Housing Has Fallen Off the Cliff and Will Keep Falling

July 29, 2022

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Economics

Pending Home Sales Fell 8.6% in June

New home sales are recorded at signing. Existing home sales are reported at closing. Pending home sales in June is a leading indicator of the existing home sales reports for July and August.

The National Association of REALTORS® reports Pending Home Sales Fell 8.6% in June

Key Highlights

Pending home sales declined 8.6% from May as escalating mortgage rates and housing prices impacted potential buyers.
Pending sales retreated in all four major regions, with the West experiencing the largest monthly decline.
Compared to the previous year, contract signings dropped by double digits in each region as pending sales in the West were down by nearly a third.

Existing Home Sales

Lawrence Yun, the NAR’s chief economist commented “”Home sales will be down by 13% in 2022, according to our latest projection”

I’ll take the under, way under, although that huge spike in January will help the 2022 average, albeit with diminishing impact each month.

I don’t have precise monthly numbers for the first half of 2021 but my eyeball average estimate for 2021 is about 6250. If so, the first half of 2022 is down about 8.5 percent vs the average of 2021.

Housing Synopsis

July 19: Single-Family Housing Starts and Permits Dive Eight Percent in June
July 20: Existing Home Sales Dive Another 5.4 Percent in June, Down Fifth Month
July 26: Record Number of Homes Under Construction, the Alleged Shortage Will Vanish
July 26: New Home Sales Crash 15 Percent From Original May Report, 8.1 Percent as Revised
July 27: Pending Home Sales Fell 8.6% in June (This Post)

Recession Underway

Cyclicals (durable goods and housing) tell us that a recession is underway.

For discussion, please see A Big Housing Bust is the Key to Understanding This Recession

There is no reason to expect a reversal in housing.

I believe a Recession Started in May.

This post originated at MishTalk.Com.

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44 Comments

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random

1 year ago

Is there longer term data freely available? NAR charges for data >12 months and I don’t see anything further back than that in FRED either.

Casual_Observer2020

1 year ago

More Money Supply, More Problems

by Ryan James Boyle of Northern Trust, 7/18/22

link to advisorperspectives.com

Casual_Observer2020

1 year ago

As long as there is more money chasing assets, prices aren’t going to collapse. Every time housing has collapsed in America, the FedGov steps in help it recover to even higher levels. Incomes have been rising for a fair chunk of the population as well and this has driven housing in some places in the country that were already in the stratosphere (think Seattle and Bay Area).

welcometotheshitshow

1 year ago

Reply to Casual_Observer2020

Prices are already collapsing and buyers have dried up….the era of free money is over as the FED offloads 9T. Come on man get with it!

Jerry Mander

1 year ago

You’re nuts. Millions of illegal “immigrants” swarmed in last year and a lot more than that are coming in now and they all want a place to live. Oh but, no one’s building new homes. Which means that the competition for housing is steadily INCREASING, and that ALWAYS drives prices up. Meanwhile the Fed lending rate is coming back down again, encouraging home sales.

Zardoz

1 year ago

Reply to Jerry Mander

But enough about your cockroach infestation…

JackWebb

1 year ago

Reply to Zardoz

Washington, D.C. declared itself a “sanctuary city” for illegal aliens. Now the mayor is complaining about … guess what? LOL

link to washingtonpost.com

worleyeoe

1 year ago

Reply to JackWebb

I read a headline where there’s enough people moving from CA to parts of Mexico that some of the locals are complaining and want them to go home. ROTFLMAO!

JackWebb

1 year ago

Reply to worleyeoe

Anyone who moves to Mexico City deserves the results. LOL

dtj

1 year ago

Current 30 year FHA mortgage as of today is 4.62% after peaking at 5.75% last month. That’s going to bring a whole bunch of people back into the game.

While housing in my area of New England has cooled off, homes are still going for more than asking price and decent houses are bought within a week.

The collapse around here is going to have to wait until mortgage rates go back to 6% or more, which may never happen.

shamrock

1 year ago

Mortgage rates have dropped 50 basis points in the last month and by historical standards in relation to the 10 year treasury have another 50 basis points to drop. That will goose sales for late July and August signings.

Pontius

1 year ago

Reply to shamrock

Below 5% by September, right in time for the mid terms. Orchestrated. SPR drained to lower prices, filed after election. Not the first dance for the power behind the throne.

