The widespread theory (not in this corner) was the Fed would cut rates, mortgage rates would tumble, and that would stimulate existing home sales. What Happened?
The Housing Turnaround That Wasn’t
The Wall Street Journal reports This Year’s Housing Turnaround Ended Before It Started
The real-estate industry hoped 2024 would be a recovery year in which mortgage rates fell and home sales climbed. Mortgage rates dipped over the summer and hit a two-year low in September as they moved toward 6%.
But buyers continued to hold back. They have been spooked by expensive home prices and low inventory. Even at two-year lows, rates were still too high for many buyers, and now they have rebounded to their highest level in nearly three months.
Now, sales of existing homes are on track for their worst year since 1995 for the second year in a row, according to the National Association of Realtors. Even if this year’s sales slightly exceed last year’s level, they are still on track for the worst two-year period since the mid-90s, when the country’s population was considerably smaller.
“People are only moving if they have to,” said Nicole Dudley, a real-estate agent in the Phoenix area. “We’ll go a week without a showing, which is a long time compared to even last year.”
Powell’s Comment
“The real issue with housing is that we have had, and are on track to continue to have, not enough housing. And this is not something that the Fed can really fix,” said Powell.
I agree that the Fed cannot fix housing. But the Fed sure broke housing. Powell does not remotely understand the problem.
There is not a shortage of housing in the classic sense. The real problem is there is a shortage of housing people can afford to pay because the Fed broke the housing market with a nasty brew of bubble-blowing inflation.
Moving Target Trifecta
In a September, survey of more than 1,000 homeowners and renters, 70% said the highest mortgage rate they would accept was 5.49% or lower, according to John Burns Research & Consulting.
I don’t doubt that response at all. But it’s not just a matter of lower rates.
It’s a matter of lower rates, lower prices, and an economy on firm footing.
Mortgage rates fell from 8 percent to 6.11 percent. The impact on housing was nonexistent.
Existing-Home-Sales
There was a brief bounce in January of 2024. But there was one in January of 2023 and 2022 as well. I suspect something is amiss with Seasonal adjustments.
Regardless, mortgage rates continued to decline throughout 2024 but sales are where they were a year ago.
Median Prices
The National Association of Realtors notes the median existing-home sales price climbed 3.0% from September 2023 to $404,500, the 15th consecutive month of year-over-year price increases. All four U.S. regions registered price increases.
First-time buyers were responsible for 26% of sales in September – matching the all-time low from August 2024 and November 2021.
Median prices keep rising and that is for less, and less house.
Yet Another Record High for Case-Shiller Home Prices
The recently released Case-Shiller national and 10-city home price indexes hit new highs for July.
On September 28, I reported Yet Another Record High for Case-Shiller Home Prices
The pre-pandemic Case-Shiller national index was 370.9. Now it’s 553.1.
Home prices are up 49 percent in less than five years. And thanks to Fed QE wizardry, people could have and did refinance their mortgage at 3.0 percent or even less.
That put extra money, every month, into everyone who refinanced then. Extra money fueled inflation.
A $150,000 House in 1988 Now Costs $707,500 Thank You Fed
Using Case-Shiller data of repeat sales, on August 10, 2024, I noted A $150,000 House in 1988 Now Costs $707,500 Thank You Fed
This is a mess entirely of the Fed’s making. And it’s what happens when the Fed, and economists in general do not count home prices as inflation.
And Now?
Now the Fed says it cannot fix a problem it created. If only it would admit it created the problem.
And Lawrence Yun, the NAR chief economist cheerleader blames poor sales on the election.
For discussion, please see Head NAR Cheerleader Blames the Election for Poor Existing-Home Sales
Finally, clever readers will note I only discussed two of the three things holding back sales.
The three things were prices, mortgage, rates, and the economy. Let’s finish with the latter.
