Posted on 04/04/2023 7:40:44 PM PDT by lasereye
The housing market has hit the skids, with existing home sales dropping in 12 of the last 13 months and existing home prices peaking last June.
The surge of home prices during the height of the pandemic and the jump in mortgage rates since the Federal Reserve began raising interest rates last March dampened home demand.
The 30-year fixed mortgage rate averaged 6.32% in the week ended Thursday, up from 4.67% a year ago, according to Freddie Mac.
Existing home prices fell 12% to $363,000 in February from $413,800 last June.
Don’t expect a rebound soon, say analysts from Moody’s Investors Service. “Likely increases in unemployment and a U.S. recession later this year will additionally pressure sales and prices,” they wrote in a report.
“After a surge in U.S. home prices through mid-2022, values have generally trended lower, with variations across markets.”
Prices have slumped big-time in San Francisco, Seattle, Denver, Las Vegas, Phoenix, San Diego, Portland, and Austin, they note. But values have held up better in several Florida markets and some other Southeast states.
“On a national basis, we expect home prices to decline about 4% both in 2023 and in 2024,” the analysts said.
“Risks vary across different metros and market segments, with declines from peak values of 15% to 25% or more possible in some areas.” In addition, they expect new homes sales to drop about 20% this year.
The elevated levels of home prices and mortgage rates “will likely hurt demand for several years,” the analysts said. “Home purchase affordability has plummeted to the lowest in decades, as typical payments on new mortgages have soared.”
Only 21% of homes listed for sale last year were affordable for the typical U.S. household, according to real estate brokerage Redfin. “Affordable” means that a buyer’s monthly mortgage payment is 30% or less of the buyer’s income.
If you’re looking for housing stocks, one you might consider is Toll Brothers (TOL), a luxury home builder. Morningstar assigns the company no moat (durable competitive advantage) and puts fair value for the stock at $69. It recently traded at $60.30.
“Toll Brothers prides itself on controlling an ample supply of some of the best land in the industry,” Morningstar analyst Brian Bernard wrote in a commentary.
“Premier land inventory, combined with luxurious, customizable designs, allows the company to charge industry-leading average selling prices among [publicly-traded] peers.”
Bernard sees three factors boosting Toll Brothers:
The explanation is that the market believes the Fed has finished raising their interest rate.
I don’t agree—but the market does not care what I think.
;-)
Traditional rules of finance no longer apply, money is power and they want it all.
I didn’t have to read the article.
Low interest rates. Low home prices.
What’s not to like for the new homeowner.
Opportunity even in a “Bad” economy is for the brave, and smart.
C’mon man. You are the market.
General comment: basic macroeconomics: increasing interest rates lead to decreasing asset values.
The Fed ain’t done raising interest rates, they may go on a hiatus later this year, but inflation will bounce back and the Fed will be back at it. This will continue until our government stops spending an extra trillion per year without matching revenues.
I agree with your post—I think that is exactly how it will play out...
One reason I am convinced of that is that the Fed is now giving out money to any banks that need cash.
This is like giving heroin to addicts—you know how it has to end.
Single-family housing prices have recovered and started increasing again where I live.
There was a segment on Fox News last Thursday talking about housing stock prices hitting new highs. It is puzzling, indeed.
Single-family housing prices have recovered and started increasing again where I live.
An engineer and a physicist are in a hot-air balloon.
After a few hours they lose track of where they are and descend to get directions.
They yell to a jogger, “Hey, can you tell us where we’re at?”
After a few moments the jogger responds, “You’re in a hot-air balloon.”
The engineer says, “You must be a mathematician.”
The jogger, shocked, responds, “yeah, how did you know I was a mathematician?”
“Because, it took you far too long to come up with your answer, it was 100% correct, and it was completely useless.”
Was sitting with some loan managers of my not-small regional bank yesterday at lunch.
They are all waiting for a default “shoe to drop,” particularly in commercial real-estate.
Better get more illegals in and stuff them in to empty houses owned by politically connected “charities.”
some of this could stem from the nature of the spring season, where buyer demand is always stronger than at other times of the year.
But taxes won’t. I’ve already been though this. Assessments go down, so taxes go up. Assessments go upward, taxes don’t, but then assessments go up, so taxes go up.
either home prices fall dramatically or rents have to go up dramatically.
I am betting rents go up dramatically, because homes can’t go down without a massive amount of people defaulting.
Fed will go 25 more basis points.
As far as the stock market goes, it is following Apple and Microsoft.
AI is the driver.
If I take my handy dandy HP 12C app, the monthly pmt on $100,000 home with a 30-year @5.25% is $553. That same monthly pmt with a 6.25% rate will buy you $89,717 of home, or a 10.28% decline.
Thus, as you said, increasing interest rates lead to decreasing asset values.
The Dims here in northern Virginia have it all figured out. Housing assessments go down, raise property taxes. Housing assessments go up, raise spending.
Seattle is mentioned specifically as having lower values, but houses in the areas around Seattle appear to be going for more than they were last year at this time. In inflation adjusted dollars they would be lower, but the article does not mention this.
Never saw it that way.
I want to buy a house and can afford one....but I’m not going to buy until prices come down a good bit. They ran up 66% here in two years. Meanwhile, mortgage rates jumped 5-6% too. What 2-3 years ago would have been about a $1500 monthly mortgage payment would now be an almost $3K monthly mortgage payment for the exact same house! Forget it. I’d be a fool to lock myself into that. I know several other people like me who are sitting on the sidelines as well. We all know a lot of the air has to come out of this balloon sooner or later.
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