A Mexican stand-off in real estate!
Homebuyers are refusing to buy as long as rates are above 5.5%. Sellers don’t want to sell It’s a standoff. But who is right?
According to the CNBC article “The majority of potential homebuyers, 71%, say they will not accept a 30-year fixed mortgage rate over 5.5%, according to a survey done in March by John Burns Research and Consulting. The current rate, however, is around 6.4%.”
In my mind sellers are delusional about home prices are to go up as long as rates are above 6% and prices are well above x7 median income. Homebuyers are delusional that they will see rates come down below 6% for a while and if they do they won’t qualify during a credit crunch or won’t have the incomes.
Not sure how this helps the real estate market and how this will help home sellers as sales and home prices continue to fall as headline inflation stays well above 5% eroding their purchasing power if they sell and banks slash their tappable equity.
If the Fed is correct and we do get a mild recession no one is going to win and especially not home sellers that are staying stubborn. If unemployment rises we could quickly build inventory as the number of homebuyers shrinks. We are already seeing high inventory in new constructions as it sits above 8 months. The idea that good times are coming right around the corner is a mistake that many are making in the industry.
We have some major issues in the banking sector that are seeing AOCI losses rise as deposits are falling and more headaches are coming with treasuries held to maturity. The banks are shrinking lending at a fast pace. Reserves are falling, depositors are asking for higher rates, defaults are rising, and bond spreads are increasing.
If sellers think that we are going to see a rush of buyers during a credit crunch in the middle of a mild to severe recession then they are in for a rude awakening in the next 12 to 18 months. We are facing major structural issues and the constant narratives from the real estate industry are feeding them hopes and dreams.
We can’t have vacancy rates in office space nearing 20% and be good for the CMBS and CRE loan market which is predominantly financed by small and regional banks facing deposit flights. We can’t have BBB corporate bond spread hitting record highs and be a good thing for companies that are laying off white-collar jobs that are the bulk of homebuyers. We can’t have banks shrinking loans and starting to sell their MBS and Treasuries to stay afloat and expect money to flow into real estate buying up everything over asking.
It’s just not possible. It’s delusional!
