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US Property Prices Score More Records On Marquee Index
"Another all-time high."
That was the overarching message from Tuesday's update on America's marquee gauge of home prices.
Not that anyone needed additional evidence to support the contention that property values are stratospheric. Last week, data showed prices for both existing and new homes rose again in April, further complicating an already onerous affordability calculus for millions of would-be homeowners.
Tuesday's Case-Shiller release, reported on the usual two-month delay, found the 2
Commercial real estate problems will eventually ease the Fed’s challenge in dealing w/ the “inflationary impact of high rates on [home] supply.” I doubt CRE is in any better shape than it was a year ago even if we hear very little about it these days. Granted, something else may blow up first, green-lighting the Fed’s rate slashing tendency.
Do higher rates actually have an inflationary effect on housing prices? I think the answer may not be broadly “yes” or “no”, but rather it may vary with the state of the economy.
Suppose the Fed took rates high enough to bring on a recession – not a vibe-cession or a slowdown, but a real recession with unemployment 6%, high default and delinquency rates, bank stress, negative consumer spending growth, sustained bear markets, etc. Do we think housing prices or rents would continue inflating? Or that demand weakness would trump supply weakness?
Right now, higher rates have not done much to suppress demand in general. Employment, wage growth, asset price growth are all supporting demand in most categories, including housing.
The Fed is not going to intentionally drive the economy into recession just to hurry up pushing inflation the last 100 bp from 3% to 2%. So the Fed’s primary tool to suppress housing inflation will probably remain holstered.
There are secondary tools the Fed can use. Selective QE focused on MBS, different capital/risk treatment of construction/mortgage bank loans, etc. I don’t think most would want to see the Fed get that sector-specific with its tools.
Not that anyone is asking me but I would…
… though, tbf, I think the CB tools are a lot less adapted to solving the issue than reforming zoning and using sector-specific fiscal tools, something we’re a lot more familiar with…
Related topic, watch California AB2584 (prohibit ownership of over 1,000 single-family rental houses). Passed House with some bi-partisan support, now to Senate.
I’m not sure prohibiting PE buying is really the priority or the solution to California lack of housing supply but hey – again, no one’s asking my opinion… 🙂
I think large-scale institutional SFR ownership is a dangerous thing that must be controlled. Not just due to the impact on housing supply and pricing, but rather due to the implications for who gets the economic rewards from housing ownership.
On failure to suppress demand, I’m reading that about in the US about 130,000 newly delivered apartments were absorbed in 1Q24, a huge number compared to average 12,500 in 1Q, and vacancy rate went up only 10 bp in the process. The demand for new class A and B+ apartments is very strong.
Keep building!
Fortunately, if you own MFD REITs, the building has slowed dramatically so new supply will contract sharply in 2025. Now we just cross fingers and hope that demand aka employment remains solid next year.
Housing inflation continues to rise but the Fed thinks now is an opportune time to begin reducing the pace of balance sheet runoff for MBS? Yeah, that oughta slow down rising home prices big time! This feels like 2 years ago when the Fed didn’t think inflation would be a problem. Next up, rate cuts, just in time for the election! Damn the torpedoes, full speed ahead!
Only the Treasury runoff cap was lowered. The MBS cap’s unchanged, and it anyway only matters if MBS redemptions actually exceed the cap, which is contingent on a whole host of factors.
High interest rates have clearly not impacted home prices as forecast by the Fed models. (There is no such thing as static equilibrium in the real world, is there?) It’s heartening that a couple of Fed governors have finally mumbled some acknowledgment of that.
But speaking of constrained supply, check out a story in B-berg about how more & more hybrid mortgages are moving from fixed (at much lower levels) to current floating rate levels. Won’t this release some of the “locked-in” supply once monthly payments jump? And will it be enough to materially affect supply and pricing? Paging JL!
https://www.bloomberg.com/news/articles/2024-05-29/rich-us-homeowners-with-adjustable-rate-mortgages-are-about-to-get-whacked
Sounds from the article like there are relatively few fixed-to-floating mortgages out there and that caps should make the adjustments manageable for awhile. I would think after the cap protection expires, most of these houses will be sold, which will slightly increase existing house supply.
Nothing like Canada, where floating rate mortgages are the norm, have been adjusting higher, and homeowners are under all kinds of stress.