First one of the year for us guys! I skipped last week because the holidays delayed some of the data I wanted to look at and share with you. And looking at the trustee’s page right now it’s still not freaking there, but onwards!
Last month we had 1,644 existing single family homes on the market. A year ago in January of 2024 we had 950. Today we have 1,391. So kicking off the new year with roughly 40% more inventory than last January. I expect that inventory levels this year will dwarf those of last year as sellers start to list because they have to, not because they want to.
Did a bunch of houses sell due to a sudden rush of buyers driving our inventory lower over the holidays? Absolutely not. Between December 23rd and January 10th we had 227 existing single family homes get pulled from the market. It’s important to remember that when looking at “comps” and sales in general units that don’t sell tell just as much of a story as the units that do. Same timeframe from a year ago we had 185 units pulled from the market. Same time during 2021/22 we had just 57 units get pulled. So you could look at this one of two ways. You could say whatever dude, 170 houses that’s not significant. Or you could look at it like holy shit that’s a 400% difference in units that aren’t selling.
What is selling? PPMLS wide we saw 867 units sold in December for a median sold price of $485,000. The original list to sold price ratio was just under 97.5%. That actually gives us a December 120 units stronger than 2023 and even 12 units stronger than 2022. The last “great” December in 2021 saw 1,385 sales. I do believe that pop we saw last month had a whole lot to do with people waiting on the election and acting in November. We for sure saw somewhat of an influx into the market right after the election but the sustainability of that rush is super questionable as rates continue to climb.
Where are rates at today? Mortgage rates closely resemble the longer term yields on US treasuries. The graph on the left shows the yield on 10 year treasury notes and the graph on the right shows the average mortgage rate over the last 5 years. We’re sitting around 7% today.
So while we enjoyed a bit of a dip in rates right around the election causing somewhat of a surge in mortgage applications and buyers in the market, now rates are bouncing right back towards the top of their recent range. That’s not great for the market as a whole.
How this whole thing hasn’t imploded fully over the last 2 years really is worth looking at. Since only 1,686 of 16,173 sales were funded with cash its fair to say most people are financing. And with financing we need to look at affordability. Affordability consists of price and interest rates and it must be looked at in the context of household income. What’s affordable in Hawaii is absurd in West Virginia. Let’s look at El Paso County over the last decade.
What you’re seeing here is the median household income for our county since 2013. The thin gray line represents that crazy time we were able to get take out margaritas to go with our 1.29 gas while all the salaried employees preached to the rest of us about the virtues and mandates of staying home to protect the herd.
Let’s take 3 data points. Let’s take December of 2013, December of 2018 and December of 2024.
December of 2013 we have a median household income of $57,072. We had mortgage rates at about 4.5% and a median sold price of……..$211,500. Not accounting for taxes and insurance with 0% down that would get us a principal and interest payment of $1,071.64. Annual mortgage expense of 12,859.68 which equals 22.5% of household income.
December of 2018 we have a median household income of $67,923 with rates around 4% and a median sold price here of $300,855. PI portion of mortgage amounts to $1,436.33 or $17,235.96 yearly. That’s 25.3% of household income.
December of 2024 generative AI tells me we have a household income of $102,000 while the best data I have for 2023 tells me $88,794. Mortgage rates at 6.75% and median sold price of $485,000. PI portion of mortgage runs $3,145.70 or $37,748.40. Of the optimistic AI number that’s 37% of household earnings and of last official number its 42.5%. Either number is pretty bad as anything over 30% really is not sustainable.
So while it can be argued all day long that household income has spiked together with inflation I can tell you with a pretty high degree of certainty that housing costs are substantially higher. Like almost double over the last 10 years as a percentage of household income.
And we’re not even factoring the increases in insurance and taxes which surpassed the inflation rate for a fffffffffffact.
For another fun fact January of 2007 we had a median household income of $55,523. Interest rates on mortgages were at 6.25% and the median sold price was $214,882. The PI portion of the mortgage would be $1,323.08 or $15,876.96. That was 28.6% of household income. The issue there was that rates went up and a lot of peoples’ adjustable rate mortgages went up with them. And then! By 2010 median household income dropped by about 8%.
The similarities I see here are that we have rising interest rates. We have some number of people who took on the 2/1 or the 3/2/1 buydowns that are not able to refi into lower rates. Their payments are rising. We also have a surge in household income similar to the pop we had in 2008 where it peaked before dropping about 18% peak to trough. It would not be that absurd for us to retrace household income to what it was in just 2021 at $79,094 which would make today’s mortgage payments 47.7% of household income. That would be fatal to the market and would literally replicate the proportion of the 2008 pull back, which in hindsight the Springs actually endured like a champ compared to many other places.
What am I getting at with my negative self? Something has to give. I know everyone is hoping for rates to just magically go down but that’s not going to happen without a significant reason. The last time rates lowered drastically its because the whole world shut down and we were made to believe that we’re all going to die while crowding up Costco for toilet paper. For rates to go down in a meaningful way to really impact affordability something of a similar magnitude would need to happen.
Yet the economy keeps posting up remarkable numbers, real or not. Today the unemployment rate actually ticked lower to 4.1% which is like, amazing. The non farm payrolls report came in totally stellar, dude. The reports that the bond market reacts to keep putting out amazing numbers and the cost of borrowing just keeps rising. If you just look solely at the jobs data and the unemployment rate you have an economy that almost can not do any better. Literally the best economy like ever, on paper, and people can barely afford housing.
As you read this and I know that’s a lot to ask, to get to this point, where are you at? Do you feel like your standard of living has drastically improved over the last decade? I mean mine has! But that’s because I went from a 29 year old degenerate to an exhausted and introspective 39 year old who finally learned the value of savings. Overall do you think it’s easier to make your way in 2025 than in 2015? Let me know your thoughts. You can holler at me on Facebook or by email at [email protected]