Three Telling Housing Stats and the Best Way to Profit

Lou Basenese

Wednesday, August 10, 2022

Months ago, I started sounding the sirens on the runaway residential real estate market.

Of course, no one wanted to listen. Even given my track record of successfully calling the top and bottom of the last boom-bust cycle.

Why the Rodney Dangerfield-level disrespect?

Because, they said, soaring mortgage rates and soaring prices and soaring inflation couldn’t overcome the undeniable fact that there's a chronic shortage of supply.

And the legion of still basement-dwelling millennials all issued a collective, “You tell him!”

Fast-forward to today — and the reality (i.e., the data) is setting in that I was indeed right. Even the strongest demographic trends can’t overcome market trends.

Here’s what’s going on, why it’s only going to get worse, and most importantly, the best way to profit…

What Goes Up…

As a refresher, I previously shared how the tide was rapidly changing in the real estate market.

Exhibit A: Monthly new home sales plummeted back to square one / pre-pandemic levels.

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Exhibit B: Mortgage rates went parabolic, instantly exacerbating already pesky affordability concerns after years of soaring prices.

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And Exhibit C: Forget new or old, it didn’t matter. Buyers started walking away, as 15% of transactions failed to close.

(click image to enlarge)

Against such a backdrop, it was only a matter of time before prices started reversing course. Especially since they were so overstretched already (see below).

(click image to enlarge)

Sure Enough…

A hot-off-the-presses read on home prices reveals that the 44% increase in average prices over the past two years is kaput!

Per, one in seven home prices on the market in June had a price reduction. That’s roughly double the rate from a year ago.

“The days of bidding wars and homes selling for tens of thousands of dollars over asking are over,” said Daryl Fairweather, chief economist at Redfin.

Indeed! And here’s why the price reductions will only become more prevalent…

Real estate’s not a liquid asset. Therefore, new price equilibriums can’t be found quickly like they can with say, stocks. So it takes longer and more severe price changes to find the new equilibrium price.

Add in the extreme emotional component to real estate purchases, and any market changes get exaggerated, as psychology (i.e., fear and greed) kick-in.

What’s more, the fact that final sales prices take time to show up in MLS systems and tax rolls leads scared sellers to overshoot the mark even more, as they prioritize getting whatever they can versus getting stuck holding onto a property.

More simply, price declines beget more price declines. The fact that they just started means more reductions, and more severe ones, lie straight ahead.

Two More Damning Statistics

As if the price declines aren’t scary enough, we’re now seeing the last bastion of real estate price support (i.e., supply) falter.

Per Bloomberg, “The US supply of new homes relative to sales in June was the highest since the midst of the last crash in 2010.”

For some perspective, supply now stands at 9.3 months, up from 5.6 months at the end of last year, and 3.3 months in August 2020.

If you prefer less traditional but highly instructive stats, consider: traffic to home-builder websites and sales offices plunged to the lowest level since 2012, according to a National Association of Home Builders survey.

Add it all up, and look for the trends of declining sales volumes and declining prices to get (way) worse from here, making the Trend Trader Pro “Trade of the Week” all the more timely.



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Ahead of the tape,
Lou Basenese
Lou Basenese


Tags: Housing

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