Between an ongoing decline in the annual rate of nominal home price appreciation and the energy-driven surge in headline CPI inflation, real US housing wealth fell the most since the summer of 2023.
That was the standout takeaway from Tuesday’s update on the marquee measures of US home values. The report also showed prices fell outright on a YoY basis in over half of America’s largest 20 metros in March.
In the accompanying editorial, Nicholas Godec, S&P’s head of FICC, described “a broadening and deepening housing slowdown.”
The figure above shows you the deepening contraction in real home price returns.
On the Case-Shiller 20-city gauge, the decline was nearly 2.5% during the first month of the war. (Remember: These indexes are updated on a two-month delay.) Using the broader, national index, the inflation-adjusted drop was even deeper.
In a continuation of the recent trend (which is itself a reversal of the pandemic boom dynamic), the Midwest showed relative strength while the Sun Belt sagged. Chicago led all cities with a 6.1% annual gain.
Commenting further on Tuesday, Godec said that notwithstanding a modest “spring lift,” the market has “little underlying momentum.”
The increase in mortgage rates (a function of higher Treasury yields) has “re-intensif[ied] the affordability squeeze on buyers, further damping home sales and price growth,” he added.
Real prices are in a years long process of correcting. It probably takes until the end of the decade. Better than a crash and makes housing more affordable for those currently locked out. Rates are one of the least important factors in pricing btw.
I think home-buying’s largely out of the question for GenZ and beyond. If you look out across the country and filter on real estate websites for homes that strivers (or “aspirers,” or whatever we’re calling them) would actually want, there are almost no metro areas of any significance where those kind of homes are less than $800k. Even in somewhere like Louisville, KY (hardly a city anyone would be excited to move to), you’re looking at $700k at least to get something half-assed.
Here’s a good example: https://www.zillow.com/homedetails/1507-Lincoln-Hill-Way-Louisville-KY-40245/310728406_zpid/
I realize calling that “half-assed” is insulting to some readers (a lot of people would call that a dream home), but I think most of you will generally understand what I mean: That listing, objectively nice as it is, is still a spec home, in a spec neighborhood and if you just kinda eyeball the details in the pictures (i.e., train your eyes to look past the faux-marble, etc.) you can tell it’s not especially well-built.
Point is: If you’re, say, 30 years old and you’re thinking “I wanna buy a house that’s objectively nice for me and my family that’s somewhere near a decent-sized city,” you’re looking at a bare, bare minimum of $740k, and that’s if you’re willing to go somewhere like Louisville.
Unfortunately, many of the new homes being built now start to really show their age after 15 to 20 years. Construction materials have been consistently downgraded in tract housing and well into the custom ranks. Many young families’ aspirational housing dreams are now restricted to high density cookie cutter homes with very little hope of reaching escape velocity.
Oh, God, when I said “well-built” I just meant a GC using decent subs with passable materials. I don’t think this occurs to most people, but if you wanted to build a pure custom home today, that was, let’s call it 3,000 square feet, and you wanted four-sides-brick/stone and you were determined that all the materials inside needed to be actually high-quality (e.g., solid wood interior doors, serious cabinetry, hard wood floors (or even engineered hard wood laid right), crown molding done correctly (i.e., no seams that are going to open up immediately as the house settles), custom tile showers done right with floating glass and so on — in other words if you were to tell the GC that you wanted real materials and you insisted on every sub being serious about their work, I dare say that 3,000 square-foot single-family home would run you $2 million at the low-end. This is going to sound ridiculous, but if you wanted an actually well-built, 4,500-square foot, custom home for your family of four, it’d probably run you $4 million. People don’t understand: These homes that are going for ~$1.5 million in third-tier cities that look like “estates” are just spec homes where the customer added a room here and there and spent an extra $400k on “finishings.” Those aren’t real custom homes. Real custom homes are a thing of the past. I’ve looked into it. It’s a laughable proposition now financially. Just as an example, I asked my tile shower guy how much it would cost to create a “real,” so to speak, version of the $15k faux-marble walk-in I had done last summer, and the first thing he said was “Well, I couldn’t do it and I don’t know anyone around here who could,” and then he said that assuming you could find someone with the skillset, that $15k shower would probably be $50k-$75k. And it’s the same thing, btw, with these ostentatious-looking stove backsplashes. Those aren’t what they appear to be. A “real” version of those popular backsplashes would cost you a Honda Civic. Just for a backsplash.
