Previously owned home sales fell in the US last month. Because why wouldn’t they? Mortgage rates averaged 6.9%.
Somebody will say that’s not especially onerous in a historical context, to which I’d say “That’s correct, but it’s onerous in the context of the last dozen years, and it’s set against near record high prices.”
Also, many first-time buyers don’t remember the historical context, and they’ll be forgiven for any recency bias they might harbor: After all, they weren’t alive for the history we reference when we talk about 8%, 9% and 10% mortgage rates. That’s our context. Their context is the free-money era.
The 4.43 million annual pace of existing home sales last month was actually a bit better than estimates, but it nevertheless counted as the slowest rate since December of 2011 if you don’t count the pandemic months.
It was the ninth straight monthly decline (figure below). That looked like a record, if you’re curious.
The 5.9% drop was the second largest of the nine-month stretch of declines, and among the largest of the pandemic era.
“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” NAR Chief Economist Lawrence Yun sighed. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”
From a year ago, sales fell more than 28%. The figures came at the end of a week which featured a mixed read on starts and permits, as well as an eleventh consecutive drop in a key measure of homebuilder sentiment.
A quarter of existing homes purchased last month fetched above-asking. At the same time, though, homes which were on the market for more than four months saw prices cut by almost 16%. The annual rate of price appreciation was 6.6%, nowhere near the torrid pace seen on key national gauges earlier this year, at the top of the market. Prices did rise in every region. All cash sales accounted for 26% of purchases.
Inventories were obviously still constrained last month, which is contributing to price buoyancy. Total inventory fell both from the prior month and from October of last year. The slower sales pace means it’d last longer, though. Months’ supply moved higher, and now sits almost one full month above the 2.4 level seen in autumn of 2021.
At $379,100, the median price still seems high. I continue to question a conjuncture in which average families are expected to conjure $80,000 to buy a “regular” single-family home. That’s not so much a comment on what homes are or aren’t worth as much as it is an attempt to (again) convey my incredulity at the notion that prototypical newlyweds (for example) have $80,000 in totally unencumbered cash sitting around just ready to be spent. I’ll qualify that statement too. $80,000 isn’t a lot of money in itself, and if it’s just you, with very little monthly “life overhead” (so to speak) and you’re gainfully employed, then sure, ok, wire $80,000 and buy a house. That was essentially my situation once upon a time, albeit with different numbers. But it’s hardly that simple for the vast majority of first-time buyers, most of whom have considerable monthly expenses, less-than-perfect credit, other debt burdens and, of course, children. If we want homeownership to be affordable for real people (where that means families with normal jobs), a more reasonable starting point is a $50,000 down payment and a 5% mortgage.
Earlier this month, the NAR released its 2022 Profile of Home Buyers and Sellers. Among the highlights: First-time buyers accounted for just 26% of purchases this year. That was down dramatically from 2021, and counted as the lowest share in the history of NAR’s data. The average first-time buyer was 36 years old, a record high.
Oh, and incidentally, have a look at this listing. Seems perfect for an island exile looking for new scenery.
Go for it H! But $1.5 million for a studio sure seems rich.
Yeah, but look at the details of the property. You basically own the whole hill. It comes with 20 acres and having been to Asheville on innumerable occasions, that view is probably otherworldly in the evenings. Frankly, it strikes me as odd that it’s only $1.5 million. Because you’re obviously not buying the studio. I mean, it’s fine and all. But you’re buying the property. And that is an extremely scenic area. In fact, they built a highway connecting two states right around there a couple of decades ago, and it has several breathtaking scenic overlooks / pullovers. If that property is where I think it is, you’d basically be looking down onto that highway from what might as well be cruising altitude.
Madison Cawthorn aside Asheville is a lovely underrated community with a very interesting history. My sister in law is a weaver there. Very large craft community there and it has a very nice climate. It is a pocket of blue politics in a red region.
