Now we’re gettin’ somewhere! Maybe lose the exclamation point, though.
Existing home sales in the US rose a third month in December, suggesting further “thaw” in a market that spent the better part of three years encased in carbonite, like Han Solo.
Last month’s annualized pace, 4.24 million, was the best in 10 months. The 2.2% gain from the prior month means the US resale market’s enjoying its longest stretch of monthly advances since 2021, before the Fed started hiking rates.
On a YoY basis, sales rose more than 9%, the best 12-month gain since October of 2022, when stocks troughed for the cycle.
Still, as the figure above makes abundantly clear, there’s a very long way to go before this rather vexing situation counts as “resolved.”
Underscoring the notion that 2024 was a historically challenging year, total existing home sales were just 4.06 million, the fewest in three decades.
Again: That total includes a strong showing into year-end. So, it could’ve been even worse, particularly in the context of rates, which rose in all but three weeks from late-September onward.
That latter point — i.e., the juxtaposition between rising rates and improving home sales — does suggest there’s some truth to the idea that Americans are acclimated to, resigned to, fatalistic about or whatever you want to call it, higher financing costs. “Home sales in the final months of the year showed solid recovery despite elevated mortgage rates,” NAR Chief Economist Lawrence Yun said Friday, adding that “consumers clearly understand the long-term benefits of homeownership.”
For any of you who’ve never experienced those “benefits,” let me present a balanced, modernized and, importantly, unbiased assessment. Because frankly, I think the owning-versus-renting calculus isn’t as clear-cut in terms of one being plainly preferable to the other as it was a few decades ago.
Owning a home’s preferable to renting because as long as prices appreciate along a predictable annual trajectory, a house is a de facto piggy bank. Price appreciation generally offsets the interest paid such that in the end, you own something that’s worth somewhere in the neighborhood of what you paid to live in it over the course of a glorified rent-to-own plan. That’s not the worst deal in the world, and on a simplistic view, it’s far preferable to renting, because that money (the rent money) is gone forever as soon as you write the check.
But, principal and interest are just one part of your housing costs when you own. There are also taxes, “regular” insurance, flood insurance (and yes, you do need that, even though it’s usually not required) and the never-ending costs associated with upkeep and upgrades. Those latter costs can be escalatory, and the nicer your home, the more expensive they tend to be (because if you cut corners, it sticks out). You really have to experience that first-hand for it to sink in. And to reiterate: It’s never (ever, ever) over.
For example, I personally just spent $12,621 on a new shower for my downtown loft because the “old” one (which actually wasn’t very old) wasn’t a Schluter-Systems job. As it turns out, you need a Schluter-Systems install. Of course, the floating glass enclosure I had didn’t fit anymore once the remodel was done, which meant I needed to buy a new floating glass enclosure, which was priced initially at $2,500, but ended up being $3,750. Bottom line: If you’re going to own a nice home (or a nice loft, or a nice condo) and particularly if you’re going to own more than one, you need to be in a financial position that allows you to spend tens of thousands of dollars, and really up to $100,000, at the drop of hat, without missing it.
When you throw in the fact that the current generation of prospective home-owners wants different things out of life than previous generations, the cost-benefit analysis looks nothing like it once did. Morbid as this sounds, there’s also, I think, a philosophical dynamic at play wherein a lot of younger adults understand they could die tomorrow. Or next month. Or next year. That realization makes the idea of spending $15,000 on a tile shower versus, say, a Chanel handbag, a dream vacation and a Taylor Swift concert, seem little short of insane. (“Ms. Smith, I have some bad news: You have terminal cancer.” “Well, doc, I may die young, but at least my shower drain has the Schluter-Systems logo engraved on it.”)
In any case, Friday’s NAR release showed prices for the median existing home rose (“progressed,” as Yun put it) 6% YoY last month.
As the figure shows, it was the 18th straight month of annual price appreciation, and it was the briskest increase in 26 months.
