Market Sentiment - Recession Length

[daylatedollarshort]

ETA: it annoys me no end that we have certain members of the Fed and politicians trying to jawbone and tell us "the economy is in GREAT shape".

The current Fed member say "soft landing". The former Fed members, the ones who aren't getting blamed for causing part of the problem, are being more honest, and saying restrictive territory on interest rates and likely recession.

 

[DawgMan]

First, happy Father’s Day to all you dads!

So here’s a real time housing market experience. My son and DIL are opportunist house hunting in a few golf course neighborhoods (boy loves his golf!). 2 weeks ago they found one that caught their eye. It went on the market in mid May, price dropped a couple of times (about 5%) by June. Stop there - first observation, 3 months ago offers would be pouring in 10% over sticker! He makes an offer another 3% below and they counter…. Now $15k apart on a $650k house. Son holds, part ways. Today, 9 days later, Seller comes back with $5k over son’s last offer, looks good… until son prices new debt. It will cost another $10k in points to match previous loan quote… hence, the deal did not change. Father’s Day advice…. Only if he loves the house: Option 1: buy house hoping interest rates drop over the next 5 yrs and refinance, option 2: Hold tight, ride thru downturn and wait for more motivated sellers, hopefully rates moving down.

IMHO, this is what we should expect from housing market effectively creating allot of no sales unless one party is very motivated.

 

[copyright1997reloaded]

First, happy Father’s Day to all you dads!

So here’s a real time housing market experience. My son and DIL are opportunist house hunting in a few golf course neighborhoods (boy loves his golf!). 2 weeks ago they found one that caught their eye. It went on the market in mid May, price dropped a couple of times (about 5%) by June. Stop there - first observation, 3 months ago offers would be pouring in 10% over sticker! He makes an offer another 3% below and they counter…. Now $15k apart on a $650k house. Son holds, part ways. Today, 9 days later, Seller comes back with $5k over son’s last offer, looks good… until son prices new debt. It will cost another $10k in points to match previous loan quote… hence, the deal did not change. Father’s Day advice…. Only if he loves the house: Option 1: buy house hoping interest rates drop over the next 5 yrs and refinance, option 2: Hold tight, ride thru downturn and wait for more motivated sellers, hopefully rates moving down.

IMHO, this is what we should expect from housing market effectively creating allot of no sales unless one party is very motivated.

Thanks for sharing.
My opinion, unsolicited - we are just at the beginning on the housing front impact.

 

[joesxm3]

Regarding GDP as it pertains to recession. The current GDP, 0% this month? Includes the effect of inflation, so part of GDP is just inflation rather than actual product.

 

[SecondCor521]

IMHO, this is what we should expect from housing market effectively creating allot of no sales unless one party is very motivated.

I agree. Housing prices around here have gone up about 40% in the last two years, and we had a lot of people move here. If they got mortgages, they probably got one at 3% or so.

Since housing prices have gone up, lots of people (including me) have checked their house prices on Zillow and the like.

The housing market here should be softening, but both of the above groups have probably price anchored to the higher numbers, and with mortgage rates apparently between 5% and 6%, any sellers are probably wanting as much money out of their current home so they can afford the new home.

I agree on the advice too, and it's generally what I'm planning on saying to my son when he starts looking.

 

[daylatedollarshort]

House sales here in our neighborhood in the Bay Area have been like tulip mania up until recently. Our home price on Zillow finally just decreased $10K. In our neighborhood, it went from mostly households our age to all these all these nice young families with small children moving here. I assume many are in the tech field because they either have seven figures in cash, qualify for a loan for that amount or can afford huge rents. I hope they are okay with tech stocks dropping, layoffs coming and house prices dropping.

 

[harllee]

I have a home in the NC mountains in a resort area of mainly second homes and keep up with the real estate sales and prices. There are many more homes for sale now than a year ago and most listed homes are showing price reductions. I am also hearing that vacation home rentals for this summer are off by at least 25% over last summer. In 2008 I noticed that the second home market fell first and in a few months the reductions started in the primary home market. It is my guess that we are just starting to see the decline in housing prices.

