Category Archives: Mann Overboard

After a 2-year hiatus, the Mann Overboard blog is back. This blog will cover anything and everything that comes to mind. There will be market forecasts. Suggestions regarding interesting web sites, books, or topics I think readers should check out. My continual diatribe on the real estate appraisal industry and all of its wrongs. My support for a new real property valuation profession, adopting Mortgage Lending Value in America, creating Real Property Risk Ratings in America, and introducing readers to the concept of Socionomics. Other topics will surely arise.

Feedback will be limited to approved site visitors. This is not to limit disagreement – different ideas are needed for us to advance any concept we discuss. I just want to keep the content professional. Replies whining about old subjects like AMCs and what banks have done to the industry and such don’t get us anywhere. And simpl

INFLATION FORECAST

NOVEMBER 25, 2022 – The next CPI announcement comes out December 13th. The last one was a positive surprise that resulted in a 1200-point stock market rally.
I am not seeing much occurring this time around. My forecast is 7.5%-7.8%. Last month’s annual CPI figure was 7.7%. So, I am not seeing much change this month. We shall see how it goes.
Shalom,
The Mann

A QUICK INTEREST RATE FORECAST

OCTOBER 24, 2022 – The 30-Year US Treasury Bond yield is peaking around 4.4%. Over the next 3-4 months it should decline to the 2.95% to 3.4% range. I would expect the average house mortgage to decline from the current 7% level to somewhere in the 5%-6% range in the same time period.
This will give the public the feeling that the worst is over and things are getting back to ‘normal.’ NAR and the Fake News Media will pound us with now is the time to buy. Now is the time to get a loan. We are on the rebound. Blah blah blah.
Then we will head back to interest rates above the high we are experiencing this week.
As always, we shall see how this plays out.
Shalom,
The Mann

“WE HAVE AN OVERSUPPLY OF HOUSING” – THE MANN

UPDATED – OCTOBER 26, 2022 – I have added some data regarding the number of vacant housing units in America at the bottom of this post.

OCTOBER 24, 2022 – There, I said it. Made it 100% clear for everyone to understand. I might be the lone voice saying this for the past 5-10+ years. So be it.
Population growth in this country has been slowing for the entire 21st Century. It will continue to slow. NAR, Homebuilders, and the Fake News Media can tell you that we have a housing shortage. That is what they must tell you so they can keep making their money – at the expense of John Q. Public.
Some facts….
There are over 1.7 million housing units under construction. That is almost a 50-year high (yes, 50 years ago we had a much smaller population). More importantly, in the housing crisis 15 years ago, we peaked at only 1.4 million housing units. We have more housing being built today with a much slower growing population.
In the 1970’s, when Baby Boomers were at the age to buy homes in mass, that population segment grew at a 4.5% annual pace. Millennials of the same population segment today are growing at only a 1.2% annual rate! That is almost a 75% reduction in the demand for housing! Adjusting for a 56% increase in population since 1972, this is still a 58% reduction in the demand for housing!!!
I would guess if we didn’t build a single housing unit for 5+ years we would still have vacant houses and apartments all over this country. Instead of building new shoddy manufactured houses, let’s focus on rehabbing the well-built housing of decades ago. Most of this product is in existing built-up areas with infrastructure in place. Take advantage of that.
One day when people start to admit we have had an oversupply of housing for over a decade, please remember The Mann told them so:)
Shalom,
The Mann

ADDED OCTOBER 26, 2022 – I was wondering how many vacant units we have in America. So, some quick research found the following. Sources obviously can vary in their figures.

We have 142 million housing units in America. The number of apartment units is estimated to be 21.3 million. We can assume the remainder are houses – 121.7 million.

National apartment vacancy is reported to be 6%. This indicates 1.3 million vacant units. As of 2020, the home vacancy rate was 9.7%. This indicates 11.8 million vacant units. The sum is 13.1 million vacant housing units in America.

As I noted in the original part of the post above, we could go several years without building a single house or apartment complex and we would still have many millions of vacant units.

