I screwed the pooch getting this out of Friday but better late than never yea?
1,869 single family homes on the market locally today. That is up by 25 units since last month so let’s call it flat.
August brought us 1,035 sales at a median price of $490,000. Median days on market a pretty speedy 24. Median sold to original list price ratio of 98.3%.
August of 2023 was damn similar at 1,090 sales for a median sold price of $477,000 and a sold to list ratio of 98.71%. Last year though inventory was lower and houses moved in a median of 14 days on market.
The last time we had as much inventory on deck as we do now was August of 2015 and the last time we had an August this slow in sales was August of 2012.
We’re for sure seeing selling pressure coming from the hedge funds that were heavy buyers during 2017-2022. That is adding inventory to a market that is slowly becoming saturated.
Foreclosures are slowly resuming and also making their way to market adding to inventory as well.
Rental inventory is starting to swell also with the median days on market for single family rental properties roughly doubling since last year. This is remarkably similar to the roughly doubling of sales days on market as well.
There is a flood of new apartments hitting the market across the city that is further skewing the supply/demand balance in the favor of tenants. This is not even close to being done yet as there are something like 4,000 units that are early in the construction phase. The amount of multi family hitting the market right now is unlike anything the Springs has ever seen, or at least the most since the late 1980s.
Sitting through a meeting of some pretty educated local minds last week I learned a thing. Remarkably the class C fourplexes on shitty streets type of properties are seeing rent reversions to pre 2020 levels. Units in 4 plexes that could rent for $1,200 a couple years ago are lingering on market at $900 now. The amount of “accidental landlords” is becoming kind of profound as recent buyers, specifically buyers who bought with a short term time frame, are realizing that real estate isn’t always super liquid. Folks are approaching property managers with needs to cover mortgage payments that often exceed realistic rent by 30-50%. People think that just because their payment monthly is X that tenants for some reason give a shit about that. They do not.
What we’re seeing is kind of interesting. We’re seeing prices more or less flatline or even decline a tiny bit. And that in itself is whatever. But the fact that simply a plateau in pricing is all it takes to take all the air out of the market is what’s interesting. But if you think about it it’s logical. When the valuations of real estate go up many people tap into that equity and send that money back into the economy. People sell their homes for profit and take some of that money to ball out on buying things they may have not other wise considered buying.
Now with a more or less flat market and somewhat elevated rates the HELOCs are next to none. People aren’t really able to sell their recently bought houses for a profit or maybe at all without taking a loss. And just like that the raging crazy market comes to a halt without there really being any kind of drastic crash.
Another interesting take away and something I’ve talked about before is the correlation between the M2 money supply and real estate valuations. The correlation is something like 88% which means it’s significant. What we saw was a peak in M2 money supply in April of 2022 at just over 21.7 trillion USD. That summer the Fed started to raise rates to combat inflation and as part of that monetary policy we saw M2 money supply reduced by about 1 trillion USD. Then we had spring of 2023 with the very brief banking crisis that caused a panic at the Fed. M2 supply has been slowly going up since then and at this point sits at 21.05 trillion USD. So we can make the assumption that until M2 money exceeds its prior high we should not anticipate any major move in the price of housing to the upside.
That being said everyone is expecting the Fed to cut rates next week and some of my colleagues think this will cause a rush on housing. The truth is the market expectations are already baked into today’s interest rates which are significantly lower than they were over the last year. Rates are starting to look like summer of 2022 roughly yet there is not a rush on housing. Buyers are hunkering down and sitting on the sidelines to see what gives. And the properties, especially the ones on the lower end of the price ranges are getting beat up noticeably.
Long story short is it’s been a busy and fun weekend and aside from what I wrote above my brain can’t come up with anything great. I’ll get you some good analysis on the next one and I’m really looking forward to November to see how this shit show plays out.
P.S. The 10 year and 2 year yield curves normalized but the 10 year and 3 month are still over 130 bps apart. All the recession signals are flashing as expected.