October 22, 2024: 20 Percent of Households Making Over $150,000 Live Paycheck to Paycheck
The Fed has grossly distorted the housing market and no fix is in sight.
October 23: Fed Beige Book Shows Only 3 of 12 Regions Growing, 3 Declining
The Fed Beige book shows a mostly steady economy in 6 of 12 regional reports. “Steady” is in context of the the worst Beige Book in years.
October 24: Continued Unemployment Claims Are the Highest Since November 13, 2021
Continued claims look bad. But they are only part of the picture. The complete picture suggests recession.
That makes three strikes. Prices don’t support more sales. Mortgage rates don’t support more sales. And the economy does not support more sales.
End the Fed
I believe I have made the case to end the Fed. Rather, the Fed made the case against itself.
This idea was a discussion focus on this blog and the Mises Institute in a series of recent posts.
Please see Fed “Playing With Fire” Take Two, Who Starts the Business Cycle? for a discussion of ideas and alternatives on ending or reigning in the Fed.
Boom and bust cycles will continue forever with government banking manipulation.
I really wish you would start your existing homes sales series back to 2018, to show what was “normal” before the pandemic. Your’s always starts in the middle of 2021, which was the height of max selling due to low interest rates. So, it creates a misleading chart.
But, beyond that, everyone says there is a “housing shortage”. But, again, where was that shortage from, say, 2015 through the beginning of the pandemic, when prices were not surging?
The entire surge in the number of transactions, as well as price, was due to abnormally low mortgage rates.
While I can’t really speak about the national situation, currently in my area of Houston, homes are about 18 percent higher than the long term trend line. Houston is not typically the roller coaster of some other markets, and over the long haul (since 1997 anyway), has appreciated at about an average rate of about 4 percent per year.
So, what happened was that prices exploded upwards from the second quarter of 2020 through the summer of 2022 approximately 50 percent. Because buyers could afford much higher priced homes, with reasonable monthly payments due to the low rates. Transactions exploded, prices exploded, and now we are on the back side of that.
From my data, it will take 4/5 years of no price appreciation to get back to the historical trend line.
In general, a certain amount of people have to move every year. I think for the last 18 months, we have been more or less at that level, a trough in the number of transactions. This level could stay in place for a few more years unless something changes (sellers concede to lower their price a bit, or mortgage rates come down). Otherwise, without either lower prices or lower rates, only the minimum will move, until we get back to trend.
Mish, you say end the fed, what’s the alternative? Politicians and fed gov having full control of printing and rates. I think it is just more of what you hate about the FED on a larger scale.
I have answered this 100 times
Replace the Fed with nothing
People don’t read history anymore so they’re unaware that there was no central bank in the USA prior to 1913, and yet during a time when there was no central bank, the USA became an industrial powerhouse and a world power.
Correct!
and thanks
Also the reason for bank failures then was: We were on a gold standard and banks did lend gold deposits (more gold than they had a right to).
“Mortgage rates dipped over the summer and hit a two-year low in September as they moved toward 6%. But buyers continued to hold back.”
I would think that if rates were expected to drop dramatically, that people would wait until that occurred. A half point cut in the FED rate isn’t much of an incentive to buy a house.
https://en.m.wikipedia.org/wiki/Conforming_loan#Conforming_Loan_Limits
This is also part of the problem, no other country has the government insure mortgages. This is another subsidy along with mortgage interest deductions.
Prices aren’t too high. It now costs that much to build a new home.
Yeah, umm, hmm, maybe prices are too high due to very low interest rates and the knock-on effects of that cheap money causing the materials that are needed to build a house to increase in a very big way.
Example- the price of a piece of plywood (a material commonly used to build houses), dimensional lumber, PVC and ABS pipe, etc, went up so much over the last four years that you cannot build a house w/o those higher costs affecting the price.
Plywood almost DOUBLED in a 2 year period.
Cheap money for way too long is one of the main causes..