One last tidbit of information to consider. I once worked with an economist that assumed every year 1% of existing real estate (housing, office, retail, industrial, etc.) became obsolete and/or was demolished. At 142 million housing units, that would mean 1.4 million units are taken off the market each year. That helps provide some constant need for new housing. Again, this is an assumption. It seems like an awful lot of houses and apartments being abandoned or demolished every year. But, …

That is all I have for now.

INFLATION AND THE ONGOING RECESSION

OCTOBER 16, 2022 – First, a moment of silence for Marie Antoinette who was beheaded on this day in history. Would it be appropriate, or not, to honor her by having a piece of cake….but, I already digress:)
I have never tried to forecast inflation. I have probably made a forecast on most everything. Just not the CPI.
But, as it is just numbers. And I LOVE numbers. I figure what the heck.
After doing my analysis by hand (as always…I am not into spreadsheets and so on….the old-fashion way works best for me), my forecast is for annual CPI to end 2022 below 8%. For a range, I say 7.6% to 7.8%.
I am looking at below 7% (say 6.7%) at the end of the first quarter in 2023. And below 6% (say 5.9%) at the end of the second quarter in 2023. After doing my research, I have to say it is insane to try to forecast inflation more than a quarter out.
I guaranty that I have not looked at anyone else’s forecasts. I don’t know if anyone forecasts inflation rates 3-9 months out. So, pure coincidence if you have seen anything that is around my numbers above.
Also, those numbers will do nothing to keep the Fed from raising rates by 75bp two more times. Please remember, as I have posted here forever, the MARKET will tell you how much rates are going up. The Fed has FOLLOWED the market 100% of the time. The Fed never makes the decision. The market tells the Fed what to do and when.
Hold on….did you feel that….I bet you did….my outdoor thermometer just went from 72.6 degrees to 72.4 degrees. Wow, the climate changed!
Ooops, I did it again (hats off to you Britney)…I digressed again.
My last note is regarding our ONGOING recession. ((Someone please tell Jamie Dimon, who said we might enter a recession next year, that we have been in a recession ALL YEAR!)) With the stock market hitting new lows recently, the current economic downturn is now forecast to extend thru the 1st Quarter of 2023. Additional lows in the stock market will continue to push that date out.
Oh, one other last note. The US Dollar either has, or will within the next few weeks to a month, put in a MAJOR top. I don’t know how a weaker dollar plays into your world. But, something for you to consider.
And that gets me all caught up on all my forecasts. The inflation one won’t be near as easy as the housing one was in June. Some forecasts are easy. Some are difficult.
We shall see how the above turns out.
Shalom,
The Mann

UPDATE TO MY SUBDIVISION POST STARTED IN JULY

OCTOBER 3, 2022 – As I noted back in July, appraisers of residential subdivisions needed to start forecasting a SIGNIFICANT slowdown in lot and home sales. Now they should add to that a forecast of declining lot and home prices.
For those who have been around to see numerous downturns in the past 35+ years (yes, I am officially old!), the one thing we can be certain of is that all of those builder take-down contracts and letters-of-intent are worth less than the paper they are written on.
I haven’t reviewed a subdivision appraisal in a few months (I guess that is saying something about the market). But, as late as June or July appraisers were still relying on builder takedown contracts. Hopefully, that has totally ceased. Some pertinent info follows.
The Fed’s hurry-up offense is having an equally dramatic effect on the U.S. housing market. In response, home builders are walking away from land deals. In the second quarter, KB Homes abandoned 8,800 previously controlled lots while Lennar walked on 10,000 home sites. More than a fifth of home builders are taking the same action. (Quill Intelligence)
Home buyer cancellations neared 18% in July with Texas being tops at 27%. (John Burns Consulting)
In Western markets, cancellations hit 38% in the week ended September 15th. They’ve been above 30% for 14 straight weeks. Prior to April, the cancellation rate held in a relatively tight 7-12% range for 23 straight months. (Zelman & Associates)
Only one homebuilder has announced layoffs so far. Stanley Black & Decker announced 1,000 jobs in finance are being cut. Job cuts occur about 4 quarters after housing permits peak. 2023 will be ugly for homebuilder employees.
Remember, very slow future absorption and declining lot and house prices. I will post when I see the first appraiser to have the testicular fortitude to do this in an appraisal:)
Shalom,
The Mann