“The median home price was elevated partly due to the upper-end market’s relative better performance,” Yun went on, noting that sales of homes worth more than a million rose by 35% YoY, while sales actually fell for homes priced under $250,000.
According to Redfin’s near real-time data, the median monthly housing payment in the US was $2,686 in the four weeks to January 19. That was the highest in seven months.
Trump will fix it!
But as you highlight here and some of your prescient readers have also argued, people seem to be getting accustomed or inured to higher interest rates.
As my mother pointed out to me when I bought my first home, once you own a house, it becomes your hobby, whether you want it to or not.
Especially one built in 1900. I never knew how expensive copper work on a large roof could be.
Invoking the discussion of copper versus plastic plumbing in Moonstruck….
I am thinking we are at the cusp of a materials revolution. I know that has been stated before, but I think the elements are coming together.
Our understanding of physical chemistry allows us to extract formerly energy intensive minerals in low energy ways. This coupled with cheapening energy will allow mass production of water, steel, and cement at much reduced costs. I hope we also crack the copper nut.
We are seeing much better understanding of 3-D printing and injection molding. Both of these are required to cheaply produce complex parts in low cost ways. We can do metals and other materials now with both technologies.
We can now make everything on the gulf coast with electricity, water and carbon dioxide. Organic chemicals at low cost will eliminate need but not economic incentive to drill. We have had only one possibility in the past and that is to drill.
These fundamental manufacturing technologies will transform our society and create an economic boom. So why are we at each others throats trying to do the bidding of the latest robber barrons who wants to own everything and dictate everything from reefer filled rooms?
3D printing keeps chugging along, becoming more and more useful in many realms, including medical devices.
It’s easy to forget that it once was breathlessly touted by Wall Street as being a world-changing technology which would eliminate the need for large-scale factories by localizing the production of all types of goods. For amusement value, put up a chart of SSYS and DDD starting in September 2022.
The rally and subsequent round trip in those shares looks familiar doesn’t it? You could superimpose it on top of later day charts of weed, blockchain, metaverse mRNA and, dare I say it, AI stocks. All of which were declared to be transformative new technologies.
That said, 3D printing has been chugging along, eventually fulfilling some of the promises Wall Street told us to expect before investor ADHD set in and we all moved along to the next theme.
So our Engineer may be on to something. Hell, the PVC piping I referred to in my initial post was a great example of that. Copper prices became prohibitive and PVC plumbing rode to the rescue. Just as modern can liners reduced or eliminiated the need for tin in tin cans.Or the invention of synthetic rubber for thar matter. Eventually high prices draw in alternatives.
This ages-old process is already starting in AI GPUs as well.
I should review more carefully before hitting the send button. The starting date on the SSYS and DDD charts should be September 2011. 2011, not 11 years later.
Dear Leader – we do need an edit function to help ancient and impatient commentors! (Or perhaps I need a curvaceous young assistant to proof read my posts before sending them…)
Yes, I think the AI GPU’s will be a relic of the past soon. Quantum and/or light computers will be able to hum where a server farms groan to rid themselves of heat. By the time these nuts get nuclear power plants up and running, there will be real competition.
It was not an accident that I paired metal injection molding with 3D printing. Cycle times for 3D printing are not competition with high rate production techniques like high volume injection molding. 3D printing competes with human involvement, whether that is machining, hand assembly, distribution or low volume injection molding.
Hydrometallurgy has come a long way in the past few years with direct extraction of lithium, hydro metallurgically derived cement, or iron extraction. I expect chemists will figure out how to extract base metals from the ocean, thereby recycling much of what has been lost over millenium. Natural ocean processes in the form of ocean bottom nodules show the potential for a wide variety valuable minerals from ocean water.
Is it possible that the current generation is less concerned about housing because they are living with their parents?
I think in a world that will be get ever more remote in terms of work, needing to stay in one place for an extended part of one’s life is a bit anachronistic. An exception would be to have children, but more young people are having them at a later age or not at all.