Here’s a real house in Knoxville: https://www.zillow.com/homedetails/6203-Westland-Dr-Knoxville-TN-37919/41678945_zpid/
And honestly, that’s a bargain price for that property. The reason it’s “only” $4 million (and you can’t see this in the pictures), is that it sits at a crazy-busy intersection. Decades ago, when it was built, there was basically nothing around it. Now, there’s a major thoroughfare that sits literally right on the other side of that creek. The pictures make it look like it’s in The Shire (from “The Hobbit”) but in reality, there’s a four-lane and a massive intersection right there in front of it. Otherwise, that thing would be $8 million.
But yeah, the point is, if you look at the interior pictures, you can’t have a home like that built anymore in a city like a Knoxville. It’s impossible. Sure, you could build it in Miami or LA. But you’re not going to find a builder in a “normal” city who has the materials and the subs to make that happen on any kind of reasonable time frame.
That house would be 12 million in Nashville. It’s priced like California without the beautiful weather and amazing natural amenities.
You’d have to see the intersection. That’s why it hasn’t sold. It’s pretty damn busy. I mean, it’s still in the best part of Knoxville (Sequoyah Hills), but there are probably 25-30 cars at that intersection at any given time from 6 AM all the way through ~8 PM. You couldn’t sit in that yard and enjoy yourself. It’s actually really sad. Because otherwise, that would be Knoxville’s premier property. That yard’s iconic (the grass on the bridge especially).
What about this? Keep the money invested in the stock market that you would otherwise spend on a down payment.
https://www.zillow.com/homedetails/300-W-Jackson-Ave-Knoxville-TN-37902/455670164_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare
Tile shower guy? Do you have a shower curtain ring guy?
Of course. And as you surely know, there’s only one shower curtain ring guy you’ll ever need. Accept no substitutes.
This is why I like old houses and learning to work on them.
My city is full of 1900s-1920s houses, from bungalows on up. Some look pretty tired, systems need replacing, a century of handyman work. But they are habitable, you can get into one for $300K and fix it up. The original lumber in those old houses is beautiful old growth, tight grained stuff – today we’d use it for fine furniture. In the end you might put another $200K into the house, but you’re doing it over time, when funds allow, and if you learn skills and put in long hours, that can be $100K.
The new houses around me are OSB and vinyl. They sometimes get framed up in the fall, sit in the rain all winter, are finished in the spring with synthetic stone, plastic wood-look flooring, discount builder-grade appliances and after awhile the new owner wonders why the house has mold and why all the appliances suddenly need replacing.
I just gutted and remodeled a 1,350 square foot condo in Dana Point CA. All custom and real materials. Cost $310,000 and we got a deal from contractor/friend we have known for years. Once you dig into a remodel it’s hard to stop short of doing it right. Contractor told me it would have been 40% cheaper if we did it 5 years ago – when we first talked about it.
There you go. 1,350 square feet, real materials, real subs, and just a condo remodel, not a house build, and you spent $310k with a friend discount. That pretty much validates what I’m saying.
Did the same in the NL (110 sqm) and cost only EUR 85k (house from 1910). There seems to be a huge difference in costs for actually getting work done in the US. Feels like an insane amount of profiteering.
We put in new duct system, changed wall texture (orange peel to smooth) 100%, switched from gas to electric kitchen, replaced every fixture, moved/removed walls, and rewired. I was serious, gutted the place.
Same, except that we didn’t need to move any walls. Prices in the US just seem to be on a whole other level. Like healthcare.