NAHB Housing Market Index Suffers Second Biggest Drop on Record

July 18, 2022

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5:15 pm

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29 comments

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Economics

Second Biggest Drop on Record

Still Above 50 But Plunging Fast

Still above 50, which means still positive, but dropping fast with 2nd largest month-to-month drop since at least 1985. pic.twitter.com/fPOkHU7qkb

— Randy Woodward (@TheBondFreak) July 18, 2022

Second Biggest Drop in history

Home builder sentiment thread:

The Housing Market Index fell from 67 in June to 55 in July, the lowest reading since May 2020, according to the @NAHBhome and @WellsFargo. pic.twitter.com/OJMuIhTPTo

— Chad Moutray (@chadmoutray) July 18, 2022

Econoday Consensus

The housing market index has missed Econoday’s consensus every report so far this year including June’s 2-point loss to 67. July’s consensus is 66.

Only the temporary Covid-related plunge was worse. This won’t be temporary.

Understanding This Recession

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

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

For more on cyclical components including a video by Basmajian, please see Cyclical Components of GDP, the Most Important Chart in Macro

This post originated at MishTalk.Com.

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mrchinup

1 year ago

This is where you were at your best 20 years ago, so was I. Most economists are dumb as rocks, they had it all wrong back then and will do the same this time. Anyone that says you can’t get close to a bottom just doesn’t pay attention to the details. We are in a huge mess, well the entire world is this time. This ride down isn’t going to be fun for most, that’s for sure. The almost everything bubble this time.

GruesomeHarvest

1 year ago

But why won’t this housing downturn be temporary as well? Once the Fed reverses course to rescue the economy, expect zero interest rates and Fed purchases of MBSs.

mrchinup

1 year ago

Reply to GruesomeHarvest

None of this mess will be temporary this time. We are too far down the rabbit hole. Be smart, prepare for the worst. It doesn’t happen no big deal then. Shelves at Costco St George UT were good on Sat, but the shelves at Walmart were not great. Stock up just in case.

vanderlyn

1 year ago

great take mish. you nailed the last housing bust long ago. i listen to your calls. sold all my investment properties past 6 months. looking forward to buying some more in future.

JackWebb

1 year ago

I am so quotable, so I will quote myself.

“Russia and Ukraine are two cancer patients fighting over the morphine.”

“The average economist couldn’t predict the arrival of a tornado if it was 500 yards past the fence and closing rapidly.”

db_

1 year ago

Generally, I think Mish’s recession hypothesis is correct with two important caveats. One, if the last 20 years has taught us anything, never under-estimate government’s capacity to make a bad situation worse. Two, I don’t think anyone has really grasped empirically how the loss of cheap money (and it’s long-term existence in the first place) has distorted the marketplace for just about everything – including labour and CapEx. I suspect the boomer withdrawal from the labour force is a much smaller factor; the greater impact will be felt by the experience gap between Boomers and Millenials which Gen-Ex can not hope to fill. It’s not the numbers leaving the workforce; it’s the quality and experience that will be difficult to replace.

I think employment numbers don’t reflect the severity of the general problem – I notice stats that are by clearly defined sectors and by years of experience are actually quite a bit more terrifying than macro-employment/unemployment job opening stats (i.e. various transportation sectors by job description like aircraft pilots/maintenance and marine equivalents, healthcare by specialization etc.)

Outside of high-skill work? I suspect services, IT, government, retail and FIRE may experience a bit of a bloodbath in terms of employment. What net effect it will have on the recession’s intensity and/or length is anyone’s guess. QE in 2023? I’m not sure anything can surprise me anymore. OK, Harris takes over from Biden and nominates Trump as her VP… that would surprise me.

Six000mileyear

1 year ago

My neighbor is a real estate agent. She was aware of mortgage rates going up, but not the increase of cancelled offers. She did tell me of one offer that fell through due to increased rates, but thought higher rate hurt entry level buyers the least. I decided not to argue because she will soon have access to beautiful houses at bargain prices.

Maximus_Minimus

1 year ago

Reply to Six000mileyear

I’ve read that about 1% of working population worked as realtors. It was during the 1st housing bubble, so why not this biggest housing bubble ever.

How many were flipping houses, etc…

JackWebb

1 year ago

Reply to Maximus_Minimus

I’ve read that about 1% of working population worked as realtors.

Not at the same time. LOL

Nasty Edwin

1 year ago

Those that leveraged themselves up, using real estate as an inflation hedge, will realize very soon just how large of a mistake they made.

JackWebb

1 year ago

Reply to Nasty Edwin

Real estate in the U.S. has a long track record as an inflation hedge. People can make some stupid mistakes and lose, but those are exceptions to a rule that has held up for 100 years or more.