Dump 10 million “Newcomers” into the mix and voila, you’ve got a perfect recipe for a price disaster (they’ve gotta live somewhere, don’t they?)
One more factor; lockdowns and supply chain nightmares.
Ill-conceived, disruptive and no benefit while causing huge price distortions.
All of the above were another great management moves dished out by our dirty, old uncle FedGov.
Thank you : )
Apparently not, since new homes are actually selling, while owners of existing homes can’t sell theirs.
In other words, prices are too high.
What Happened:
Simply cutting rates, has absolutely no large degree of ensuring mortgage rates will tumble, and/or that it would stimulate existing home sales. So many other factors are now in play as well, for this to occur IMO.
The ability to borrow alone, and then truly how much, is largely in play in our current economy. It all has to start from there. Many Banks are not even in a position to lend, without Federal (ie. Taxpayers) support and/or assistance.
Some was in play before, but now it’s obviously gotten worse. More calls for more money from the Taxpayers, Businesses, States, Unions, Insurance, Energy, Outside Influences, Etc. It simply doesn’t seem to end… Inflation alone took away a huge chunk of the eligible buyers, between the ability to borrow, price increases, and Interest Rates.
This may not be talk specific to the house style, Industry, cost of sq ft, but has everything to do with one’s ability to even start to “Dream of a Home”
But
Low Income/Homeless Citizens: Ask.. Where did all the “Empty and Available” Places For Housing Citizens Go? that was, or was promised all around here over the years?
Some much going on, with no array of solutions that “All Fit” on the plate together, Yet! iMO…
Government insured mortgages should not exist in the capacity they do currently
That is the real reason for home price inflation
Look no further than the conforming loan limit price history overlaid with home prices
https://en.m.wikipedia.org/wiki/Conforming_loan#Conforming_Loan_Limits
The peak median home price in FY Q4 2022 was $442.6K. Two years later in Sept 2024, it had only fallen by $17.6K or about a 4% decrease. That’s simply not enough to return a modicum of home price sanity.
I’m very pleased inflation appears to have plateaued and core inflation has been rising now for about 3 months. And I’m hopeful we’ll see economic data by January that supports a reversal by the Fed to rate increases.
JPowell stopped short by at least 50 BP and possibly even 100. While no one other than myself wants a deep recession, the best alternative for pushing home prices lower is to keep rates very high for much longer than anyone thought possible. No banks have failed in quite some time & CRE has turned out to be a bust to-date with most lenders pushing the can down the road.
The Sept cut was JPowell playing politics plain & simple.
The 4% decrease in housing prices of $17.6k is in nominal terms. Factor in compound currency devaluation as evidenced by 10% compound inflation over the last two years and you get an additional $43,000 of REAL VALUE DROP in purchasing power of proceeds from the sale of a median priced home. This equates to a REAL VALUE DROP in median priced homes of over $60,000 in just two years.
The true compound currency devaluation is even more stark in essential non discretionary purchasing power as the value of money declines.
For example: I need a 6’x4′ window replaced. The HD installer told me on average $1600 install price on the phone. I’d have to work +30 hours to come up with those after-tax dollars (single). I’ll tape the window for now and replace it myself.
This Installer must have a steady supply of demand for his labor. I imagine folks put it on their HD credit card?
A good old-fashioned recession would take care of that imbalance.
ROTFLMAO! People who want to buy a home care about nominal price drops. That’s what they see and respond to. Trying to calculate the effects of inflation on housing is nonsense in terms of bringing buyers back.
What’s needed is a 25-30% nominal price drop.
To paraphrase that sloppy dressed fellow in the LSU cap, “It’s the prices, stoopid!”
I agree. I was just pointing out how the 4% median drop is only part of the story. From a buyers side the nominal does need to come down. From the seller side, whatever they get for it will have 30% less purchasing power than 4 years ago. I am addressing inflation effects for both buyers and sellers. Inflation is an equal opportunity destroyer of wealth.
