Guest Post by Martin Armstrong
The traditional forecast on real estate is always one-dimensional. Homeownership has historically been in the top 5 of surveys about what Americans most want in life. Property values have been rising despite rising high prices combined with higher mortgage rates. There is little sign on the horizon before the ECM peaks in May 2024. Analysts have been confused and caught up in this economic conundrum of the continued economic growth that has defied all their recession predictions.
Normally, housing has been one of the sectors that has been the most sensitive to interest rates. Over the past two years, mortgage rates have risen from less than 3% to more than 7%. That means that the median family today faces mortgage payments that have doubled from roughly 14% of monthly household income in 2020 to nearly 29% by mid-2023. This is the strongest rise since the economic turn on our ECM when it bottomed in 1985.65.
Nevertheless, the conundrum that has baffled traditional analysts has not led to a decline in house prices as they expected. They paused during the COVID-19 lockdowns and fell in the Blue States, which had the most draconian COVID-19 measures. Currently, housing prices during the second quarter of this year rose at an annualized pace of 15% according to the S&P Case-Shiller index.
There is a tight supply in the South, where much of the migration has taken place. I get, on average three calls a week asking if I want to sell my house here in Florida. The annual sales of property nationally have been around $2 trillion. Smart institutional investors have been shifting from public unsecured debt to private mortgages. The average person does not look at CPI numbers or GDP numbers. They look at the cost of this rising, and the confidence in the Biden Administration has been collapsing. When people no longer trust the government, they shift to the private sector. So add to that the great migration from Democratic states to the southern red states, and you will see collapsing real estate values in places like San Francisco and Chicago in comparison to even Wall Street, have been quietly moving to the Miami region. There are still buyers in the market and a shortage of supply in the Red States like Florida. Thus, sales have declined, but this appears to be more the result of the decline in supply.
Additionally, the rising inflation in materials means that the replacement cost of homes is often higher than the prices being paid, not to mention the waiting time for construction. The sheer replacement costs of housing have skyrocketed. Even pain was in short supply thanks to the COVID-19 lockdowns. This has impacted the market, and traditional analysis simply never considered that the replacement costs on preexisting houses, in many cases, are 40% to 100% higher. Add to that the shortage in labor. It was very hard to find a contractor in Florida who even was available. Most contractors I talked to were booked beyond 2024.
Newly built homes account for about one-third of active listings in 2023. This was up from an average of 13% over the two decades before pre-COVID-19. Add to all of this is the influx of foreign money looking at US property as a hedge against future wars and destabilization of the monetary system. Then we have had funds like Blackrock buying property and renting them out.
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Most Americans want inflated property taxes ,so their public employees can make a salary with benefits that are better than those available to them.
Brought to you by libatard women who run to the yoga studios and pay non of the bills.
While driving through 8 potholes on the way home.
Why would they downvote my sarcasm fucking sock puppets.
Just do like this , ok/s, to cover your ass.
the s is only needed when sarcasm is so subtle that it is hard to tell that it is sarcasm —
sphincter’s comment above was so over the top that people who downvoted it were probably hungover & their doc has them on a decaf diet —
btw,where do you guys come up these names?gaping sphincter,bruce jenner’s cojones —
what’s next,hillary’s saggers,barack’s manhole,what else?
/s
Over the last 3 years, what has happened to incomes? Up or down? By how much?
I know what’s happened to my grocery bill and it’s not pretty .
https://fred.stlouisfed.org/series/MEHOINUSA646N
Still looking for home and acreage,but,still a over priced market and flu pricing still at play.
Who needs shelter when you live in a democrat party fagtopia wonderland.
I guess that explains the opioid crisis.
The neighbor’s daughter just graduated college with an early childhood teaching degree. I don’t know if she has a student loan but I do know she had won a grant and did have a partial scholarship. She has a job in the next county north of us so she has a one way 36 mile commute in a 12 year old Toyota. She would like to get an apartment near where she works but the first/last/current rent plus utility deposits she is looking at $6500 to plunk down and she only brings home $2400 a month. After paying a monthly rent she would have less than $550 to make utilities and to live off of, which is not feasible. Her other option is to save up $12 to $13K and buy a starter townhouse with a 30 year mortgage that would get the monthly house payment to 60% of what a similar rental would cost. The only way she can move out with either scenario is to have roommates.
Am right that her rent is ~ $1,850? And buying would give her a mortgage payment of 60% of that – or about $1,100? I question whether one could find an all-in mortgage payment that low. Maybe I’m misunderstanding.
Out-of-control INFLATION.
That Toyota should make another 12 years with proper maintenance. I’m a stickler about the oil changes , transmission fluid changes, radiator flushes, just routine mechanical maintenance. It pays to pay attention to the routine maintenance. Good tires too. Not so concerned about the body as the gel coat has seen too many hot Texas days and is parked under a carport for about five years. About 287k miles I would however not want to drive 72 miles round trip to work with it now. 12 years ago, no sweat.
If it were me I’d take a chance on the Toyota and try to save for the down on a place. $2400 ain’t much . And actually 36 miles is not terribly far if the Toyota is not a gas guzzler.
My 16 year old Corolla is a real pussy magnet.
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patience young grasshopper, this too shall pass
What the hell is this “ECM” that’s going to peak in May?
economic confidence model