What is up besides interest rates and credit card delinquencies? That would be inventory, ever so slightly. We’re sitting at 1,344 active single family homes on the market today up a trivial 24 units over this time last month. What isn’t super trivial though is that this is right around the time inventory levels generally drop into winter as kids go back to school. So if we see inventory levels continuing to climb into October and November then we will have a conversation about supply and demand again.
For now at least in theory the supply levels remain low as we saw 734 single family homes sell in El Paso County in August making our inventory levels below 2 months worth of supply. But keep in mind where we’re coming from here, 18 months ago we were measuring supply levels in weeks, sometimes in days. The trend is definitely a slower market. And we’re feeling it for sure. Properties that are priced according to year old comps tend to sit on the market and get little activity. Properties that are priced 5-10% below the peak comps are still selling relatively quickly. It’s just about some sellers accepting the reality that in order to get a fast sale they need to undercut the market rather than going for record highs like we’ve been doing. And the consequence of that is that all the sellers that don’t accept that reality will ultimately have to accept the lower comps all around them from the properties that do sell, because the ones that don’t sell don’t count.
Talking to a buddy of mine here locally that’s like a baller agent and truly gives a shit about the industry I find one thing funny. He has like double digit listings right now that are active, and he gets to have the same conversation with a lot of sellers about why their houses aren’t selling. The funny part is this, it seems like a lot of people basically have the same bottom line. “Well if we can just hit 400k, then it’s all good and we will be happy.” That type of deal. And when the whole neighborhood has roughly the same number in mind, and they’re all not selling, and they’re all pushing 60, 90, 100 plus days on market it poses and interesting question that I know the answer to. Is your house worth what you think it’s worth? Or what buyers are willing and able to pay? It is not the former and we’re seeing a lot of stubborn sellers turning into reluctant landlords right now.
Let’s get into some nerdery. August this year brought us 987 closings in the PPMLS for a still very surprising, very resilient median price of $480,000. Honestly the way that this median price has been holding up makes very little sense to me but it’s probably just because I’m impatient. August last year we had 1,328 sales for a median price of $479,000. So that’s a year worth of people essentially under water. Keep in mind by August of last year interest rates we’re already getting kind of shitty and the market had already slowed down quite a bit. August of 2021 we had 1,807 sales at a median of 445k. So a year over year slow down of just over 30% is pretty noticeable. But a 2 year slow down of almost 100% is why I see a lot of agents getting jobs, why I’m taking this as an opportunity to dial in my contracting business while continuing to sell real estate, and why agents are just not balling out so hard anymore. 100% drop in volume in 24 months is absolutely devastating when you build teams and systems based on volume that no longer exists…
The nerdery must continue. Interest rates spiked last week with the 10 year treasury yield breaking above 4.3% for the first time since August of 2007. Big difference between August of 2007 and August of 2023 is that rates were on their way down back then, and they’re on their way up today. Rates pulled back this week on a bunch of bad economic news such as job openings missing the mark by 700 thousand and a variety of leading indicators that are bad. However today the non farm payroll numbers came in better than expected and rates reversed course back up and sitting at about 4.18% as I write this.
Above is a little graph of the 10 year treasury yield that super closely correlates to mortgage rates. You can see on a 100 year graph that the rate of change we are experiencing is indeed historic. And you can also see if there wasn’t this ridiculous, absolutely asinine monetary policy enacted right around 2020 that this graph would look pretty damn normal. You’d have a meandering line upwards from 2019 to today instead of a V shaped fuck job. Why do I use such harsh language for it? Because the balling out of 2020-2022 is going to cost us well into the future and could have been avoided by allowing the market to sort itself out. But you know, no.
The above graph is the price of oil over the last 40 years. Notice the spike and drop into 2008. Notice the spike into 2023. You could argue that this thing is setting up like a head and shoulders pattern and it might be but here is the short term truth. Over 6,000 products are made with oil, and pretty much all of us use gasoline daily to get to work, and certainly almost every single good you buy is delivered on a truck that burns diesel. This is important because the rising cost of oil is going to pressure inflation higher regardless of what the rates are. Like you could have 20% rates and goods will still need to be shipped by truck yea? So in the long term like 18 months plus I do believe we’re going to see something like the steep decline of 2008 as demand exhausts. But in the short term I think the Fed will see this as a potential contributor to the inflation they say they’re fighting and will force them to either continue to raise rates or at least keep them steady. No relief in the near term is what I’m saying, on rates.
Now on the contrary we continue to see economic indicators flashing red all over the place. The big one is the yield curve inversion which today still sits at about 127 basis points. This truly is historic and the last comparable levels we’re in the early 1980s. I’ve written about this many times before and I want to remind you that it’s when the yield curve corrects that we truly get to see carnage in the markets. Last yield curve correction was March 2020, November 2019 before that can be argued as the same cycle, January 2007 prior to that, January 2001 prior to that. All of these dates came right around the time of massive market chaos and volatility. We still have this volatility to look forward to in the near future so for all the people thinking that the worst and craziest times in the market are now behind us are in for a rude awakening. I’m not saying that prices are going to fall out the bottom, I’m just saying that what we’re in right now is a period of relative calm. Look at this graph, and the google stories from the dates where the line went above 0 right before the little gray shaded area on the right of each time. Each one of those is a recession.
Pretty much all of the manufacturing numbers are dismal. Today’s unemployment report missed expectations to the upside coming in at 3.8% over the expected 3.6%. But this still isn’t a trend, and the labor market has been pretty resilient. Also as I explained to a buddy of mine the other day the last cost most companies want to cut is people. But when they do it’s sudden. And I’m seeing little weird signs in the market all over the place. A property management company laying off their whole staff. A decking supply store reducing their inventory levels intentionally to lower their exposure to a slower market. Home Depot stocking less and less stuff and making more and more of it on order. Things like that make me scratch my head an say hmmmmm, maybe I’m not the only one seeing it.
So in conclusion to this little rant I want to say this. In 2009, 2010, 2011 houses still sold. There has never been a month in our MLS with 0 sales in it. There are always buyers, and there are always sellers, and there are always thirsty Realtors saying that today is the best time to buy and sell because they need to eat/pay for Audi. My reality and my unchanging opinion is that real estate is indeed a great investment for the long haul. Also my opinion is that buying a house that you know you’re going to be in for like 18 months tops, without keeping it as a rental, is so stupid that it should be painful. And it will be painful, as it’s already getting painful for a lot of people who have married the house but continue to date the rate.
Think long term, make good choices, and realize that everything is alright in the end.