Here’s 40 acres for less and I’d be happy to stop by in the spring to help with branding the calves. (expecting a little deer and elk hunting in the fall) You’ll need to bring your own Beth Dutton.
https://www.trulia.com/p/wy/moorcroft/16924-us-highway-14-moorcroft-wy-82721–2074600956
Having just sold 22 acres, you might need to get handy with a chainsaw or make fast friends with some local contractors, make sure you have someone to plow your driveway — there may be more maintenance than you think!
I miss it already though — that spot looks dope H
Can’t say I’ve been to Ashville, but it may be difficult to find help out in the middle of nowhere. A lot of folks won’t travel outside of their jurisdiction, and the locals aren’t always on the up and up.
This is the thing, though — this is a big part of what set off alarm bells for me about the housing market late last year. It was obviously in bubble territory. I knew that just from my normal, everyday US data coverage here. What I found to be bizarre was the extent to which, when I started perusing listings in a handful (and by “handful” I mean at least 7 or 8) very small cities that I once found occasion to visit, I discovered that $1 million+ didn’t necessarily, as a rule, get you something objectively impressive.
Now maybe my definition of “impressive” when it comes to homes is different than other people’s, but the key point is that when I say “small cities,” I don’t mean, you know, Denver. I mean small cities. Cities you’ve almost surely never thought about going to, if you’ve heard of them at all. That, to me, was a bridge too far. I mean, if you’ve got a city of, let’s call it 80,000 people, and it’s not in any kind of “prime” area (i.e., it’s not near a bubble city, it’s not on the coast, etc.), the idea that, say, $1.2 million doesn’t buy you a mini-mansion, is somewhat odd, and, in my opinion, detached from reality. In light of that, I’ve kinda been looking at more “creative” options, including “cheap” land. Hence these kinds of listings.
I just moved to Ann Arbor, Michigan — join me H, I could use a friend.
“If we want homeownership to be affordable for real people (where that means families with normal jobs), a more reasonable starting point is a $50,000 down payment and a 5% mortgage.”
Totally agree that 5% with 50k down would be agreeable to many, but I’m not sure how we would ever get to that price and rate mix.
To get to 50k down payments would seem to argue in favor of more expensive money (and lower prices). 5% rates runs counter to that.
10% mortgages with the corresponding prices and down payments might end up being more affordable than 5% rates and wishing for prices to fall.
Buncombe County was one of the largest defaults in municipal history during the Great Depression. At one time Asheville was the largest city in North Carolina. It was one of the most impacted areas during the Depression and only came back in the last 25 or 30 years.
Real estate capital values are based on capitalisation of rent which is based on a particular rent market against the risk free rate. So if your RFR is 3.82 (current 10yr) plus, let’s say 150bp for risk, your rental yield equates to 5.32%. If you are renting or leasing out at a market rate of $3,000 pm that’s $36,000 pa which equates to a capital value of $676,000 (based on 5.32%)… that’s now. If, in the near future, risk free rate hits 5.00% plus a spread of 150bp (more likely to be 200bp as better rated alternatives compete) you get a yield of 7%. Assuming (not a given) you can still get $36k a year rent then the new capital value of your property is $514,000. To amplify, leverage works on the way up and destroys on the way down. I w
A beautiful property. Interesting that it just sold in June for $1,300,000- I would be curious why it has been listed for sale so soon after that sale.
Other than the bathroom (too small, but maybe remove the tub and put in a walk-in shower), it really is spectacular.
I live in 3 homes (all with bathrooms that are too small), the largest of which is 1,200SF- all either in the mountains or on an island. Therefore, it seems normal to me to live in 838SF- plus there is obviously room for an addition.
I think you should do it- as a chronic surfer of Zillow, there are not a lot of this type of property in the US for under $5M. Exciting!
Biggest problem I see is that the guy at 508 Blackberry Inn will always look down on you in your tiny studio and small plot of land. “How can you live on only 20 acres,” he’ll ask, sincerely. It’s hopeless. You’ll grow to hate that smug bastard.
Second biggest problem — but no less troubling than the first — would be the fire hazard from your daily cigars. You, sir, may be better off near water, not woods!
I remember I bought my first house in the 80’s at 14% but it only cost 80k. Also, you only had to put down 5%. Your correct today is not the same with the average house costing 400k.