Zillow revises Increase in US home prices to "only" 14.9%

[Triplethought]

Regarding the little side bet Yodean and I had last month in which I said US median prices would go up this year and Yodean bet me they'd go down. It seems Zillow is still predicting a year over year increase of 14.9%. That is a downward revision from their last estimate but still favoring my viewpoint.

14.9% between March 2022 and March 2023
https://finance.yahoo.com/news/home-pri ... 14287.html

[Yodean]

Regarding the little side bet Yodean and I had last month in which I said US median prices would go up this year and Yodean bet me they'd go down. It seems Zillow is still predicting a year over year increase of 14.9%. That is a downward revision from their last estimate but still favoring my viewpoint.

14.9% between March 2022 and March 2023
https://finance.yahoo.com/news/home-pri ... 14287.html

@YoungAnakin: lol, you gotta realize you can't really trust those mainstream type publications.
Zillow has a vested interest in getting people to think positively about real estate, so it will always veer on the optimistic side, then keep "revising" their estimates.

I'm still kind enough to let you off the hook for $400 USD instead of $500 if you settle up before the end of June.

[SOL]

Regarding the little side bet Yodean and I had last month in which I said US median prices would go up this year and Yodean bet me they'd go down. It seems Zillow is still predicting a year over year increase of 14.9%. That is a downward revision from their last estimate but still favoring my viewpoint.

14.9% between March 2022 and March 2023
https://finance.yahoo.com/news/home-pri ... 14287.html

@YoungAnakin: lol, you gotta realize you can't really trust those mainstream type publications.
Zillow has a vested interest in getting people to think positively about real estate, so it will always veer on the optimistic side, then keep "revising" their estimates.

I'm still kind enough to let you off the hook for $400 USD instead of $500 if you settle up before the end of June.

https://media.giphy.com/media/XenWVVdSzaxLW/giphy.gif

[Triplethought]

@YoungAnakin: lol, you gotta realize you can't really trust those mainstream type publications.
Zillow has a vested interest in getting people to think positively about real estate, so it will always veer on the optimistic side, then keep "revising" their estimates.

I'm still kind enough to let you off the hook for $400 USD instead of $500 if you settle up before the end of June.

I don't know. I like my odds. I see your point about Zillow having vested interest... but even if they wrong by a factor of 2 and housing goes up only 7.5% that's still growth worth investing in. What would change that? a strong recession might well make home prices flatten. I still have a hard time seeing your view that housing prices will actually go down.

[Yodean]

I don't know. I like my odds. I see your point about Zillow having vested interest... but even if they wrong by a factor of 2 and housing goes up only 7.5% that's still growth worth investing in. What would change that? a strong recession might well make home prices flatten. I still have a hard time seeing your view that housing prices will actually go down.

Indeed, real estate is very hard to predict, due to its illiquidity and regional differences, etc.
But remember, our bet is the US median price in 2021 vs. 2022. So I will win the bet even if housing prices don't go down that much this year.

30-yr. mortages are over 5%, from what I understand (I don't follow the U.S. real estate market that closely, just a little bit, here and there).

Most buyers today aren't used to this - they are used to really cheap money. Mortgage applications are down, as is refinancing applications, etc. Also, apparently a lot of people who work in the mortgage industry are being laid off (i.e. less work to do). These are all warning signs.

In terms of official CPI inflation numbers, the Tech sector has been smashed down something fierce.

The next sector to be crushed, like little bug, may be the real estate sector, which would consequently induce an "anti-wealth" effect on the general population, thereby quickly causing demand destruction, which will lower the CPI. In my view, CPI is topping now, should be rolling over soon enough.

Roughly 2/3rd of USSA's GDP is from consumer consumption, mostly from the top 10% of the population. If the residential real estate sector even goes down a little bit, that should, at the very least, moderate CPI to an acceptable level.

When gas, food, and mortgage payment prices go up - all at the same time - the resultant demand shock should be enough to drive real estate valuations down a bit, and maybe even a lot.

[Yodean]

*****

Ticking time bomb, but there could be a hell of a lot of ticks before it blows ...

[SOL]

Housing market: Pending home sales tumble for fifth straight month

The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor,” said Yun, who expects the rate on the 30-year fixed rate mortgage — the most common home loan — to reach 5.3% by the fourth quarter.

A week ago, mortgage rates increased to 5.11%, 2 percentage points higher than at the start of the year, and the highest level since April 2010.

The rapid increase in mortgage rates in March jacked up the average monthly mortgage payment by 31% versus a year ago, according to NAR. That’s $400 more per month on a median-priced home compared with a year ago, according to George Ratiu, manager of economic research at Realtor.com.

“The sharp increase in rates came in tandem with record-high list prices, and continued declines in the number of homes for sale,” Ratiu said.


Would-be buyers are largely stuck between rapidly rising rents and an unaffordable for-sale market. Then, there’s runaway inflation, eating into budgets every month.

“Markets remain clearly tilted in sellers’ favor due to the shortage of homes and sheer number of buyers still determined to lock in predictable monthly payments as an inflation hedge,” said Ratiu. “...At the end of every month, Americans are finding that there is less money left out of each paycheck. We can expect these factors to lead to fewer transactions in the months ahead, as many first-time buyers find themselves priced out of the market.”