 

[aja8888]

I have a home in the NC mountains in a resort area of mainly second homes and keep up with the real estate sales and prices. There are many more homes for sale now than a year ago and most listed homes are showing price reductions. I am also hearing that vacation home rentals for this summer are off by at least 25% over last summer. In 2008 I noticed that the second home market fell first and in a few months the reductions started in the primary home market. It is my guess that we are just starting to see the decline in housing prices.

That's a real good guess!

 

[copyright1997reloaded]

I have a home in the NC mountains in a resort area of mainly second homes and keep up with the real estate sales and prices. There are many more homes for sale now than a year ago and most listed homes are showing price reductions. I am also hearing that vacation home rentals for this summer are off by at least 25% over last summer. In 2008 I noticed that the second home market fell first and in a few months the reductions started in the primary home market. It is my guess that we are just starting to see the decline in housing prices.

In another thread, I mentioned some discussion in a North East ski group for vacation homes, where someone stated they were surprised at the lack of interest in summer rentals, and others quickly jumped in essentially saying that they were seeing similar things with their own property.

Here's the post and subsequent discussion: https://www.early-retirement.org/fo...bers-and-discussion-114292-7.html#post2787958

So I find your independent observation interesting.

I've also been trying to find/watch/read information in various housing markets (especially those that are "hot" or areas I might be interested in) for discussions on pricing trends and more importantly inventory build up.

Here's one I watched just recently that folks might find interesting:

 

[mojavesue]

Regarding housing, I dont really see home prices crashing. Just about everyone has equity. More home owners than ever have NO mortgage. Big percentage, I think 25 to 30 percent here in Vegas have paid cash the past couple of years. I would think most if not all home owners now have a sub 4 percent mortgage. Not sure what would motivate someone to give up that kind of mortgage for a 6 percent plus mortgage. Unless you absolutely HAD to move. I also dont see investors dumping homes on the market. Rents right now are at all time highs. Much better returns in real estate right now than equities. And real estate has always been a good hedge against inflation. We own a couple of rentals and they have done very well. So much demand for rental housing in Vegas. With the long term housing shortage, and builders now cutting back on building new homes, the problem is just going to continue. Unemployment would have to drastically deteriorate to have an affect on housing. Most mortgages are written to buyers with 725 credit scores and higher. I just dont see these buyers walking away after putting 20 percent down and having a sub 4 percent mortgage. Its much cheaper than paying 2500 to 3k a month in rent.

 

[mojavesue]

And here in Vegas, inventory has increased to a 1.5 months supply. Inventory always goes up this time of the year. There are currently 5400 homes for sale in a city with about 450k housing units!

 

[Montecfo]

You kind of need a view of the future of mortgage interest rates. My guess is we settle about where we are now after QT and rate cycle reach equilibrium.

Yes, people will be price anchored to some extent. But people have a lot of equity and a big chunk is recent. So that provides room for prices to move down without actual pain. Trade down buyers will be hurt more than trade-up buyers in the newly devalued home currency.

There is demand as millennials continue to move into home formation stage and on a much delayed basis and the impact of covid and WFH continue, though at a reduced pace.

I expect price declines, but how much will demand, which remains pent-up, continue to support pricing? That is the question. Hard to see a total collapse in demand in this scenario.

The greatest carnage will be in 2nd home markets. Always is.

 

[aja8888]

Housing prices are "sticky" for the reasons mentioned above. But there will be nothing like the feeling of having paid $200 K over asking on a $700 K listing and see it value out at $500 K two years later.

 

[Chuckanut]

Assuming the estimate of the USA being short about 4 Million housing units is correct, it's hard to imagine a big drop in housing prices. Softening yes, maybe even some declines in areas where the price increases have been particularly large. But, 2008 all over again? I doubt it. YMMV.
r.

 

[aja8888]

It's early in the cycle but it is starting

Info on housing listings nationwide:


https://wolfstreet.com/2022/06/02/s...jump-amid-price-reductions-and-sagging-sales/

We have seen this during the past 18 months when home prices spiked: people bought a home and moved in, and they moved out their other home, but didn’t sell it, expecting a 10% or 20% or 30% gain in price on a leveraged bet with a much bigger gain on equity. The math makes sense, though it doesn’t always work out, and now it’s starting to be time to put those vacant homes on the market, and here they come, just as home sales are dropping because layers and layers of buyers have been removed from the market by the rising mortgage rates and sky-high prices.

