need homebuilding companies out there putting up homes and apartment buildings and getting supply on the market. Of course if they're not sure who's going to be buying them, they're not going to put their capital at risk right now. I'm not sure what kind of incentives, either at the state or national level, could break that logjam.
Yes! I know a guy who worked in a mortgage office as a broker and most of his team was laid off a few months ago. There are far fewer houses on the market here in the DC area but because there are still more buyers than sellers houses that are appropriately priced for their size/condition/land are getting snapped up quickly - my neighborhood has had about five houses go on the market since Labor Day and most had an accepted offer in under a week, currently there's only one house for sale unless the three pending listings fall through for the sellers. Prices have ranged from $799,000 to near $900,000 for 1960s built homes, some updated some not really. I guess I will find out how the market really is soon as my siblings and I are handling the sale of my parent's house which we had cleaned up and repainted but not tricked out.
With mortgage rates at 8% and the building market catering to mini-mansions, instead of moderately sized and priced domiciles, who's surprised that fewer are buying?
This too!
This is something that zoning reform really CAN address. Making more (and smaller) units possible via eliminating SFH-exclusive zoning basically anywhere we can lowers the bar for entry into the construction market. That's doubly important when interest rates are as high as they are because it makes it harder for smaller developers to make a profit.
Pretty much zero risk of a broad housing crash. Total ARM percent of the market is much, much lower. The risk of mass default is low, assuming that unemployment doesn't go bananas.
Additionally, a much larger percentage of the GDP in 2007 was mortgage equity withdrawal (6%!). The housing market slowed down and pulled the plug on that. This time, we won't see the doom cycle.
Jerome Powell says:
To achieve our goal will "likely to require a period of below-trend growth and some further softening in labor market conditions."
The Fed really wants to crimp the economy and worker well-being. This is a key feature, not a bug.
The golden handcuffs are real. I get contacted by recruiters frequently and even 30% raise’s aren’t enough to break even after taxes and increased mortgage costs on a similar home. Almost no one can move up or down housing ladder as befits their current family size, or move for a job. We are stuck.