Are Home Prices Going to Fall?

It looks increasingly likely

YouTube

Spotify

Apple Podcasts

---

We talked Adobe, potential remittance taxes, AI talent wars, increasingly bubbly stocks, and more on this week’s Power Hour (links above). Please give it a listen!

Now, on to the housing situation.

I love this chart from this weekend’s WSJ:

It tells the entire housing story from the start of the pandemic to now.

In 2020 and 2021, the number of homebuyers zoomed higher at the same time sellers dropped, driving the largest increase in home prices in United States history. Low rates on 30-year fixed mortgages pour gasoline on the fire.

Now, the opposite is happening. When mortgage rates soared, the number of buyers fell off a cliff and has ground lower for the last few years as people get priced out of the market. At the same time, sellers remained frozen in place. That is, until the last few quarters.

The number of people trying to sell their homes has zoomed higher in the last few quarters

Why now? Well, truthfully, I think life just happens. If you are going to sell a house, you may delay for a few quarters in the hopes that a better offer price shows up, but eventually you need to get on with your life and make a price concession. That is slowly happening around the country.

At the same time, the number of buyers keeps going down. This is simple to understand: supply is going up and demand is going down. What does that mean? Prices are going to fall.

Rising levels of inventory have and likely will remain a forward-looking indicator for home price declines. This is happening quickly in the United States right now, especially the sun belt.

Inflation-adjusted, home prices are likely to fall over the next few years. Mortgage rates aren’t going back to 3%. In fact, if interest rates fall a tad, that might simply accelerate the process as more buyers levelset market prices.

The average monthly mortgage payment has close to doubled in the last few years:

This was never sustainable. Market forces will fix this issue; the only question is how long it will take.

If the pain arrives, there will be some high-quality stocks to buy (looking at you, NVR) in the downturn.

I may have a stock to play this reversal coming on the podcast next week.

-Brett