Active listings jumped. In May, inventory of homes actively listed for sale jumped by 26% from April and are suddenly up by 8% from a year ago, the first year-over-year increase since June 2019, according to the National Association of Realtors today. There were about 38,000 more homes listed for sale in May than a year ago (data via realtor.com):

 

[mojavesue]

YES ^^^. I've been waiting for a California housing crash for awhile now. I keep hearing about people fleeing Cali but when I check on home prices, they keep going up! And most go pending within a month or so. Somebody is still buying homes there. Would love to scoop up something in the San Diego area cheap!

 

[mojavesue]

In that scenario Aja888 listed, people that can buy a home before selling their existing, is in a pretty good financial position. These sellers could easily rent the house. Active listings rising 28 percent is still very small. In Vegas, listings have doubled the past 2 months, but that still only equates to a 1.5 month supply! Home inventory NEEDS to come up to more normal levels.

 

[aja8888]

In that scenario Aja888 listed, people that can buy a home before selling their existing, is in a pretty good financial position. These sellers could easily rent the house. Active listings rising 28 percent is still very small. In Vegas, listings have doubled the past 2 months, but that still only equates to a 1.5 month supply! Home inventory NEEDS to come up to more normal levels.

The shadow housing numbers are not really pinned down as vacant second homes are not reported. Like I said, housing is "sticky" and many people can sit quite a while before wanting or needing to sell.

During the GFC in 2009, I didn't see housing crash until 2011 and that's when I picked up a 2,000 sq. ft. 3 year old brick ranch for $62/sq.ft. (Texas). That house sold for $275 K 3 years earlier. There were so many houses for sale that were foreclosed, bank repos, HUD, etc, it was like shooting fish in a barrel.

 

[harllee]

I got stuck with a house for sale in 2008/2009, it seemed like housing prices dropped overnight. It was a second home, housing prices were up up up and suddenly they were down down down. It took me a couple of years to sell the house (it was a very nice waterfront house on a lake) and I took a big price cut. Things can happen very quickly in the real estate market.

 

[copyright1997reloaded]

Regarding housing, I dont really see home prices crashing. Just about everyone has equity. More home owners than ever have NO mortgage. Big percentage, I think 25 to 30 percent here in Vegas have paid cash the past couple of years. I would think most if not all home owners now have a sub 4 percent mortgage. Not sure what would motivate someone to give up that kind of mortgage for a 6 percent plus mortgage. Unless you absolutely HAD to move. I also dont see investors dumping homes on the market. Rents right now are at all time highs. Much better returns in real estate right now than equities. And real estate has always been a good hedge against inflation. We own a couple of rentals and they have done very well. So much demand for rental housing in Vegas. With the long term housing shortage, and builders now cutting back on building new homes, the problem is just going to continue. Unemployment would have to drastically deteriorate to have an affect on housing. Most mortgages are written to buyers with 725 credit scores and higher. I just dont see these buyers walking away after putting 20 percent down and having a sub 4 percent mortgage. Its much cheaper than paying 2500 to 3k a month in rent.

Convince yourself?

Unemployment is a lagging indicator. Unemployment WILL go up if/as we enter a recession due to layoffs. Higher mortgage rates will cause building trades to lay off. SPAC's and other money losing companies can no longer raise $ and will lay off workers.

Housing prices drops will result from less buyers and people who are FORCED to move due to job loss. Renters will move because they have no reason to stay. Someone with equity in a home who loses their job might sell and move to get the equity out of the home. And so on.


Vegas is a boom or bust kind of place. People who are unemployed can't spend a lot of money gambling or doing tourist kinds of activities. While the number is reduced, 20% of the Las Vegas economy is directly related to tourism.

