Morning Report: Home prices continue to decline

Vital Statistics:

 LastChange
S&P futures4,003-0.25
Oil (WTI)76.42-0.43
10 year government bond yield 3.57%
30 year fixed rate mortgage 6.37%

Stocks are flattish this morning on no real news. Bonds and MBS are flat as well.

Home prices fell 2.4% QOQ in November, according to the Clear Capital Home Data Index. It is interesting to see places like the Midwest and Northeast lead while the hottest markets on the West Coast are taking a beating. Take a look at some of the declines below:

You might see YOY declines in places like San Francisco soon. Affordability constraints actually do matter at some point.

Falling home prices have exhumed a demon from the past – negative equity. According to Black Knight, 8% of mortgaged home purchases from 2022 are now underwater. Overall negative equity numbers remain low, however.

Among FHA mortgages originated this year, over 25% are underwater, and 75% have less than 10% equity. According to Black Knight, we are seeing an increase in FHA early payment defaults. A combination of falling home prices and a possible 2023 recession will make servicing GNMA loans a nightmare.

Given affordability problems, home prices should be falling pretty dramatically, but they haven’t at least so far. Blame low inventory for that.

“We’ve now seen four consecutive months of home price pullbacks at the national level,” said Graboske. “But after a couple of significant drops earlier in the summer, the pace of cooling has slowed considerably, with October’s non-seasonally adjusted drop of just 0.43% the smallest decline yet. Though seemingly counterintuitive, the much higher rate environment may be limiting the pace of price corrections due to its dampening effect on inventory inflow and subsequent gridlock in home sale activity. While the median home price is now 3.2% off its June peak – down 1.5% on a seasonally adjusted basis – in a world of interest rates 6.5% and higher, affordability remains perilously close to a 35-year low. Add in the effects of typical seasonality and one might expect a far steeper correction in prices than we have endured so far, but the never-ending inventory shortage has served to counterbalance these other factors. Indeed, the volume of new for-sale listings in October was 19% below the 2017-2019 pre-pandemic average. This marks the largest deficit in six years outside of March and April 2020 when much of the country was in lockdown – with the overall market still more than half a million listings short of what we’d consider ‘normal’ by historical measures.

Falling home prices are affecting builders as well. In November, 36% of builders cut prices to move inventory, and 56% were offering some sort of incentive.

We are also seeing other promotional activity, including offers to pay closing costs, rate buydowns, or free upgrades.

A Reuters poll shows analysts expect home prices to fall about 12% peak-to-trough. Prices peaked in June, and have already fallen about 4% so far this year. The MSAs that had the fastest growth will probably experience the biggest declines, as we are seeing in the Clear Capital data above.

23 Responses

  1. Jacobin weighs in on Twitter:

    “The Story of the “Twitter Files” Is About Press Freedom, Not Twitter Personalities

    By Branko Marcetic”

    https://jacobin.com/2022/12/twitter-files-hunter-biden-social-media-censorship-press-freedom

    Like

  2. Good read:

    Like

    • The author of that piece comes across as a kook with some wild-ass framing. Reality Winner has some obvious mental issues going on and I hope she can get some decent treatment for them. I do think she’s right about using exercise to help fight addiction. If she ever opens an Ashram to help people, I’d donate to it as I think service like that is good for the soul.

      I wish her well and hope she succeeds in fighting her demons.

      It was a fascinating read particularly for the author’s framing so thank you for linking it!

      Like

      • Her Twitter feed is a good read too.

        The main thing I took from it was the difference in how high status “Resistance” leakers were treated vs low status ones.

        She actually bought into the Russian interference story, tried to do something about it, and found out that no one cared beyond using it to score political points.

        Like

  3. I think this is correct.

    Like

    • true. plus the left thinks the rules only apply to republicans.

      edit, and now that this behavior is acceptable for trump, it will be acceptable for all r candidates.

      Like

      • It has to be since every new Republican is worse than the last. If Trump is an existential threat to the Repbulic than all who follow will be, so no limiting factor.

        It’s over and a national divorce is a worst case scenario. My focus now is on electing local officials who will openly defy Federal law.

        Like

  4. YoY home prices in Austin are down perhaps 15%.

    Of course they had reached dizzying near Cali heights last year. Not coastal Cali, of course, but Fresno/Sacramento for sure.

    Like

  5. I think criminal referrals from a Congressional Committee have no legal effect. I may be wrong. Passing along investigative info makes sense, but Justice Department will not act based on a so called criminal referral about the subject matter of its own investigation.

    Passing info is to be encouraged, but these referrals are grandstanding, only likely to harden political lines. Future defendants both indicted and named in a referral will be able to claim politics intervened, with some credibility.

    Like

    • How can you not love it! The trial will be an epic spectacle!!

      Like

    • Mark:

      …but Justice Department will not act based on a so called criminal referral about the subject matter of its own investigation.

      Past performance is not indicative of future results. (Especially with a Justice Department as obviously politicized as the Biden/Garland justice department is.)

      Future defendants both indicted and named in a referral will be able to claim politics intervened, with some credibility.

      Sure, but claim to who and with what effect? The media won’t care or listen. Garland won’t care or listen. A DC jury made up of 95% Democratic voters won’t care or listen. Any Obama-appointed judge won’t likely care or listen.

      Perhaps you haven’t noticed, but when it comes to going after Trump or anyone in his orbit, normal rules and niceties don’t apply.

      But no more mean tweets, so all is good!

      Like

    • And to follow on what Scott said, the left will intimidate any law firm even thinking of representing him.

      It will be a Soviet show trial. Glorious for Motherland!

      Like

  6. Taiwanese’s are pulling this shit.

    In Taiwan, all men are conscripted into the military. But the period of service has been shortened in recent decades – from the original two years to one year as of 2008 and now, since 2018, to just four months.

    https://asiatimes.com/2022/12/taiwans-military-not-remotely-ready-for-a-china-invasion/

    They’re fundamentally unserious. Just like Western Europeans, they should be left to fend for themselves.

    Nope!

    https://www.politico.com/minutes/congress/12-6-2022/taiwan-is-more-important/

    Neither are important.

    Like

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