Wolf
Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
They’re
not even trying to blame the weather this time. “Housing
affordability is really taking a bite out of the market,” is how
Leslie Appleton-Young, chief economist for the California Association
of Realtors explained the
March home sales fiasco. “We haven’t seen this issue since 2007.”
In
Southern California, the median price soared to a six-year high of
$400,000, up 15.8% from a year ago, as San
Diego-based DataQuick reported.
It was the 24th month in a row of price increases, 20 of them in the
double digits, maxing out at 28.3%. Ironically,
prices per square foot are increasing fasted at the bottom third of
the market (up 21%), versus the middle third (up 15.9%) and the top
third (up 14.3%).
Ironically,
because at the bottom 65%, sales have collapsed.
People, wheezing under the weight of their
student loans and struggling in a tough economy where real wages have
declined for years, hit a wall. Private equity firms and REITs, prime
beneficiaries of the Fed’s nearly free money, gobbled up vacant
homes sight unseen in order to convert them into rental housing, and
in the process pushed up prices – exactly what the Fed wanted. But
now high prices torpedoed their business model, and they’re backing
off. So sales of homes priced below $500,000 plunged 26.4%, and sales
of homes below $200,000 collapsed by 45.7%.
These aren’t poor people who stopped buying
them but two-income middle-class families who’ve been priced out of
the market. Thanks to the Fed’s glorious wealth effect, however,
sales of homes ranging from $500,000 to $800,000, increased by 2.9%
from a year ago, and sales of homes above $800,000 increased by 5.4%.
In total, 35% of the homes sold for $500,000 or more. But combined
sales, due to the collapse at the low end, dropped 14.3% from a year
ago to 17,638, the worst March in six years, and the second-worst in
nearly two decades.
“Southland home buying got off to a very slow
start this year,” said DataQuick analyst Andrew LePage. Among the
culprits: the suddenly absent large-scale investors, the jump in home
prices, and the increase in mortgage rates.
And he put his finger on a new culprit:
potential move-up buyers were stymied because they’d refinanced
their current home at a “phenomenally low” interest rate. They
can’t afford to abandon their relatively low payment, which they
already stretched to reach, and buy a much more expensive home –
a move-up home during a pandemic of inflated home prices financed at
a higher mortgage rate. They’re trapped by the consequences of the
Fed’s policies:
They
could sell, but they can’t afford to buy!
“Lately
on Saturdays and Sundays, you see open house signs everywhere,”
Carey Chenoski, a real estate agent in Redlands, told the LA
Times.
“The houses that last spring would be gone in the first day are
sitting maybe 60 days.” That’s at the low end. At the high end,
at prime beachfront locations in Manhattan Beach, the wealth effect
runs the show. Agents are getting “multiple offers on just about
everything,” said Barry Sulpor, with Shorewood Realtors. “The
market is really on fire.”
In
the nine-county Bay Area, the median price paid for a home in March
jumped to $579,000, up a bubblelicious 23.2% from a year ago,
the highest since December 2007, according to DataQuick.
In my beloved San Francisco, the median price jumped 14.6% to
$937,500. In Solano County, the “cheapest” county in the Bay
Area, the median price soared 30.4% to $300,000.
Alas, sales plummeted 12.9% to 6,308 houses and
condos in the Bay Area, the worst March since 2008, and the
second-worst in the history of the data series going back to 1988.
And the debacle was concentrated at the lower end: while sales of
homes over $500,000 rose 5.2%, sales of those under $500,000
collapsed by 32.9%.
The
same phenomenon is playing out across the nation.
Redfin,
an electronic real-estate broker that covers 19 large metro areas
around the country, saw year-over-year price gains of 9.9% in March,
after 17 months in a row of double-digit gains. Las Vegas topped the
list with an annual gain of 20.8%.
But
home sales in these 19 markets dropped 11.6% year over year,
the fifth
month in a rowof
sales declines. Beyond California, where sales fell off a cliff,
sales in Washington DC tumbled 13.5%, in Las Vegas 15.8%, and in
Phoenix 17.3%. It’s tough out there.
Some
analysts, tired of looking silly blaming the weather, started
blaming low inventories. So inventories were flat in the 19 markets
overall compared to March last year; no reason for plunging sales. In
Boston, Portland, and Austin inventories dropped. But in the cities
where the sales plunge has been particularly nasty,
inventories skyrocketed:
up 41.9% in Phoenix, 28.9% in Ventura, 25.7% in Riverside, 24.8% in
Los Angeles, 23.1% in Sacramento, 21.3% in San Diego.
And the number of new listings across the 19
markets rose by 6.3%, the first year-over-year growth in March in
three years. The usual suspects in California saw the largest jump,
with listings in Ventura up 13.1%. But they were up elsewhere too: in
Long Island 12.7%, in Las Vegas 11.9%, in Chicago 10.6%, in Phoenix
7.8%, etc.
You get the idea: rising inventories, rising
new listings, soaring prices, and plunging sales. Something has to
give.
Unlike
stocks, housing is subject to the real economy. When the price at the
bottom half of the spectrum soars beyond what people can afford even
with today’s still extraordinarily low interest rates, and beyond
what makes sense for speculators that fix them up and rent them out,
then demand stalls. Homes sit. Sellers get frustrated. People who
need to move can’t move because they can’t sell their house for
the price they want. People who want to move up can’t. Pressure
builds. And eventually, the prices that the Fed conspired to inflate
into the stratosphere, well…. This is like so 2006.
Giant
PE firms and REITs have become the largest landlords in the country
over the last two years because “there was a moment in time where
it made sense,” but now home prices are too high and the business
model has cratered. Read….. Hot
Air Hisses Out Of Housing Bubble 2.0: Even Two Middle-Class Incomes
Aren’t Enough Anymore To Buy A Median Home
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