JackWebb

1 year ago

Reply to Pontius

Won’t matter. Voters don’t trust anything that happens after the second quarter. You’ll see.

LM2022

1 year ago

Here in Los Angeles a house down the street (next to a tiny home encampment) sold last year for over $1.4m. This is in a neighborhood where houses cost 300K back in 2013. Look out below!

Christoball

1 year ago

Reply to LM2022

It is always better to buy the worst house in the nicest neighborhood, than the nicest house in the worst neighborhood. I wish them luck, they will need it.

billybobjr

1 year ago

Related to housing . Looking for a garage refrigerator to replace my very old one . Was in Lowes and went to

the appliance section and man they are really starting to mark down appliances . They were crammed full of

ref , dryers ,washers ect. You had to order and wait not many months ago . Many marked down 20% some as high as 40%.

If you are looking to add some big ticket items cars , appliances , mattress and others hang in there huge deals on the way .

I would be fine with a scratch and dent but will by new if the price gets to where i like .

TexasTim65

1 year ago

Reply to billybobjr

Trying to do the exact same thing as you are and like you, I am happy with a damaged floor model since it’s only for the garage. Hoping your right and that I can score one in the 400 range (I saw a damaged one at Lowes recently marked down from 1200 to 750 but that’s still a bit much and had more features than I needed since I am not going to hook water to it in the garage).

bobcalderone

1 year ago

Reply to billybobjr

You think there are huge deals on the way for cars? Not bloody likely anytime soon.

Tony Bennett

1 year ago

Before someone chimes in that foreign investment will save the day (maybe for a few trophy locales):

WASHINGTON (July 18, 2022) – Foreign buyers purchased $59 billion worth of U.S. existing homes from April 2021 through March 2022, an 8.5% increase from the previous 12-month period and stopping a three-year skid in foreign investment in U.S. residential real estate, according to a new report from the National Association of REALTORS®. Foreign buyers purchased 98,600 properties, down 7.9% from the prior year and the fewest number of homes bought since 2009, when NAR began tracking this data. Overall in the U.S., existing-home sales totaled 6.12 million in 2021 – the highest annual level since 2006.

link to nar.realtor

JRM

1 year ago

Reply to Tony Bennett

How many are foreign purchases near US military installations and bases???

Casual_Observer2020

1 year ago

Reply to Tony Bennett

Foreign “investment” — otherwise known as money laundering from China, Russia and elsewhere. I expect that to increase as China and Russia continue to make stupid moves to push money out of those countries. This will exacerbate the affordability issue in many desirable locales.

JackWebb

1 year ago

I am wondering when any of this will be reflected in the stock market.

worleyeoe

1 year ago

Reply to JackWebb

Per Mortgage News Daily, the 30YFRM
peaked at 6.28% on June 14th. Over the last 6 weeks. the rate has
dropped 115 basis points down to 5.13% today. At this rate, the 30YFRM could easily fall below 4% well before the end of the year. In a few more months, the decelerating housing market in terms of asking prices & sales prices, along with sub 4% mortgage rates may well put a quick end to the down housing market and continue to juice the stock market which obviously could care less about tumbling home sales.

The Fed’s choice to not sell MBS is literally & rapidly pushing down mortgage rates just like they did with their yield control QE policies from March 2019 through this past fall. I’m really starting to think the slowing economy will go away by the end of Q3. The 2.3% GDPNow estimate might be a little high, but I don’t think it will show negative. Certainly, every monthly job report is important for the next 6-9 months, but the next 2 to 3 will give us a pretty big clue how well things may or may not hold up.

I’m in the camp that says an FFR of 3.25 to 3.5% by the end of 2022 will do very little to slow down the economy and even less to inflation.

Tony Bennett

1 year ago

Count me as someone who thinks that inventory will come out of the woodwork now that everyone thinks top in for this cycle.

