IF, the RedFin Housing Demand Index are a remotely accurate representation of demand in core markets around the nation, which I suspect, and not a company-specific, hard down-shift in performance,
Bottom line: The housing demand pig is through the python and Q2-4 will looking nothing like Q1.
- The Q1’17 demand pull-forward effect from the Nov rate-surge has been much more extreme and longer lasting that I thought it would be.
- This will lead to a much harsher giveback period, or “demand hangover” in 2017 that I predicted.
- The demand pig has exited the python; Forward looking March purchase “offers” down 23%MM. Portends rough Q2.
- Backward looking, March “sales” data, reported over the past week, was likely the peak for headline house sales and price prints for the entire year.
- Looking forward, the weakest, burnt-out demand cohorts will set demand and prices.
- Further, sellers, looking at the strong Q1 and anticipating it to continue, will flood the market with supply for the remainder of the year, drowning the meager demand.
1) LOOKING BACKWARD, which most all housing reports and analysis do, the past few months of “stronger” housing data was about NOV RATE-SURGE motivated and panic-buyers incrementally piling on in the dead of winter — when seasonal adjustment are the heaviest – producing ridiculous, exaggerated headlines.
In fact, the “621k March New Home Sales” will be the high mark of the year and far higher than the 2017 builder sales total when all is said and done.
For months, this is what I have been referring to as the “PIG IN THE PYTHON” effect.
Well, it’s looks like the pig may have exited the python, which will create an extreme demand “hangover” in Q2-3 at least.
2) LOOKING FORWARD, at what will be called “sales” over the next few months, I will have fresh April sales and pendings data out in a week, the earliest of anybody.
But, until that time, yesterday’s national RedFin demand survey and press release supports my pig thesis and timing in a big way…
- The Redfin Housing Demand Index decreased 13.9 percent from February.
- Compared to February, the number of buyers writing offers was down 22.8 percent.
- “we’re seeing demand cooling when it should be peaking”
- The Oakland-area Demand Index: 28.4 percent fewer offers in March than in February.
Note, this could be an isolated RedFin problem, but I doubt it because the company is growing so fast.
3) The primary demand cohorts and pricing-power dynamics that have made up “sales” in Q1 have been:
- THOSE WHO DIDN’T BUY LAST SUMMER for whatever reason, are working off metrics and emotions of last year, WILL OVERPAY WITHOUT THINKING TWICE, and want to be first in the pool this year.
- THOSE IN FEAR, or using fear as an excuse, that rates are going to ace them out, ALSO PAYING TOP-DOLLAR, in the thin winter market when supply is at the lowest levels of the year;
- and “EVERYBODY ELSE” who would have purchased then anyway…1st timers, repeats, investors, speculators, foreigners, etc. THIS WEAKENED COHORT WILL SET DEMAND AND PRICES FOR 2017 AND GOING FORWARD.
DATA…Reviewing a Few Datasets
In the national index, you can easily see the rate-surge, pulled-forward-effect, or “pig in the python”.
Orange County, a mega CA performer has collapsed.
Portland, which has led house price gains along with Seattle has also collapsed.
The easiest explanation here is that prices are so outta control demand has moved to the “sidelines” until prices come back into line, which they always will.