WarpartySerf

1 year ago

Reply to JackWebb

How’s that Kool-Aid taste , Jack ? Yum

JackWebb

1 year ago

Reply to WarpartySerf

I have owned and sold three houses, all at a profit. The one we are in is #4, and the land adjacent to us recently sold for double what I paid in 2016. The Kool-Aid is mighty tasty.

Captain Ahab

1 year ago

Reply to Nasty Edwin

Logic says that ceteris paribus, over time, real estate (in total) should increase in price at the inflation rate. Unique (and finite) conditions, such as location–eg waterfront property, are the exception. If real GNP (or real income) increases, like population increases, they will logically generate additions to real estate stock. Ergo, in theory, real estate will track overall inflation, not increase 25-30% in a year, unless overall inflation runs at that rate. Any excess over inflation is a bubble. It took a while, but the bubble got POPPED!

JackWebb

1 year ago

Reply to Captain Ahab

Real estate does a few points better than inflation. Remove the stupid real estate transactions, and it’s quite a bit better. Location, location, location …

JackWebb

1 year ago

I sold my Seattle house in ’17 for x. Went on the market a couple weeks ago for 1.65x. Now it’s priced at 1.5x. Meanwhile, inventory is up 52% month-over-month and 111% year-over-year. I will keep following it.

worleyeoe

1 year ago

Reply to JackWebb

My 1300 SF spec, vinyl house in Woodstock GA has appreciated 100% in four short years. That’s just fantastically stupid and worthy of a big reset.

But, I believe 30YFRM won’t move back above 6% again. They’ll drift around staying above 5.5% for most of the year, then dip below 5% early next year. If the jobs market holds up and we see a solid 10% dip in prices, then the train will probably do a 180 which is exactly what the Fed doesn’t want to happen.

BTW, I had to scold Wolf today. He’s being his usual self-righteous butt rump.

JackWebb

1 year ago

Reply to worleyeoe

I did that once, and he deleted it. No mas.

Dean_70

1 year ago

Some markets are already experiencing MOM record price drops. I believe San Jose is leading the nation so far. Annualized, their MOM drop would equate to 50% but we’ll see where this fall ends. Based on all the data coming in, which is somewhat lagging, this downturn may make 2008 look miniscule.

Lisa_Hooker

1 year ago

Reply to Dean_70

Does that mean the $25 million home dropped to $12.5 million?

Thalamus

1 year ago

I believe with the support of Blackrock and team keeping the bid warm, the low inventory of houses, and people fleeing blue cities, this interest rate rise will only flatten the growth of housing but not negatively effect prices of moderate to nicer homes. Overpriced used homes will definitely adjust to the mean.

kurtellis

1 year ago

Reply to Thalamus

almost all cities in the united states are “blue”

KidHorn

1 year ago

Reply to Thalamus

Blackrock won’t be buying much, if anything, if they think prices will be dropping. More likely they’ll be net sellers. Sell before prices drop even more.

1-shot

1 year ago

Reply to KidHorn

Blackrock and the other large SFH investment companies don’t “trade” houses like bitcoin. Their business model is to buy rental properties and rent them out for cash flow and profits. That’s like saying Hertz is going to sell all their cars because used car prices are dropping. If anything, they will buy more if prices decline.

Doug78

1 year ago

Reply to 1-shot

Hertz did sell most of their cars in 2020 because with much fewer people renting cars their cash flow would collapse. If Blackrock’s tenants can pay, stop paying or move out in the night then their cash flow would collapse too. Since they bought the houses with barrowed money and rolling over those loans will be more expensive now and in the future then at some point they would sell aggressively. No financial institution has the pockets to hold underwater inventory with borrowed money for long.

Zardoz

1 year ago

Reply to KidHorn

They’ll buy as long as they think rent will cover costs. What will be their undoing is when the vast majority of people can’t make the rent that covers those costs.

JackWebb

1 year ago

Reply to Zardoz

Rental vacancies are declining. Evict ’em. As a former landlord, nothing pisses off a landlord like late or skipped rent.

KidHorn

1 year ago

Reply to Zardoz

If they think they can buy the same property for 10% less in a few months, they’ll hold off buying. I get they rent most of their properties, but they also buy and sell properties.

JackWebb

1 year ago

Reply to KidHorn

I don’t specifically know how they’re working with residential, but I was up close and personal with the people at one of the biggest insurance companies in the country who had directed their direct investments in hotels during the 1980s. They took a beating, and I think on balance it was a loss.

Come the early-mid ’90s (’93 or ’94), when I chatted with them, they were relieved to have finally gotten out. After I left the meeting, I called someone who was quite able to pull the trigger. “Buy the hotel stocks. (Giganto Insurance) just got out.” He followed the advice, and made a pile. If houses crash and the institutions get out, that’s when to buy. LOL

If you doubt just how stupid these people are, spend a week or two watching Bloomberg and CNBC.

NAHB Housing Market Index Suffers Second Biggest Drop on Record

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