STEP 3 IN THE HOUSING MARKET HAS OCCURRED

OCTOBER 3, 2022 – My June 14th post about Step 2 occurring said it would be easy to look back in 3 months and see that the housing market had peaked. Sure enough, 3 months later everyone can now see a top is in place and a correction has been well underway.
Step 3 is an acceleration in the slowdown of price appreciation. A summary of indicators follows.
The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index peaked at 17.0% in March and declined to 11.3% in August. AEI projects it will decline to 4%-6% by December.
The S&P Corelogic Case-Shiller House Price Index fell 0.4% on a month-over-month basis in July for the first time in 10 years. On a year-over-year basis, the increase in home prices decelerated by the most in the index’s history, said Craig J. Lazzara, managing director at S&P DJI.
Lastly, the FHFA House Price Index dropped 0.6% in July vs. June.
These are early signs that Step 4 will be upon us sooner than later. That is when the annual change goes from appreciation to depreciation. With mortgage rates soaring towards 7% the decline in home prices is more certain than ever.
What will baffle people is the continued low supply of available housing combined with prices declining. As I have long said, you don’t have to buy, but often you do have to sell. With a lack of buyers, sellers will continue to lower prices. In September, the number of households likely to buy a house in the next 6 months fell to its lowest level since 2010.
Shalom,
The Mann

THE SUBPRIME AUTO LOAN BUBBLE

AUGUST 18, 2022 – Everyone wants to know what this cycle’s The Big Short is. This time around it is subprime auto loans. Albeit, it is also prime auto loans.
Currently, 15,000 vehicles are being repossessed every day. The expectation is more vehicles will be repossessed this year than were sold in all of 2019!!!
I can go on and on about this significant crash. But, it is just easier to tell you to go to YouTube and search for Lucky Lopez and listen to his videos.
The bottomline is there will be LOTS of deals in the car market over the next 2 years. He notes it will take about 6 more months before this is seen everywhere.
I have found only one stock that could be shorted – Credit Acceptance Corporation (Symbol – CACC). It is down this year. But, simply about the same as the overall market. It will be interesting to see how it does over the next year.
Enjoy this video with Danielle DiMartino Booth and Lucky Lopez. As I mentioned in a separate post, I think Danielle’s service is the best out there.

https://app.hedgeye.com/insights/120295-webcast-deep-dive-with-danielle-dimartino-booth-lucky-lopez?type=guest-contributors%2Chedgeye-tv

Shalom,
The Mann

40-60 AND BUBBLES

JULY 18, 2022 – As a kid, the first thing I could read was the stock market page in the newspaper. Probably since I was 5 years old I have been analyzing markets.
Early on I recognized a 16-year pattern in the stock market. I lived thru the 1966-1982 sideways (down when adjusted for inflation) market. I noticed that the market went up significantly after WWII into 1966. And looking back, we can see that from 1982 to about 1998 (actually 1999/2000) the market soared again. It hasn’t been quite as clear since then.
However, in looking at bubbles I think a pattern exists. I recall an appraiser friend telling me that you make your ‘big bucks’ in your 40’s. I assume that continues thru your 50’s. That seems very logical. People from 40 years to 60 years old invest in stocks, buy real estate, buy boats and cars, on and on. This is when they have the most amount of money to invest.
So, let’s look back at the generation before the Baby Boomers. This generation was born from 1931 to 1947. Adding 60 years to the first people and 40 years to the last people, yields 1987 to 1991. Exactly when the S&L Crisis peaked and burst.
My fellow Baby Boomers were born from 1948 to 1964. Adding 60 and 40 years, yields 2004-2008. Again, right on target with the great housing bubble.
Generation X ranges from 1965 to 1980. Adding 60 and 40 years, yields 2020-2025. And here we sit in the middle of ‘The Everything Bubble.’ With the top already in place, I assume this means we bottom by 2025.
In the last crisis there was a funny bumper sticker going around – ‘Lord, give me just one more bubble!’ Sure enough, we got another one. So, for those that missed out on this one and are wondering when the next one will occur…..Generation Y (aka Millennials) ranges from 1981 to 1997. Adding 60 and 40 years, yields 2037 to 2041. A ways off for sure. And honestly, I don’t have a clue what will be in a bubble at that time. What is left? Maybe since cryptos came about after the last bubble, the next bubble will be something that has yet to be invented.
If you and I are around and remember this post, let’s have a chat in 2037:) Of course, let’s chat before that so we are invested early on in the bubble item(s).

