You heard the narratives of not enough inventory, too much equity, too many homeowners with low rates, not enough new construction, blah blah what ever the real estate associations and realtors say.
Well not this realtor that actually bothers to look at economic data and indicators.
Demand matters, type of demand matters, banks matter, economic data matters. All of them point to the direction of lower prices. Some in the industry conveniently forget that.
Like I always say “banks buy homes not people”. So forget about banks that are looking at mounting paper losses and their over the counter operations at the Fed. They are starting to seize up so forget about banks giving low interest loans this year with the Fed fund rate and short term yields going higher short term and then stagnating for a while. We had the loosest borrowing in a decade after the initial pandemic shock and that was a mistake.
Forget about demand when mortgage applications have cratered to 20+ year lows and won’t support at current levels more than 4.3M homes sold (down from 6.17M in 2021).
Forget about strong qualified demand which is seeing negative wage growth, more layoffs (at the upper middle end), and falling savings rate (can’t afford a downpayment) after top end buyers bought x3 more homes than normal in 2020 and 2021. Who is left? Not the best qualified.
Forget about not enough new construction when we still have 1.5M new construction and builders trying desperately to offload thousands of units to hedge funds and pensions funds not buying (see banks for reason) and with 25% cancellation rate.
Forget about a strong economy when salesforce that sells sales software to everyone that sells is laying off 10% of their labor force. When sales people are layed off that means sales are down. They are a profit center.
But most importantly forget about high equity as that is the most meaningless number in real estate. People don’t buy homes because someone else has equity and no is ever forced to sell or is foreclosed on because their home has too much equity. The economy, life events, employment, and their ability to pay the mortgage/property taxes/upkeep makes people buy or sell.
Right now a perfect storm is brewing. Demand has crashed and soon potentially sellers will be reminded that the economy, life events, unemployment, and their ability to pay the mortgage/property taxes/upkeep will determine if they are forced to sell or be foreclosed on.
Indicators matter. Being honest to the general public matters. My wish is that RE associations, brokers, and realtors become more transparent to the general public so they can at least be prepared and not be surprised to what is most likely to happen.
2023 will be a rough ride for the real estate market.