Exits look mighty small in crowded theatres …

Zardoz

1 year ago

Reply to Tony Bennett

Might have posted this before… has some interesting data series to explore: link to redfin.com

randocalrissian

1 year ago

Reply to Tony Bennett

Where I live warehouse space is decidedly beyond the high water mark. 1MM sf warehouse was renovating and relaunching spaces that had laid idle for storage for over a decade in the last 12 months. We had to outbid people for storage space just to make our projects work. Now that same space is almost barren and they have already scrubbed the floors clean (since they don’t have enough stored items to manage any longer, they can do busywork again). I imagine the overall national tide with warehouse space is about to roll over. Just saw an article about greater LA having 1.6BB sf warehouse spaces (150+ TSLA gigafactories worth of sf) and it’s almost all full, and nearly 40% of under construction warehouse space is already leased up for when it’s built. But how much longer until the Asian tide of junk is staunched? No more than 1-2 more quarters IMO.

Tony Bennett

1 year ago

“Housing Has Fallen Off the Cliff and Will Keep Falling”

…

Absolutely.

Bubbles don’t deflate. They burst. We’re in the midst of an Everything Bubble … so I guess housing included.

Latest existing home sales report had median house sold at $416,000

Latest median household income (2020) from Census Bureau at $67,521

I challenge bubble deniers to show me the math on how a family of 4 can afford.

davidyjack

1 year ago

Reply to Tony Bennett

There are bubbles in a select number of housing markets.

The median household income household does not afford the median house. There are many renters who will never be purchasing a house.

Tony Bennett

1 year ago

Reply to davidyjack

Yeah, I heard that before.

2006

JackWebb

1 year ago

Reply to Tony Bennett

Keep one thing in mind vis a vis 2006. We don’t have massive mortgage initiation fraud this time.

Tony Bennett

1 year ago

Reply to JackWebb

True, but median sales price back then around $245K.

Don’t know if fall will be as bad as 2008 – 2010, but Mish correct that we have a ways to go.

KidHorn

1 year ago

Reply to JackWebb

Can you say that for certain? Not Sure how we could have gotten this far along in the bubble without some bending of rules.

JackWebb

1 year ago

Reply to KidHorn

In the ’00s, the fraud was widely reported before the Panic of ’08. Is some happening? Sure. It’s a big country. All kinds of things happen, but not the widespread origination fraud of the ’00s. Nothing even remotely close to that this time. Other issues, yes. That one? Nope.

TexasTim65

1 year ago

Reply to Tony Bennett

The median household is not affording homes. They are likely to be renters. But many smaller cities are still quite affordable on 67K income.

Clearly people in San Fran or NY are not affording homes and increasingly that’s the case in many other cities too (top 20-50 metros) but out side that, people are still able to afford a home.

Also I don’t think the deflation will be anywhere near what people think. The money supply has literally doubled in the last few years so there is tons of money sloshing around even if it’s just hedge funds and rich people buying. That was not the case in 2006 because trillions weren’t dumped into the economy.

Tony Bennett

1 year ago

Reply to TexasTim65

“Also I don’t think the deflation will be anywhere near what people think.”

…

Asset deflation will be as worse 2008 – 2010. Way too much leverage in the system. As losses pile up (they will) lending will tighten. Vicious cycle.

Maximus_Minimus

1 year ago

Reply to Tony Bennett

This story is getting old. Will believe it when I see it.

Tony Bennett

1 year ago

Reply to Maximus_Minimus

Show Me The Math

Maximus_Minimus

1 year ago

Reply to Tony Bennett

My point is, it hasn’t been about logic or math for a long time.

Zardoz

1 year ago

Reply to Maximus_Minimus

Was it ever?

QTPie

1 year ago

30-year mortgage rates have been falling like a rock and may soon breach 5%. This wasn’t supposed to happen but shouldn’t be a big surprise with the Fed unwilling to sell MBSs outright. This situation may re-ignite the housing market.

JackWebb

1 year ago

Reply to QTPie

Mortgage rates are falling because we are in a recession. Employment is weakening. Don’t look for re-ignition anytime soon.

KidHorn

1 year ago

I looked on realtor.com today for my zip code. There was a house just listed that was priced, I would guess, about 30% below what I would expect. Might have been a mistake or maybe the house has a serious issue. I suspect they’ll get a lot of interest this weekend.

Dr. Manhattan23

1 year ago

Residential Investment as a % of GDP also fell a little in the 2nd quarter. I think it will only get worse. I dont think housing decline will be uniform either. Some parts of the country will experience larger declines than others

JackWebb

1 year ago

Reply to Dr. Manhattan23

Some parts of the country will experience larger declines than others

When has this EVER not been the case?

Housing Has Fallen Off the Cliff and Will Keep Falling

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