Shalom,

The Mann

SUBDIVISION APPRAISERS NEED TO ADJUST ABSORPTION IMMEDIATELY

LAST UPDATED – SEPTEMBER 18, 2022

JULY 17, 2022 – REMINDER TO CHECK BACK AS I WILL UPDATE THIS WITH NEW INFORMATION AS I RECEIVED SUCH.

There are times when the data available to us real estate appraisers suddenly become (almost) useless. For example, after Hurricane Katrina almost all real estate data in New Orleans prior to the hurricane was all but worthless. Manhattan had 9/11. The entire country had the lockdown in Spring 2020.
Today the entire nation is facing this in regard to residential real estate. Basically, the data thru Spring 2022 is no longer reflective of current market conditions. Nor future market conditions.
It is time for subdivision appraisers to look almost solely through the windshield and no longer the rear-view mirror. There is no excuse for using absorption rates over the past year to forecast absorption over the next year or two.
We have the training to forecast future supply and demand. It is critical we do such now. For those familiar with the Appraisal Institute’s books on Market Analysis, you know that it is time to perform Level C analyses. Look forward, not backward.
I will add items to this post as they come out. For starters, the following items are support for reducing absorption rates significantly. I am sure you will come across similar items in your research.

ADDED SEPTEMBER 18th – Mortgage rates are above 6% for the first time Since 2008. These rates are still cheap. But, people have been spoiled with the artificially low rates over the past decade. If you can’t afford a loan at 6%, you shouldn’t be buying a house anyway.

Per the Mortgage Bankers Association (MBA), the average home purchase loan size is only increasing at a 2.1% YoY rate now versus a 12.1% YoY back in April. This is a leading indicator for home prices.

Redfin’s weekly pending home sales tally of homes under contract has tightly tracked MBA purchases this year. Through the week ended September 4, this forward-looking gauge was down -29.3% versus year ago levels. Because demand is softening, supply is likewise loosening — Redfin’s age of inventory has risen on an annual basis since mid-July. (Quill Intelligence)

Pinto now predicts that by the December holidays, average home prices will hover around 6% higher than 12 months earlier. But the first seven months of 2022 are already in the can, and they show a total gain of 10% from January through July. To register a 6% increase for the year, prices must fall 4% over the next five months. That course would mark a severe reversal from the ever-rising tide of the last few years. And the drop will be anything but consistent across America. “The declines in the West will continue to be the most severe,” says Pinto. “The high end will also continue to be hit hardest.” So far, America faces nothing resembling an outright crash. But for the average homeowner, it will hardly bring cheer that the closer they get to the holidays, the more they’ll be watching the value of their cherished ranches and colonials fade. (American Enterprise Institute)

MBA noted that in addition to mortgage application activity remaining at a 22-year low, it was seeing, “average purchase loan sizes continuing to trend lower, as purchase activity at the high end of the market is weakening.” Blasting a warning to not be premature in looking for a bottom, this report was followed by the National Association of Realtors’ July Pending Home Sales Index, which registered the lowest reading since September 2011. Because this gauge is the most leading within the residential real estate universe, the best that can be said is to expect more of the same. (Quill Intelligence)

