Is the housing market finally coming down? | The Real Estate Bubble

June 8, 2022

Is the housing market finally coming down? | The Real Estate Bubble

There’s so much that’s happening every day regarding the economy and real estate.

Today, I have some data from Altos Research and a couple of other articles talking about the latest updates in the market.

Now, I want to clarify that this is just my opinion based on the facts I saw during my research. I could be wrong, or I could have missed some things.

If you have opinions that differ from mine, I’d love to hear them, because I am always willing to learn and see other possibilities I might not have considered. So, if you want to start a discussion, reach out to me on my socials. I love hearing from you guys.

But it is crucial to have our speculations grounded firmly on hard data because there are still alarmists out there claiming that the housing market is going to crash but having no facts to back those claims.

So, let’s look at today’s news.

Real estate is cooling down

The first thing I want to talk about is this article from Axios, called “The real estate frenzy is over.”

Is it really over, though?

This is what the article says in regards to why it’s over, or at least the “frenzy” part.

According to the article, “‘The buyers just stopped buying,’ said Shauna Pendleton, an agent with Redfin in Boise, Idaho, until recently one of the hottest markets in the country. ‘Californication,’ as she called it, drove an influx of buyers from the West Coast, flush with cash courtesy of the also formerly booming stock market.”

Real estate is more expensive in California, so if you cash out over here, you buy anything in cash over there [at Boise].

These are the examples Shauna cited to prove what she meant when she said the buyers just stopped buying.

“Some listings now sit for weeks without even a showing,” she said, “like this 4-bedroom priced at $899,000; 42 days without a look-see.”  

That’s interesting to note. The unit is 42 days old in the market when the average days on market is about 17 to 18 days.

Another example, according to the article, “In the Dallas/Ft. Worth area, Redfin agent Robin Glaysher said five people showed up to an open house last weekend; previously there would've been a line out the door.”

That’s true. We’ve seen the market in Dallas slowing down for quite some time now.

“It's a completely different market now," said Glaysher, who works with homes priced around $400,000. The change is a boon for some buyers — like those relying on FHA loans that require only 3.5% down, she said. In the old times they were often outbid by cash buyers, who have now vanished.” (Source: Axios)

This is important to take a look at.

But the above-cited is only one aspect—it’s a very isolated and one-dimensional look at only the places struggling to sell homes.

If you do a quick Google search to look at other areas, to see a bigger picture, the results will show you a different story of what’s happening. It is more of a mixture.

Different things are happening all over the US. Real estate investors are crowding into Columbus. You’ll see Florida is still a hot market, as well as parts of California and New York.

It’s a mix. Yes, there are areas, like Dallas, Ft. Worth, and Boise, that have markets that are slowing down. And some areas are still growing.

It is worth noting the areas that seem to be struggling, but don’t lose the big picture and think a small sample is representative of the US housing market as a whole.

Remember, real estate is regional. The data shows some markets are starting to cool, but it does not tell us there is a bubble or a crash. At least not yet.

Is there an oversupply in inventory?

Data is important, so let’s take a look at what Altos Research has for us. I’m going to link the graphs here, so you can check them out. You can also follow them on different social media platforms. They have good data about real estate.

According to their research on the total inventory of single-family homes for sale in the US, you’ll see an uptick for May 2022 of about 8% week over week. That is a lot of unsold homes.

Some people would start freaking out and say, “What just happened? There’s a massive spike?”

We need to understand–because a lot of people are speculating whether there is an oversupply of inventory in the market right now. A lot of those data points are older—from April, sometimes March. This data shows us an exact glimpse of what’s happening as of last week.

Most of the time, what happens this month won’t be clear to us until next month. That’s why I love this data from Altos Research.

They also expounded on the weekly inventory, and you will see the weeks when there was an influx of homes and the weeks that there weren’t enough homes. What I did notice was the highest spike in the number of homes from January 2022 to now was 26,181 homes.

But, comparing it to data from 2016 and the years before the pandemic, there was also a spike in inventory around the same time for those years.

There is no need to panic. Based on the trend, it just looks like 2022 real estate is heading towards a normal (pre-pandemic) market.

Real estate is also cyclical, and this year, we are seeing what typically happens in May, June, and July of a normal market. That’s also why we’re still seeing demand in a lot of areas as well.

Altos Research also showed the weekly new inventory of single-family residential homes, and how many of those new listings were immediate sales.

Compared to May last year, immediate sales of new listings just dropped 2% (from 26% in May 2021 to 24% in May 2022). It’s a slight decline in immediate sales.

And looking at the median home list prices, we were at $340,000 when the pandemic hit, and now the median price is $443,000 for this summer’s plateau. And new listings are coming in at $429,900.

Some people are saying that the market grew way too fast and that we’re due for a dip. But the demand is still there. Interest rates at 5.5% to 6% aren’t crazy rates for these prices. We just have to wait and see what happens with the economy, unemployment, and everything else.

Price reductions are happening?

Altos Research also showed the percentage of properties with recent price reductions, comparing trends from 2016 to 2022. This week in May, 21.7% of homes reduced their prices.

And some people will freak out, saying, “That’s what I’m looking at! All of a sudden, the prices are going down. One-fifth of houses are reducing prices. The market’s going to tank now.”

Chill. Looking at the trend from 2016 to 2019, it is usually around May when price reductions slowly start increasing. In 2018, it even peaked at 37.2%. The average price reduction is typically 30%, and we’re not even there yet.

Some people talk as if they know what is going on. But the truth is, none of us can be sure of these things. Even the pros—all they do is speculate and make forecasts based on the statistics they are seeing. But they can’t predict if something drastic will happen tomorrow that will change the market overnight. That’s why I am following the data and the news.

If you listen to the alarmists, hearing that there is a spike in price reductions and there is an influx of new homes, but the sales are dipping, you might think they are right and the market is going to crash.

But if you look at the data, especially comparing the statistics before and after the pandemic, what you’ll see is that the trend for 2022 is slowly following trends from normal markets before the pandemic hit.

What I see is that the housing market is finally slowly easing back into normal. As long as nothing freaky happens, like when the pandemic hit, then I don’t think the real estate market is in any immediate trouble.

There is no bubble. There was no crash.

From where I stand, I see that for most markets, it will be pretty easy. Some markets might be hit a little harder than normal. But overall, we’re still in a safe place.

Leading indicator to watch: Purchasing Index

If you look at the purchase vs. refinance index in this Mortgage News Daily article, there was a dip in purchases this week. From a purchasing index of 255.4 in the week of May 11th, we went down to 225 in the week of May 18th, and although there is a bit of an uptick, 225.4 for the week of May 25th, it’s still low.

Now, this is a challenge. If this remains low, then this could be an indicator of where we’re heading.

Not only is the median home price high at $440,000. On top of that, interest rates could go up. Although they are saying that all the times the Fed is going to meet and increase the rate are already baked into the current mortgage rates, so we won’t be seeing much of a jump in the mortgage rates.

We should be fine. The Fed’s job isn’t to destroy the housing market—hopefully.

As people get used to the new prices and rates, we should be seeing the purchase index go up a little bit.

Let’s keep an eye on that because it is a leading indicator.