Overall, Yun expects existing sales this year to be down 9% from “the heated pace of last year.

https://finance.yahoo.com/news/housing- ... 19332.html

[Triplethought]

I don't know. I like my odds. I see your point about Zillow having vested interest... but even if they wrong by a factor of 2 and housing goes up only 7.5% that's still growth worth investing in. What would change that? a strong recession might well make home prices flatten. I still have a hard time seeing your view that housing prices will actually go down.

Indeed, real estate is very hard to predict, due to its illiquidity and regional differences, etc.
But remember, our bet is the US median price in 2021 vs. 2022. So I will win the bet even if housing prices don't go down that much this year.

30-yr. mortages are over 5%, from what I understand (I don't follow the U.S. real estate market that closely, just a little bit, here and there).

Most buyers today aren't used to this - they are used to really cheap money. Mortgage applications are down, as is refinancing applications, etc. Also, apparently a lot of people who work in the mortgage industry are being laid off (i.e. less work to do). These are all warning signs.

In terms of official CPI inflation numbers, the Tech sector has been smashed down something fierce.

The next sector to be crushed, like little bug, may be the real estate sector, which would consequently induce an "anti-wealth" effect on the general population, thereby quickly causing demand destruction, which will lower the CPI. In my view, CPI is topping now, should be rolling over soon enough.

Roughly 2/3rd of USSA's GDP is from consumer consumption, mostly from the top 10% of the population. If the residential real estate sector even goes down a little bit, that should, at the very least, moderate CPI to an acceptable level.

When gas, food, and mortgage payment prices go up - all at the same time - the resultant demand shock should be enough to drive real estate valuations down a bit, and maybe even a lot.

Those are the classic arguments for a real estate crash next year. It's not that I don't understand or appreciate your arguments, it's that I don't think it will happen as fast or as hard as you do. I think Inflation will moderate (and may indeed be topping now) but will still remain above 5% next year. I base this on trend line, on the high cost of oil (even if war ends it will remain elevated for a year or more), high food prices (due to oil price and labor shortages). Now Sol may be (and is probably) right and we may experience a recession starting in Q4. But even then my experience is that the stock market will react quickly, business will contract. BUT that won't reach housing prices for 1-3 years later and in fact the recession may be short enough that housing prices don't wobble much at all.

[Yodean]

BUT that won't reach housing prices for 1-3 years later and in fact the recession may be short enough that housing prices don't wobble much at all.

We are living in unusual times, so anything may happen, certainly.

With that said, historically, usually you see the real estate sector start to go down a bit first, followed by the small caps (i.e. Russell), then the bigger caps like S$P500, Nasdaq, & DJIA. So real estate often leads the way down, somewhat.

This doesn't always happen, of course, but when trying to forecast, all you can really do is look at past patterns.

On a mass level, real estate is still the asset class most own. To create an "anti-wealth" effect quickly, and decrease CPI, arguably one of the easiest and most direct ways to do this is to smash the real estate sector down a bit.

Long-term, real estate will be fine, but short-term, I'm definitely staying out of this sector, particularly in most parts of North America.

[Yodean]

Data's only until the end of 2020. Still pretty interesting. Maybe Canadian real estate will crater before U.S., with the former acting as a leading indicator.

[Yodean]

The house buying frenzy is finally beginning to cool in the US. According to the US Census, newly built homes declined 16.6% in value from April to March. Furthermore, prices of new homes plummeted 26.9% in April on an annual basis. The annualized rate reached 591,000 units, lower than the expected 750,000. This marks the slowest pace of home buying in the US since April 2020 when the lockdown was in full swing. Rising mortgage rates are also stifling demand with the 30-year fixed loan sitting at 4.88% at the beginning of April and ending the month at 5.41%. Still, the 40-year high in inflation has caused home prices to increase by nearly 20% since last year, with the average home in April selling for $450,600.

*****

[Yodean]

The price of a resale home in Canada fell 1.8% in June from last year, the first annual decline since May 2020, as the market continued to cool sharply from February's peak amid tighter borrowing conditions, data from Canada's realtors showed Friday.

Canada's national average selling price fell to C$665,850 ($511,092) in June from C$678,280 in the same month of 2020, data from the Canadian Real Estate Association showed. Prices are down 6.4% on the month and down 18.5% from February's peak.

"The June housing data show a market seriously wobbling, and that was before the Bank of Canada’s 100-bp (basis point) knockout blow," said Robert Kavcic, senior economist at BMO Economics, in a note, adding an even deeper correction is yet to come.

Home sales in Canada fell 5.6% in June from May and are down 23.9% year-over-year, led by Canada's largest cities, the CREA said.

The frenzy of the start of 2022 has faded, with sales down 19% in the second quarter from the first. New listings rose 4.1% in June and the sales-to-new listing ratio eased to its lowest level since 2015.

CREA's home price index, which smoothes out some of the swings of average and median prices, slid 1.9% on the month, but was still up 14.9% annually.

https://www.kitco.com/news/2022-07-15/C ... pinch.html

*****

Canadian real estate may lead U.S. real estate down later this year and next, I would guess.

Tech has been smashed, commodities as well, precious metals, crypto, the equity indices, emerging markets, bonds, etc. ... time for real estate's turn to be smacked by King USD?