ADDED JULY 29th – Taking the unexpected in turn, June new home sales fell 8.1% to a 590,000 seasonally adjusted annual rate; each of the prior three months were revised downward. Chalk up revisions to cancellations. Nonetheless, the -50.5% annualized decline in the six months ended June has so few precedents, you can count them on one hand: 1966 near recession, 1980 recession, 1981-82 recession, 2007-09 recession and 2010 payback from home buyer tax credit. 
 
Pending total home sales collapsed 8.6% in June to the levels consistent with the last three recessions. The near-40% annualized plunge in the six months ended June was rivaled by the 2007 housing bust, 2010’s homebuyer tax credit hangover, and the COVID-19 flash recession. (Quill Intelligence)

((One of the best services I subscribe to is Quill Intelligence by Danielle DiMartino Booth. They analyze data in unique ways. Homepage – Quill Intelligence They have a Daily Feather sub that I think is $500/year. I guaranty it will be the best $500 you spend on a subscription!))

From Joel Kan, a Mortgage Bankers Association economist. ‘After reaching a record $460,000 in March 2022, the average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home-price growth and weaker purchase activity at the upper end of the market.’

“Americans are canceling deals to buy homes at the highest rate since the start of the Covid pandemic. The share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract, according to… Redfin. That is the highest share since early 2020, when homebuying paused immediately, albeit briefly. Cancelations were at about 11% one year ago. Higher mortgage rates and surging inflation are causing many potential homebuyers to reconsider their purchases.” CNBC (Diana Olick)

((I will add that a local Realtor told me that in the past 7 years she had six purchasers walk away from their contract. In the past 2 weeks, she had 16 (!) purchasers walk away.))

On Tuesday, Zumper’s National Index for two-bedroom apartments falling 2.9% in May was all the rage in chatrooms (link above for full skinny). After the close, Black Knight dropped this bomb: “The annual home price growth rate fell by more than a full percentage point in May, the largest monthly decline at the national level since 2006.” We would remind you that May is the strongest seasonal time of the year for rent and home price gains. Both have begun to stumble. (Quill Intelligence)

All in all, about half (53) of the metros in this analysis saw more than 25% of home sellers drop their asking price in May. More than 10% of home sellers dropped their price in all 108 metros, driving the national share of price drops to a record high.  The uptick in price drops is symbolic of the slowdown in the housing market. Many buyers are backing off amid skyrocketing home prices, surging mortgage rates, high inflation and a faltering stock market.  (Redfin)

June 27 – Bloomberg (Alex Tanzi): “US cities that saw some of the biggest jumps in home prices during the pandemic now have the largest shares of price cuts, according to… Zillow… Overall, the proportion of active real estate listings with lower prices has increased in all 50 of the largest US metropolitan markets tracked by Zillow. In these cities, 11.5% of homes saw a price cut in May, on average, up from 8.2% a year earlier. The share of lower listing prices rose the fastest in real estate hotspots like Salt Lake City, Las Vegas and Sacramento, California… Among the 50 metros in Zillow’s data, 32 had more than 10% of listings with a price decline.”

June 30 – Bloomberg (Prashant Gopal): “The housing slowdown is helping to solve one of the US real estate market’s most intractable problems: tight inventory. With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said… And new sellers entered the market at an even faster rate than before the pandemic housing rally began… Active listings more than doubled from a year earlier in metro areas including Austin, Texas; Phoenix; and Raleigh, North Carolina, the data show. They climbed 86% in Nashville, Tennessee, and 72% in the Riverside, California, region.”

June 29 – New York Times (Conor Dougherty): “For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers. Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines.”

