1,415 is our number today. One unit more in inventory than last month and building slowly into winter. That’s not usually how it goes and we will see if this trend starts to accelerate as we finally, FINALLY, start getting a bit of distressed inventory on the market. This last month has been crazy, we have a lot to cover and even more uncertainty in the short term ahead of us.
Sales wise October saw 809 units sell at a median price of $483,000. The median price came in almost 20k higher than same time a year ago and 40k higher than October 2021. This is really surprising to me because the sales volume this year is down from 1,100 units last year and over 1,600 units in 2021. So despite the significant drop in demand and the huge drop in sales volume the sold price keeps climbing. It’s counterintuitive and does not make much sense. Seems like people keep taking the bet that lower rates in the future will just keep pumping pricing higher, I don’t know if I agree with that in the short term.
Interest rates had a hell of a month. We saw mortgage rates get into the 8s and the yield on the 10 year treasury briefly break 5%. We had the lowest number of mortgage applications since like 1994. We had the stock market reenter bear market territory, briefly. And then this week the Treasury announced that they’ll be borrowing dump trucks full of money to plug up their budget deficit while the Fed continued their pause on rate hikes. 10 year yield went from 5% to 4.57% right now in a heartbeat. Mortgage rates dropped by roughly a full 1% in less than a week. It’s been a little volatile.
The reality here locally is that people remain overall optimistic about the housing market and specifically future pricing. Those who are able to buy are still buying and houses right now are on average selling for right around asking price. I don’t know why that is so difficult for me to wrap my mind around but I guess it’s largely because of this breakdown.
Median house price today=$483,000, average interest rate today let’s say is around 7%. With a 20% downpayment which is $97,000 the average home buyer right now ends up with a mortgage payment just under $3,000/month. But our buyers with 0-5% downpayments are looking at more like $4,000/month for the same house. Meanwhile according to the BLS the median household income here is $72,000 and average individual income is like $38,000. So with both adults in the family working it somehow is making sense to spend close to 66% of income on housing? Well that can’t be it because very few lenders are shady enough to push that through. So does that mean only the super high earners are buying?
That is definitely part of it as we see higher end homes continuing to sell at higher end prices, as higher end earners with more disposable income are less affected by the rise in interest rates. But high earners are certainly not the only ones still buying.
If you’ve kept up with me for a while you know I think real estate is a good investment. It’s one of the very few investments that your have some sort of control over. And I do believe that for the long haul it will continue to be a good investment barring a wave of shit legislation, which isn’t unprecedented.
But in the short term guys I’m hesitant. T0o many people are making the same bet, too many people using the same logic. A lot of buyers are stretching themselves very, very thin with the hope of being able to refi soon. A lot of sellers are unable to sell because of the elevated rates since they can’t afford to move. A lot of backlogged inventory of foreclosures is finally starting to trickle through. In pulling comps I’m starting to see hedge fund type investors starting to sell as the relatively low rate of return on rentals isn’t as appealing as higher rates of return elsewhere. In short I do believe that with or without rates dropping our inventory levels will continue to climb. But I believe if rates come down significantly, like mortgage rates into the 4s and 5s I think that will spur a whole wave of selling that will add to the inventory.
In the short term I keep looking at the yield curve inversion, which just turned a year old, and wonder what shit is going to hit the fan that we’re not anticipating. As I’ve said countless times before the shit tends to hit the fan when the yield curve uninverts. We we’re heading quickly that way until the Fed talk this week sent rates lower, and the inversion deeper, and the stock market higher, and the can flying down the road.
I do believe in the short term we’re due for some form of correction. I do believe I’ve been saying that since like 2016 though and have been wrong ever since. I guess its because I forget about this next graph in my daily life. That’s the amount of interest the Federal government has to pay on it’s debt.
Bullshit fiat monetary logic tells me that if we have a lot of debt, and the debt is at higher rates, and the interest payments go up, yet we have no money to begin with which is why we’re borrowing it in the first place, then we will just print more money to pay the interest on the old debt and on the new. And that’s why I believe that real estate and all real asset values will rise with time. I just don’t believe the average American consumer is going to be able to hold on through even a mild recession at this pace without many losing housing…pushing up inventory…while demand is low…and rebooting the market. I’ve been wrong a bunch.