Government insured mortgages should not exist in the capacity they do currently
That is the real reason for home price inflation
Look no further than the conforming loan limit price history overlaid with home prices
https://en.m.wikipedia.org/wiki/Conforming_loan#Conforming_Loan_Limits
It’s the usual “The FED determines interest rates” clap trap. It’s a force called Mr. Market who determines rates and the FED follows.
Right now, I predict the FED will cut rates by another 50 basispoints
Never heard of rising property taxes, insurance costs, HOA fees and price gouging by companies ?
Wrong. The Fed definitely does affect market rates because the Fed governors, who were appointed by both the Republicans and Democrats, *bought* (with money printing) over 2.5 trillion in mortgage backed securities. Thats 2.5 thousand billions of dollars in printed money, creating a huge artificial demand for mortgages, meaning they could be originated with much lower rates than would have been needed to sell the mortgages to real buyers that didnt print their funds out of thin air. Good news is the Fed is shedding its mbs holdings and aims to reduce its mbs to zero returning much needed freedom and fairness to the housing market.
Do you see you are being inconsistent in your own post?
You said Mr. Market determines rates and the Fed follows.
Well, Mr. Market has 10 year/mortgage rates higher than before the Fed cut 50bps and yet you then predict the Fed will cut another 50 bps.
How can both be true!????
The Fed is an evil incompetent lot, enabling an unhinged fiscal rot by Congress, unrestrained by a temporarily-suspended debt ceiling.
We’ve allowed kindegartners and demons to occupy Fed and Congressional seats.
No, I am not because there are several rates and each rate used for different purposes.
The FED follows the 3 month T-bill rate, while mortgage rates follow other rates.
If the mortgage rate is fixed for 30 years then mortgage rate depends on what the 30 year T-bond yield is when one takes out the mortgage.
If the mortgage rate is fixed for 3 months then it will follow the 3 month T-bill rate. The latter was why so many households got into trouble between the year 2003 and 2008. In those years the 3 month T-bill rate kept going higher and households were forced to pay a higher rate on their mortgage every 3 months.
If you go through the numbers then you’ll see that in june /july 2008 more than 98% of all the money was created by COMMERCIAL banks while at the same time less than 2% of all the money was created by the FED. What do you mean a reckless FED ???
conventional wisdom = mortgage rates track the 10 yr. yield, not the 30. 10 yr. yield has been going up, just like mortgage rates.
No, if a mortgage rate is fixed for 10 years then it will follow the 10 year T-bond rate. If a mortgage rate is fixed for 30 years then it will follow the 30 year T-bond rate. That’s the pattern.
Which country do you live in?
Have you heard of 15-year and 30-year mortgages, the most commonly utilized here in the US? Your assurance that mortgages fixed for 10 years or 3 months follow 10-year and 3-month market rates is nonsensical if basically no one has a 10-year or 3-month mortgage
I’ve been saying for a few months now that the Fed is paying as much attention to interest expense as they are to inflation & employment.
There’s $7T in treasuries rolling over by the end of next year. Annualized interest expense is already $1.1T.
I agree with your points about the ideocracy of the Fed & Congress; therefore, I won’t be surprised by a 25 BP cut by December.
In Tehran, in Hebrew, in Palestine square : “a new storm is coming”. Women’s power : an Israel female pilot in her early twenties flying a 50 years F-15 attacking Iranian targets, deflating the Ayatollah. Kamala Harris salivated.
Rubbish. An F-15 isn’t able to fly from Israel into Iran to Teheran. Iranian air defenses supplied by Russia shot down some 95% of all rocket.
That wolf guy remains delusional about the housing market. California real estate has been taking off over the past year and a half and he refuses to see it.
He talks about how sales are down. According to Redfin, sales in Connecticut are down 10.9% year over year. But prices are up 11.2% (!) It’s called inventory shortage. The housing market in CT is locked up and most houses go for over asking price.