“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” says NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.” Pending home sales have fallen 13.6% from a year ago. Economists have pointed to rapidly rising mortgage rates to explain buyers growing more cautious. The monthly payment on a median-priced single-family home, assuming a 10% down payment, has risen by about $800 since the beginning of the year due to the increase in mortgage rates. Rates have jumped by 2.5 percentage points since January.

Home buying conditions for the top third match the lowest on record. If you’re curious, that top tier is responsible for 58.7% of home sales. By extension, they account for 56.5% of furniture sales. In a weekend chat with Ivy Zelman, she said she expects home inventories to be up by 70% YoY by the time we ring in the New Year. Redfin’s latest data corroborate the downside building — the brokerage’s proprietary gauge of pending home sales fell 10% YoY to the lowest since May 2020 while requests to tour homes sunk 16% YoY, the biggest decline since April 2020 when the pandemic slammed the sector. (Quill Intelligence)

On the heels of the release, Zelman & Associates warned, “In the months ahead we expect homebuilders to respond to softening demand with increased incentives and even price cuts in an effort to stimulate activity.”
 
Excerpts from Monday’s NAHB corroborate Zelman’s concerns: 
 “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home.”

“In another sign of a softening market, 13% of builders…reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

“Affordability is the greatest challenge facing the housing market. Significant segments of the home buying population are priced out of the market.”

Rather than move, a growing number of investors are making their way for the exits. As reported yesterday by Bloomberg, KKR, Blackstone and Amherst are among housing investors who have “cut buying activity by more than 50%.” At least they’re not joining Starwood Capital in jettisoning portfolios of single-family rental portfolios…yet. Yes, this will leave a nasty bruise on a market overly dependent on leveraged, deep-pocketed, price-agnostic buyers. (Quill Intelligence)

((I will finish by adding this thought. With interest rates up at least 250bp since the beginning of the year, I believe it would be prudent for appraisers to look at the past sales rate for houses that were priced about 50% higher than your subject’s houses will be. My logic follows.

Your subject expects to sell houses at $400,000. Assuming a 30-year mortgage with a 5.5% interest rate, the monthly payment will be $2,271. I just assumed a 100% LTV to make the analysis shorter. We all know that people buy a monthly payment, not a price. Last year, the same $2,271 monthly payment at a 3.0% interest rate could buy a $540,000 (Rounded). Therefore, I think it would be better to look at the past absorption rate for houses in the $550,000 price range instead of the $400,000 range.

That said, we still need to look to the future. All past absorption rates still need to be adjusted downward SIGNIFICANTLY. I don’t know by how much. Personally, I would apply a 50% drop to begin with. In a few months the data may well suggest a 75%+ drop. And I wouldn’t project any rebound for at least 2+ years. My two cents.))

Shalom,

The Mann

STEP 2 IN THE HOUSING REVERSAL HAS OCCURRED

JUNE 14, 2022 – It is rare that you see and know a peak is occurring as you speak. Three months or a year down the road it is easy to look back and see when a top occurred. But, while it is going on….that is difficult. Being in the forest makes it tough to see the trees.
There are 4 steps for the housing market (any market for that matter) to go from growth to decline.
Step 1 – Acceleration in appreciation begins to slow down. This occurred 6+ months ago.
Step 2 – This is occurring now. Annual home appreciation in June will be lower than it was in May. We will look back at May-June 2022 and see the rollover in annual appreciation. Essentially, acceleration has turned negative. Better to call it deceleration.
Step 3 – This is the opposite of Step 1. The steep upward slope of accelerating price appreciation now becomes a steep downward slope of slowing price appreciation. This will occur the remainder of 2022 and into 2023.
Step 4 – The final step occurs when the accelerating slow down (think of slamming on the breaks) takes the market from price appreciation into price decline. This seems a far way off. But, I think we might be in for a surprise and see declining home prices quicker than we expect. We shall see.
As an aside, Bitcoin (slightly below $20k) and Ethereum (around $1k) are nearing major lows. The next move should take both to record highs (4x-5x moves from these levels).
Shalom and Happy Heterosexual Pride Month!
The Mann