The National Association of Homebuilders survey is one of the grimmest since the Covid pandemic.
The HAHB Hosing Market Index for November 2023 is one of the worst on record. Only the Great Recession housing bubble as shown in the chart below was substantially worse.
Understanding the Index
The NAHB/Wells Fargo HMI is a weighted average of three separate component indices: Present Single-Family Sales, Single-Family Sales for the Next Six Months, and Traffic of Prospective Buyers. Each month, a panel of builders rates the first two on a scale of “good,” “fair” or “poor” and the last on a scale of “high to very high,” “average” or “low to very low”. An index is calculated for each series by applying the formula “(good – poor + 100)/2” or, for Traffic, “(high/very high – low/very low + 100)/2”.
Each resulting index is first seasonally adjusted, then weighted to produce the HMI. The weights are .5920 for Present Sales, .1358 for Sales for the Next Six Months, and .2722 for Traffic. The weights were chosen to maximize the correlation with starts through the following six months. The HMI can range between 0 and 100.
NAHB Wells Fargo Housing Market Index Since 1985
Mortgage rates are down from the recent highs over 8.0 percent to 7.36 percent as reported by Mortgage News Daily.
However, no one wants to trade a 3.0-percent mortgage for one over 7.0 percent. Also existing home prices are back to record highs, so affordability is in the gutter.
Existing Home Sales vs New Home Sales
On October 19, I noted Existing Home Sales Drop Another Two Percent to a 13-Year Low
In sharp contrast, on October 25, I noted New Home Sales Jump 12.3 Percent Smash Expectations
New home sales are much better than existing home sales because builders are offering mortgage rate buydowns, build smaller homes, and are cutting back on lot and room sizes.
Add it all up and you are not getting a bargain buying anything today. Blame the Fed for these conditions.
How the Fed Destroyed the Housing Market and Created Inflation in Pictures
For discussion of the Fed’s role in this mess, please see How the Fed Destroyed the Housing Market and Created Inflation in Pictures
The Fed is largely responsible for the Great Recession crash, but this one is totally on them.
Don’t worry. If UBS is correct and the Fed cuts the FFR in half by early 2nd Qtr ’24, housing is going to skyrocket!
Great news! Housing is too unaffordable for young people trying to start families. I hope BlackRock and others loss their shirts when the housing market crashes. These government backed parasites should never have entered and distorted the market.
Prices aren’t crashing, real assets like single family housing are simply too useful and not being built in significant enough quantities, urban areas are becoming unlivable, and open borders is flooding the country with people. SFH pricing is poised to moon in desirable areas.
UBS predicting a recession followed by deep rate cuts. Any thoughts Mish ?
https://www.google.com/amp/s/finance.yahoo.com/amphtml/news/recession-hit-us-2024-ndash-175051903.html
I’ll speak for Mish. ISM manufacturing has predicted this for 15 months now. Eventually, it’s bound to happen but not sure about the deep part. Shallow is more likely which means minor rate cuts.
In the 80’s I was working at CDOT and had a decussion with a fellow worker, who grew up with Kansas oil, about the Colorado housing boom. I said it was caused by low mortgage rates (how prophetic of me). He said that if mortgage rates went up people would just pay cash for their houses. I said “Who can pay cash for a house?” He said: all his friends could. As time has gone by, I believe I was more right than he was.
Cash buyers for the most part tend to be older people who are usually selling their current home and buying their next one for cash (often downsizing once kids move out). I doubt 1 in 10000 home buyers under the age of 40 is paying cash unless they inherited it or won the lottery.
On the other hand, people who get a mortgage are virtually always buying a payment and not a house. In other words if they qualify for a 2000 a month mortgage they buy whatever house 2000 a month affords them. So as long as whatever they qualify for buys a home, you get housing sales. When that stops happening, sales dry up.
Right now mortgage payments have basically doubled due to interest rates doubling but home prices haven’t budged much at all so sales are drying up because what they can pay doesn’t buy anything.
The US standard of living rose after WWII because US held a monopoly on modern industrial manufacturing. Unions abused the monopoly and extorted wages above the value of unskilled labor. Manufacturing departed because equally hard working talented employees were abundant elsewhere. The formerly working welfare class got lazy. The US is quickly reverting to the pre WWII standard of living. American productivity per capita deserves tar paper shacks, bicycles, bib overalls, black eyed peas and turnip greens.
Sidewalk tents have replaced tar paper shacks because of housing codes. Government regulations are always a hardship on the poor. Grocery carts replaced bicycles. Levis replaced bib coveralls. McDonalds replaced black eyed peas and turnip greens.
Nothing will be reverting to anything of the sorts. Social services will become more prevalent.
Mish, nice interview with Jason from Wall st for Main st.
re: “The Fed is largely responsible for the Great Recession crash”
Bernanke “did it again”.
The idea that legal reserves are not an effective tool for controlling the money supply seems to be rooted in the experiences of the Great Depression—the period which provided the foundation of Keynesian economics. During all of the Great Depression, legal reserve management was impossible despite the fact that the Banking Act of March 9th, 1933 (Congress passed the Emergency Banking Relief Act) provided for the coordination of all Open Market Operations through the New York Reserve bank (Before the Act, one Reserve Bank could be buying securities creating new Interbank Demand Deposits and another Reserve Bank could be selling securities).
But even after bank failures were brought under control, business confidence remained so traumatized the expansion of legal reserves remained to a large extent – excess reserves. There were not enough credit-worthy borrowers in the private sector (according to the bankers); and in the public sector, there was an insufficient volume of government debt to absorb excess bank lending capacity. It was not until about 1942 that the member banks operated with no excessive amount of excess reserves.
As you well know, the Fed eliminated reserves in the immediate aftermath of the pandemic. I can’t say that I fully understand how the “plumbing” of the banking system works nowadays. I certainly think reserves probably was an easier means of controlling the money supply. I just don’t like the Fed paying something like 5.3% on this mountain of (RRPO) money owned mostly by the uber affluent. Granted, the mountain is getting smaller, but the damage has already been done. The means with which the rich keep getting more affluent are staggering.
https://fred.stlouisfed.org/series/RRPONTSYD/
Speaking of smaller homes, rooms, and lots, I had a relative that bought a new house a decade ago in west Ft. Lauderdale. What was considered to be a bedroom, I considered to be the size of a walk-in closet.