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Signs of Weakness
The percentage of houses where the price had to be cut in order to be sold has risen recently.
This percentage rose from ~2% at the beginning of the year to over 7% now.
This is a very fast change and shows some cracks in the housing market.
Another way to visualize the weakening consumer is through Google Searches for late rent and mortgage payments.
The search term "Late on Rent" has risen rapidly in recent months.
Credit to @LarryCheungCFA for sharing this insight.
Pandemic Savings are Drying Up
Personal saving rate peaked at 33.8% in April 2020 in the midst of lockdowns.
Now, the rate is at 5.1%, which is below average.
Many households used their savings to put in larger deposits for houses, but that excess money is no longer available.
Weak Real Wage Growth
The chart below from @PensionCraft shows how inflation adjusted wages have fallen off a cliff in the last two years.
With ~9% inflation, purchasing power is eroding and income simply cannot keep up with rising home prices and higher financing costs.
Homebuilders are responding to this excess supply of new homes and demand destruction from higher rates.
Recent data shows that housing starts (how many new constructions have started) have plunged 9.6% MoM, reaching its lowest levels since February 2021.
The primary reason for rising and resilient home prices:
Low Supply.
This chart from @EPBResearch shows how many months it would take at the current pace of sales to clear housing inventory.
Supply of EXISTING homes is well below historical averages.
Why is this important?
The cost to take out a mortgage is very expensive.
The 30-Year Fixed Mortgage Rate is at 5.22% (it was under 3% two years ago.)
This rapid increase in mortgage rates combined with higher home prices has made mortgage payments soar by 37% Year over Year.
Affordability is a problem.
Wages grew by ~5% in the first quarter of 2022 relative to the previous year.
In that same time period, the median home price increased by ~17%.
Home prices relative to income have become more expensive than at the peak of the housing bubble.
Real Estate has been a fantastic investment over the last decade.
Median home prices:
2009: $208,400
2020: $329,000 (58% increase in 11 years)
2022: $433,100 (31.6% increase in 2 YEARS!?)
Clearly, home price growth has accelerated sharply since 2020... is it sustainable?
Many of the insights gathered in this thread were inspired by @PensionCraft's video:
Is the Housing Market Going to Crash?
Link: youtube.com/watch?v=bJjMz-iD…
Other sources used will be listed at the end of the thread.
Let's get into it!
Intro to the Housing Market
Homes have been getting expensive - home prices relative to income are at highs exceeding those of the Great Financial Crisis.
But why are prices continuously rising and what might drive them down?
Here's a primer on the housing market!
🧵👇
Big move in $TLT today as investors are selling off long-duration bonds.
Do equity markets follow as investors realize that 8.5% inflation is not a good reason for the Fed to pivot?
What are your thoughts on where credit and equity markets move from here?
