Fluctuations between supply and demand have been dictating markets since the beginning of time. For almost 2 years now I have been saying that deflation is a necessity of shrinking demand. In housing that means that in general we have not shrunk enough, except for pocket market exceptions such as Galveston Texas and Snow states’ attractions. So let’s get the following straight. Mortgage rates have tumbled nearly 100 basis points in the past year to a record low of 4.42% for the 30-year rate, yet existing home sales collapse a record 27% MoM to an all time low (data only back to 1999 for total sales) of 3.83 million units at an annual rate?
What’s up with that?
What’s even more, the government has implemented no fewer than eight programs to put a floor under the housing market. To no apparent avail. I suppose that someone in Washington could always argue that things would be much worse without all these incursions, but when is enough going to be enough? At this cross road my suggestion would be to let the housing market find its own equilibrium. Stop wasting taxpayers’ money on trying to influence what structure people would like to live in — there’s nothing wrong with renting and saving up for the down-payment (a word that has finally found its way back into the housing lexicon in the U.S.).
Our government should give consideration to what author of the Hierarchy of Needs Abraham Maslow once said: “If the only tool you have is a hammer, you tend to see every problem as a nail.”
There are many young people who once again see a home for what it used to be for us, before we went nuts and started using loans and mortgages as annual means of income expansion: a lifelong savings account.
You have a job, you get a 30 year mortgage, you pay monthly to live and ultimately own your home so when you get old and the home is too big for you, you sell it and the money you get from it, is your savings account for the golden years; that is if you can keep the greedy politicians from taking it all away from you. But that is another story for another day.
What we have to do now is tell our political “leaders” to focus on the real crisis: job creation, or the lack thereof. It is absolutely a secular bear market when the government can expend so many resources to one sector and generate so little in the way of results.
Home listings actually rose 2.5% MoM in July so with sales sagging at a record rate, the inventory backlog surged to 12.5 months’ supply from 8.9 months in June and 8.3 months in May (and 7.8 months at the turn of the year).
That is a record but there is only a limited history since the data include condos where the inventory backlog has soared to an all-time high of 16.5 months’ supply from 10.7 in June. And frankly today’s records are tomorrow’s corrections.
For single-family housing, inventory skyrocketed to a 27 year high of 11.9 months’ supply, breaking above the prior 2008 peak of 11 months.
Unless the laws of supply and demand have been repealed as they pertain to the residential real estate market, one would have to be of the view that more house price deflation is coming our way. However potential home buyers should also realize that cross roads of opportunities between a “bottom of the barrel deal” and “lowest possible interest rate” are far and few in between. You have to pick the right time for “you” and your circumstances and don’t speculate on general conditions.
In this world, history changing events happen all the time. A massive hurricane season (which obviously I don’t wish upon anyone) can massively reduce inventories in certain areas and re-establish pricing for the remainder of the inventory. Also: when the dollar goes on sale as the world currency (I’m not saying “if”), which can happen at any time, inflation will hit double digits which would make your loan cheaper on the long term. The current low mortgage rates offered, are directly related to the fact that inflation has not reared its ugliness. The moment it does, interest rates and your monthly payments will go up dramatically.
In short, if you have the necessary tools in place to afford going on with your life’s plans, you may want to secure your priorities without waiting for better offers or lower appraisals. Consider it a window of opportunity. If it closes, it’s gone.