Some good charts from Lon Welsh.

My comments look like this.

Mortgage applications are low compared to the most recent years, but not as low as 2014, 2015. Maybe not the End of the World?

Well, maybe I take that comment back about it possibly being the End of the World. Or, do I? This only goes back to 2018. Comparing this year to the last few years is like comparing the “best” years of your life (what we had for the last few years) to a not-so-great-year (that’s what we’re in right now).

Consumers have expected 2-4% yearly appreciation for many years… then COVID and they thought (myself included) that the real estate market could get ugly (it didn’t) then they had much higher expectations (pushing 6% per year). Now, they’re undershooting what they expected since 2013 (that 2-4% range).

“I got a great interest rate and interest rates and prices are higher right now… maybe I shouldn’t move.” Maybe that’s what about that extra 5% of people (the change in expectation of moving from just under 20% to just under 15%) are thinking. Again, it is not like NO ONE is expecting to move; just fewer people.

This is comparing this month to last month. So, I’d normally expect to see a little seasonality to this anyway (higher rents during the peak rental season than the softer off-peak season). But, if we’re going to see a softening in rents overall (beyond seasonality), I might expect to see some negative months here. Rents go up and down, but generally tend to trend upward (slowly) over time (inflation and stuff yo).

Not familiar with how they’re measuring this, but they’re suggesting from the headline that demand for apartments is softening.

Number of permits to build 1 unit properties is down. Lower inventory often leads to higher prices (supply and demand yo).

Year over year, the number of 1 unit permits is done about 40%. That’s pretty significant.

But the number of 5+ units being built is setting new highs. Supply and demand might suggest that means that prices will eventually be softening (more) in that market.

National home builders have been offering incentives in the form of price cuts to sell new construction homes.

Housing affordability index—which includes both price and interest rates—was at extreme lows, but just bounced up off the bottom… so things are slightly more affordable then they were.

The amount of home you could afford with a $1,600 per month payment and 20% down was down considerably from what it was when interest rates were at/near all-time lows. As rates went up, the price of house you could afford went way down, but now we’re bouncing up off the recent bottom.

Millions and millions of Americans can still qualify for loans even with very higher rates.

Where are all the foreclosures? Well, for the past 5 years mortgage brokers have been lending to more qualified borrowers… so while we might see some foreclosures… it probably won’t be like it was in 2008.

People—including me—are not great at predicting the future. But, apparently folks, on average, expect home prices to drop about 1% in the year. Could happen.

Rates were down a little bit last week.

And, as you might expect the number of applications were up. Definitely not the worst we’ve been in the last 10 years. If I reading this right: 2014, 2015 and 2016 were worse than we’re seeing this year. I’d imagine that would surprise a lot of folks who believe the world is coming to an end with rates where they are.

And here are the folks locking in rates. Even if we are the very bottom of the list for the last 5 years… those were exceptionally good years and we’re not that far off from that.

Recession Probability Forecast

Special thanks to Lon Welsh for sharing this chart as well.

Builder Price Reductions

A good article from Bill McBride about builder price reductions including this chart.

Love,

James Orr
The Real Estate Financial Planner™