2M+ home sales are up 25% yoy and are back near 2021 highs. Home sales under 800k are down 20 to 45% (mid-tier homes hit the hardest) and home sales between 800k and 1M are flat to slightly negative. Even worse the share of luxury home sales versus total sales has risen after falling in the second half of 2022. It is now even greater than in 2021 as demand at the middle and bottom has been crushed by high rates and upper-class home sales are flat.
Simply put we are selling fewer homes but more luxury homes as the top is still being courted by banks for their wealth management business and borrowing at lower rates. Instead of First Republic Bank doing 58B in interest-only mortgages, it’s JPM. It’s good to be the king.
We have a national real estate market that is correlated to market movements. Been the case since early 2000. The market goes up and more luxury homes are sold just like private jets, yachts, and exotic cars. The market falls and those goods fall. Homes are no longer shelter or assets but goods.
The wealthy do well they sell and buy homes while the middle class either can’t buy due to high rates or can’t sell and buy due to high rates.
We have a dysfunctional economy. Demand is being propped up by 10% of households and the bottom 90% is struggling. The economy will not go into recession yet nor will it beat inflation.
The Fed will hike next week and the markets will shrug it off as the last one. September after getting 2 more inflation reads that will show inflation picking up again (end of base effect, July 2022 read 0%, more spending by the top, dollar falling, and commodity prices rising) and the Fed will raise again.
We could solve a lot of problems with higher taxes on the top 10% versus raising the cost of living on everyone else that doesn’t own 90% of the stocks or bonds.
We could be waiting for Godot for the cumulative effect of rate hikes to crush demand from the bottom as the top keeps buying with their dividend payments and stock rallies.
If we do decide to wait for Godot we might just find out he is bringing a lot of picketing friends demanding raises and we can all dine together at a restaurant with a stagflation fee of 15%.