I’m looking to move to a college town that’s hundreds of miles from a major metro. There’s ample housing for sale compared to CT. Yet the prices are still up 10% year over year and houses sell quickly.
All of the Northeast and most of the Midwest and South are seeing increasing prices. The only places that are lagging are Texas and the Gulf Coast.
I’m glad to hear you’re willing to pay the inflated prices, there are some sellers looking for you…
Inventory is back to historically normal or even high levels, and still rising. Prices are already heading down in many parts of California (Oakland is down 10%). Many other states are seeing prices falling as inventory rises. You might consider taking a closer look at Wolf’s data and its implications for your home equity.
Real estate price trends are slow-moving beasts. Last time around the topping process alone took 2-3 years (from when the first zip codes peaked to when the last ones did). It took another 5-7 years before the bottoms.
SFO & Oakland are the exceptions. LA and San Diego going back up to crazy heights.
We’ll see where prices are 2 years from now. I predict they’ll be way up across the board – there’s huge pent up demand waiting to send prices ever higher once rates drop below 5%.
I own two houses and a rental cottage on half an acre near the Med in SW Turkey with a huge pool Zero property taxes and my apartment on the best street in central Warsaw ( behind the Central bank of Poland) 100 sq meters 300 usd a year
Mish, why do you and most Federal Reserve watchers always blame them for our troubles? To be sure, the Fed has its problems. But, they control the short end of the debt, money that is lent between banks.
The real enemy of our money system is none other than Congress. Their excessive borrowing, akin to using a no-limit credit card, is wreaking havoc on our financial stability. They are the ones authorizing massive spending on projects like the military and the Ukraine war, which are often deemed unnecessary.
The interest due from our insane spending in Congress now exceeds military expenditures. This is unacceptable. No one is stopping Congress. The only person who mentions this lunacy is Musk; he wants efficiency in the federal government. He would fire people as he did after buying Twitter.
The Federal Reserve is not the main issue; it is our elected yet imbecilic representatives in Congress.
Since the Oct 2008 raides the Fed control the front end and the long duration. They reduced mortgage rates to 2.5%/4.5%, buying MBS, causing a wealth effect. Wealthy people consumed more and paying higher taxes.
Not just rates, quantity of monetized debt (quantitative easing, balance sheet)…
“The real issue with housing is that we have had, and are on track to continue to have, not enough housing” -Powell
BS. Make short term rentals illegal except for hotels and apartment complexes, and there will be a massive wave of selling that bleeds into the existing home market. There are more people out there that own four or more homes than most people imagine. Those would all be on sale for cheap.
re: the 15th consecutive month of year-over-year price increases.”
Bernanke contracted monetary flows, the volume and velocity of money. Powell has yet to drop them below zero. The rate-of-change in money flows, proxy for inflation, is still rising, albeit at a slower pace
“Powell does not remotely understand the problem.”
Sure he does. He understands that the strongest form of inflation comes from housing. Why do you think he bought $1.4 trillion in MBS? “You will own nothing and be happy”. Powell is on board with the WEF and concentrated wealth. He’s one of the richest people in the world.
My tax payment was nearly as high as a mortgage payment, so I sold and started renting and am much, much happier. People do not own homes. The homes own you.
But perhaps what is of more concern is this:
https://nypost.com/2022/07/28/mexico-city-residents-angered-by-influx-of-americans-speaking-english-gentrifying-area-report/
And this: Annual Taxes based on the above for a $500,000 usd home:
In Texas, at least, there is no state income tax, but why would anyone live in NJ or Illinois if they could work remotely? And what are you getting for your tax dollars in comparison to the other places?
I know there is going to be resistance to sell but there is a huge housing bubble IMO.
