1) I am tracking a sharp jump in MLS “listed” supply all over the Western region in the past 3 weeks.
In my little city in California for example, listed for-sale supply went from 60 houses to 100 in the back half of July. Say what?!?
We sell 20 houses per month so this market went from 3 months to 5 months supply “going into” the slow season. This is unprecedented. It reeks of panic. And comes as Realtors from coast to coast tell me that the “frenzied” demand pace through May has all but evaporated.
As more evidence clearly presents itself — as the lagging housing data begin to capture the effects of the interest rate “surge” that most everybody has blown off as “negligible” — I am more convinced than ever that it was as a significant catalyst; that a 45% increase in interest rates over 6 weeks has acted a lot more like the sunset of the 2010 Homebuyer Tax Credit — an immediate removal of stimulus that was mostly responsible for driving demand and prices — than any other time in modern housing market history when rates “rose” slowly over 3 to 6 “quarters” giving everybody lots of time to “think” and act accordingly.
I think everybody — private and institutional — knew that sub-3.5% rates was in fact a gift. And over the long, 18-month “gifting period” a great job was done at filling pent-up demand but an even better job was done at pulling it forward.
I would love to hear from real estate and mortgage professionals out there on real-time MLS “listing” activity in your regions. Specifically, if you are tracking the same jump in listed supply as I am over the past few weeks.
2) Some will say that a wave of supply is great for the market; exactly what is needed in an “under supplied market. To this I have a few things to think about.
First, there is not a shortage of houses in which “to live”. This is evidenced in all the legacy bubble/crash regions — new-era “recovery boom” regions — by the large amount of vacant properties; properties under rehab/remodel awaiting sale/rent; and “single-family” houses listed for rent. In Vegas, Phoenix, the inland empire etc — the regions that are getting so much press for being so “hot” — there is plenty of supply in which to live with 10s of thousands of SFR units coming online in the next year. Housing units have simply been misallocated by “investors” — many with with endlessly deep pockets due to Fed QE like all the hedge and private equity funds running these markets — for rentals. This skew will work itself out, as investors smarten up…of course, that will happen all at once when they realize they “are” the bagholders.
Second, “total potential demand” is half of what it used to be. Remember, analysts, builders, the media, investors et al are looking at historic metrics on supply and demand without normalizing the numbers to adjust for 50% of all mortgage’d homeowners — the absolute largest demand cohort — being locked-in due to negative equity, “effective” negative equity, a legacy HELOC not charged off, or insufficient income/credit needed for a mortgage loan. This is a fatal oversight. Essentially half of the nation’s top demand cohort died over the past 6 years. This is something that is absolutely unprecedented.
Lastly, a surge of supply into a market with 10-year notes at 1.6% and 30-year mortgage rates at 3.25% — when investors and organic buyers were driven by the biggest stimulus to ever hit housing too jump all over each other and pay 15% over last price/appraised value — is a completely different situation than a surge of supply AFTER a house prices and interest rate surge, which have both done a great job of sidelining a large percentage of investors and organic buyers alike.
In short, people forget the housing market has been turbocharged by the greatest direct stimulus in history over the past 18 months. They are so accustomed to historic rates stimulus they simply don’t see it. I hear so much that the past year “recovery” has to be “organic” because the “government” is not providing any stimulus or subsidies. Perhaps, technically they are correct because the Fed is not a government agency. But when you factor in the power of the Fed buying rates down from 5.5% in 2011 to 3.25% in 2012/13 on demand and 6.5 million mortgage mods on supply you come up with a very volatile situation if that go-go-juice is ever taken away. And it was just taken away.
Real simply, the housing market “hard reset” to Twist/QE3 — rates being forced down to 3.25% from 5.55% by the Fed over a couple of months — began in late 2011. Now that this stimulus has been taken away literally overnight, housing must “hard reset” again. This “reset” will appear in the form of a sales volume/price “air pocket” through year end at least.
Bottom line: While more supply would have been great for “this” housing market a year ago, now — with far fewer buyers, prices through the roof (far more expensive than in 2003 – 2007 on a monthly payment basis), and 15% purchasing power lost in the past 2 months — it could crush it.