Am I predicting a repeat of 2007-10 for Las Vegas? No, but I think we are just at the beginning stages of the downturn and have no real clue as to how far it goes. As a data point, between 40-50 percent of all home mortgages were in foreclosure in the great depression....so if something catastrophic like that happened even those "25 to 30" percent who had paid cash would find the value of their real estate greatly reduced.

 

[mojavesue]

OK. So we'd have to see what as far as unemployment? We're at 3.5 now. How much unemployment needs to happen for a housing crash? And where are all of these people going to live that walk away from their homes? Going in to a recession doesnt mean a housing crash. I dont remember a housing drop in the 2001 to 03 recession. Sure, sales will slow down, but people have to live somewhere. That guy that sells his home to get equity because he lost his job needs to live somewhere. This is nothing like what happened in 2008. Then, there was an oversupply of homes. Nothing like that exists now as far as I know.

 

[Gumby]

Convince yourself?

Unemployment is a lagging indicator. Unemployment WILL go up if/as we enter a recession due to layoffs. Higher mortgage rates will cause building trades to lay off. SPAC's and other money losing companies can no longer raise $ and will lay off workers......

I don't know. Yes, in my experience all prior recessions have seen unemployment rise, but this seems to be different; something seems off with the current employment situation. Almost every business in my town still has a "help wanted" sign up. Given that, it's difficult to contemplate widespread unemployment even if business slows.

 

[NW-Bound]

A home down the street was on the market for 3 weeks or so. I told my wife housing market was obviously slowing down. Used to be, realtors did not even have to put up a sign. The homes were snatched up right after they got listed, often the same day or the day after. Madness.

And then, in our walk yesterday, I saw the For Sale sign gone. Told my wife perhaps they changed their mind and stayed.

Wife said "No, what do you mean? I saw a new guy there". Indeed there was a guy in the garage looking like he was going to paint or something.

At home, wife said "Why don't you go on Zillow to see what the house went for?" I did not think Zillow would have the county data that quick, but then we had not been taking a daily walk because it was so hot, except for yesterday.

Zillow showed that the house went for $10K above asking. Still? I guess you'll never know.

 

[milford]

I don't know. Yes, in my experience all prior recessions have seen unemployment rise, but this seems to be different; something seems off with the current employment situation. Almost every business in my town still has a "help wanted" sign up. Given that, it's difficult to contemplate widespread unemployment even if business slows.

The thing this is not technically a recession yet (we haven't had 2 negative quarters of a GDP yet) so if anything this is just the beginning of a possible start of a recession if we get negative GDP in Q2. Also this time is different because there is so much stimulus money in the system that it takes time for all the stimulus money to work its way through the economy. This is the first summer where everything is "open" since 2020 so everybody is eager to go out and spend some money, therefore propping up employment for the time being. Although some industry like housing has already been hit (redfin and compass announced some layoffs) since things have dried up so fast .

I can see things turning sour real fast during Fall/Winter, when you realize you lost at least 20% of your net worth (if you have any investments) and all your expenses have gone up anywhere from 10-50% (food, gas, electricity, etc...). The cutback in spending will lead to layoffs starting next year.

Unemployment is also a lagging indicator and most companies usually don't layoff employees until the last resort. What typically happens is a hiring freeze first which is happening at some of the major tech companies (meta, twitter, intel, etc...) so there are signs of cracks everywhere already.

 

[copyright1997reloaded]

I don't know. Yes, in my experience all prior recessions have seen unemployment rise, but this seems to be different; something seems off with the current employment situation. Almost every business in my town still has a "help wanted" sign up. Given that, it's difficult to contemplate widespread unemployment even if business slows.

I don't know either.

All I can to is to try to assess potential impacts and adjust accordingly. What I am "railing" about on these threads is the pitch that everything is fine because employment is fine and because the housing market is hot. THEY DO NOT LEAD, they follow deteriorating economic conditions. Housing prices did not bottom until 2011, TWO YEARS after we were officially (aka NBER) out of the great recession. We will not know the impact on housing until months or years down the road (from now).

I'm attaching a graph to chew on. Price drops (housing), and job openings article: https://dfdnews.com/2022/06/20/monthly-jobs-recap-may-job-listings-down-4.2/

As some state, this might be a nice soft mild landing and rebound, ala 1994.