I live in Mi our house taxes are 8k. F ing ridiculous. Suburban metro detroit area. 6% sales tax 5% income tax. Unbelievable. I hate those greedy fucks
Wait a minute! I thought that it was those darn greedy capitalists who were, well, greedy. That’s what my gal Kamala says. She says it a lot too. Are you saying that it’s actually metro, state, and federal GOVERNMENTS who are greedy too? How come Kam hasn’t told me that?
Well, at least those greedy capitalists go bankrupt when they overspend without limits, or provide crap goods or services to their customers. Fortunately, my federal govt has never gone bankrupt, even though I think they overspend and provide crap goo…. Oh, never mind.
Exactly
Not exactly. In Davis CA, an upscale college liberal town, the bureaucrats add charges for schools and roads bc that what keep houses prices high. Total charges : $7,500/Y plus everything else. There are only few $500K houses in Davis. Most of them are $1M and up.
Around me in NJ, I am seeing lots and lots of price reductions of about 10% from their original ask. Home prices are still sky high though.
Eventually, you have to move for some reason – change of job, divorce, financial circumstances, etc.
I moved in June because I didn’t need such a big house now that the kids are grown. The taxes, maintenance, landscaping, utilities, insurance – it just got to be silly and home prices were high. I am glad I moved out and down sized to a nice, condo rental.
I have no intent to buy real estate anytime soon.
Price cuts and increasing inventory is what I see in my area. If you’re planning on selling, get it done. Bloody times ahead.
Interest rate deduction……1 step forward
Food inflation………………. 1 step backward
Medical inflation…………….1 step backward
Insurance inflation………….1 step backward
Wage stagnation…………….1 step backward
Exogenous events might change directions, after the election
The ECONomists at the Bank of Canada argue that lowering rates will unfreeze the stalled market and spur mortgage initiation. Because it wasn’t the astronomical prices they created that froze the market.
Just replace this abominable institution with AI if not outright outlaw it.
Housing Bubble 2 will need to see the national average fall back to the OER levels before any meaningful improvement in affordability takes place.
Prices will only drop if more homes come on the market, but too many people have rates in the 2’s – 4’s who are “locked into” their homes by their low rate. There’s little financial reason for empty nesters to downsize if they would be exchanging a 2.75% rate for a 6.75% rate.
Inventory levels are already rising and prices starting to fall in many markets, though not all yet, with the home builders – who must sell or go out of business – leading the way.
Once price momentum is downward, a lot of people (especially those with multiple properties) will be powerfully motivated to sell before their equity evaporates.
The 3%/4% homeowner boast of their assets. They wouldn’t sell. C/S charts show them how smart they are . Their assets deflate in frog cooking.
Single homes are good for families with kid. The American dream is too expensive to buy and maintain. Boomers with hips and knees problems cannot hike to the second and third floor. Their houses are empty cost centers doing nothing all day. They need one floor, flat, no carpets to prevent falling.
Zoomers and millennials prefer Land/apt which are cheaper. There is a systemic change in the housing market. New single homes completed are piling up. Builders offer discounts and mortgage buyback to liquidate their stocks. Single homes are bad itms. Houses are appreciated assets, but transaction are dead. They blame the high prices and 6% mortgage. Lower mortgages wouldn’t revive the RE market in front of 3,000,000 new housing units. Bad is bad.
Most people can’t get past the prices.
Yes but look who benefits are existing homeowners, landlords and also politicians who can now reassess property and charge more taxes so it is a virtuous cycle for 3 powerful groups….no politician would dare dramatically increase supply then homeowners property values will decrease and their wound riots if that happened..he would be recalled in a New York City second..( time it takes to hear a horn when light turns from red to green )
The politicians in my old town would assess the property at about 25% less than what they knew it was worth. That way, you can’t contest your property tax unless the housing market really tanks. And then all the politicians have to do is increase your tax rate until they get the revenue they want.
The politicians are overseeing a demographic collapse due to their choices that will guarantee their assets have low future value. Children are the future value of any asset as you need them to buy your assets and do work for your “wealth” to mean anything.