Our recap of the week in numbers housing for sale and rent, financing, and construction to the many indices and measures of the economy.
In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while.
Louis Simpson, former investment manager for Geico
Housing Surrendered This Week Its Dominant Position In The News At Least Temporarily
- The data flow from housing analysts and commentators was diminished this week.
- Democrats pulled off a surprising defense of congressional seats.
- The news media was obsessed with Elon Musk’s initial moves as the new owner of Twitter.
- The implosion of cryptocurrency exchange FTX grabbed the headlines later in the week.
A respite from doom and gloom reporting about housing was welcome.
The Big No News
- Homes for sale inventory is climbing rapidly to no one’s surprise. The number of listed homes rose 33.5% in October 2022 from the prior year, according to Real Estate News.
- The median number of days on market rose 13.3% to 51 days compared to October 2021.
- Several markets saw inventory rise by more than 100%, including Phoenix (173.9%), Raleigh (167.4%), and Nashville (145%).
- On Realtor.com in the quarter ending September 2022, 60.1% of listing views were by users located outside the metro area of the listing, up from 52.1% in the same quarter of 2021. The Northeast (69%) and West (65.7%) led the search for a new home elsewhere.
- Redfin reported a similar statistic showing buyers increasingly eager to leave high-cost metro areas.
- Equally as unremarkable, buyer contract cancellations have risen sharply this year, according to a review of SEC filings by Calculated Risk.
- DR Horton, Meritage Homes, and KB Home all experienced cancelation rates above 30% in 2022 Q3.
- PulteGroup and Hovnanian Enterprises saw 24% or higher cancelation in the same time period.
- Cancelation rates were 2 to 3.5 times higher for all the major builders compared to 2021.
The Big Surprise
- Inflation for the month of October showed signs of easing, dropping to 7.7% from over 8.0% the month before, according to the Bureau of Labor Statistics.
- The portion of the CPI attributable to shelter contributed more than half to the overall number.
- The fall below 8% surprised economists and brought glee to stock investors, driving all the equities indexes and many tech stocks upward with record-breaking jumps.
- Investor enthusiasm for the surprising decline in consumer inflation buoyed the bond markets also.
- The 10-year treasury dropped to 3.82% at the close of business Thursday (Friday is a national and markets holiday) from a high earlier in the week of 4.23%.
- The 30-year mortgage dropped more steeply from 7.29% on Monday to 6.62% on Thursday.
- On a $400,000 home with 10% equity contributed, the rate drop sliced over $150 off a mortgage payment and shifted $50 of the payment from interest too principal.
- The Department of Labor reported a 7,000 count rise in new jobless claims for the week ending November 5. The 4-week average of new claims was barely changed.
Home Sales, Starts, and Financing
- The National Association of Realtors publishes annually a tome of statistics and analysis profiling home buyers and sellers over the prior year. Light reading it is not, but the NAR helps extract the conclusions it finds most interesting.
- The ratio of first-time buyers in home shopping mode dropped to 26% in the year ending June 2022 from 34% in the year ending June 2021.
- The median relocation distance of buyers jumped to 50 miles from an historic average of 15 miles.
- Black Knight released its mortgage and housing report for September 2020. Cutting through the sensational headline and declarations, we see a housing market softening modestly but holding onto substantial value gains since the inception of the Covid-19 pandemic.
- The median home price fell 0.52% less then half the decline in July and August.
- Year-over-year appreciation held above 10%.
- Prices in the 50 largest metros are still 19% to 66% above February 2020.
- The average homeowner with a mortgage has $92,000 more equity (up 46%) than before the pandemic.
- Only 3.6% of homeowners with a mortgage have less than 10% equity (including underwater homeowners).
- The South continues to lead the nation in the rise of home prices. All ten of the highest growth metros are south and east of Nashville or in Texas.
- The fallout from the housing downturn will rain on lots of former parades.
- RedFin announced the shuttering of its fix-and-flip business division and the layoff of 13% of its employees.
- OpenDoor Technologies posted a loss of almost $1 billion driven by a write down of owned-homes inventory and losses on the sale of houses in the third quarter.
Residential Rents and Construction
- As explained a bit below, rent continues to be a substantial contributor to inflation. The Federal Reserve may not be as enthusiastic about slowing the pace of interest rate increases until rent increases abate.
Other News and Data
- Investors’ hope that the Federal Reserve will lift its foot off the interest rate accelerator sparked ebullience in the stock and bond markets. The unexpectedly low overall inflation, however, was not the only relevant economic news.
- The “shelter” component of the CPI rose from September from 0.7 to 0.8, which is the highest monthly increase this year.
- The Bureau of Labor Statistics also reported that real hourly wages declined 3.4% from the third quarter of 2021.