Tag Archives: The Mann

QUICK HOUSING UPDATE

JANUARY 21, 2023 – The 30-year mortgage rate hit 6.15% this week. After some ups and downs over the past few months (as I had forecast to occur), the downturn has started again. We aren’t far from my original prediction of sub-6% rates.
Some other stats….Home sales are the lowest since 2010. I guess a low supply is fine when people aren’t buying homes:) Sales have declined for 11 straight months – the longest streak since 1999. Excluding the pandemic, home permits are the lowest since 2016.
That’s all for now.
Shalom,
The Mann

THE HOUSING MARKET – STEPS 5, 6 AND 7

JANUARY 2, 2023 – Happy New Year! I hope the year is good for all.
As we start 2023, the housing market is solidly in Step 4. That is when all of the cars on the rollercoaster are speeding downward together. Prices are declining and accelerating the pace of their decline.
Step 5 will be when the decline starts to slow down. e.g. annual price declines might go -8.0%, -10.0%, -11.0%, -11.5%. I expect some-to-many markets will start to see this in the 2nd Quarter.
Step 6 is when the lead cars on the rollercoaster reach bottom and start to turn up. Just the opposite of last Spring when the rollercoaster reached the top and the lead cars started downward. At this point, you have some markets still accelerating in their annual price decline and others level at their price decline level, and some where the price decline starts to head back upward towards 0%. I can see this happening in the 3rd Quarter with a slight chance it might even start towards the end of the 2nd Quarter. Readings go -9.0, -10.0, -10.0, -9.0.
The question right now is can Step 7 occur by yearend. I think there is a chance it can. In this Step the rollercoaster will be heading back upward towards say Ground Level (i.e. 0% price change in past year). There will still be many markets with negative price changes. Others will be back to near level and some will actually have positive price change readings. I would say right now no one is expecting any markets to have price appreciation this year. I think there is a chance for such to occur in the 4th Quarter in a few markets. About the same odds as last Spring when I thought full blown price declines could occur by Yearend 2022.
As always, we shall see how things play out. I will try to remember to update my forecast mid-year.
Always glad to hear your thoughts.
Shalom,
The Mann

INFLATION ESTIMATE FOR YEAREND 2022 & A 6-MONTH LOOK INTO THE FUTURE

DECEMBER 25, 2022 – The December CPI reading comes out on January 12th. My forecast for November was 7.5%-7.8% and it came in at 7.1%. I am making my forecasts at the high end so as to be a ceiling. Albeit, the November reading was lower than I expected.
My December forecast range is 7.0%-7.1%. A narrow range this time. I would not be surprised if it was on the high end again. Also, note this will be the inflation rate for the entire year of 2022.
For those of you who just wanted to know my forecast, you can stop reading now. I am about to let you inside the thinking of The Mann’s brain:) Before I do that, I wanted to say RIP to Coach Mike Leach. There were two minds that I could relate to in my lifetime – Robin Williams and Coach Mike Leach. They had minds closest to how mine operates. I miss them both. So here goes re inflation….
There are economists and others who have been calling for 10% and 12% and higher inflation in 2023. They are simply ‘wishing’ for such for whatever reason. If they have any data to base this on, I would love to see it. I seriously doubt they do.
I think of future inflation as I do to an automobile’s speed. Get ready to hark back to your calculus class:) Acceleration is a derivative of velocity. A car that is going 70mph this second and then 70mph the next second has an acceleration of 0. To go from 70mph to 71mph you must accelerate at a positive rate. To do the opposite you must have negative acceleration. So now let’s take this analogy to inflation….
The current 12-month annual inflation rate is 7.1%. The 3-month and 6-month annualized inflation rates tell us where annual inflation is headed in the near future. Right now, the 3-month annualized rate is 2.1% and the 6-month annualized rate is 3.7%. The deceleration from 7.1% to 3.7% to 2.1% is telling. It will be near impossible for annual inflation to go up for quite awhile. The data says it will be declining towards the Feds target of 2%.

Some observations on how much the rate of inflation is declining…..The 3-month annualized rate peaked at 12.7% in June. It has ranged from 0.7% to 2.4% for the past 3 months. This is your best indicator of current inflation.

The 6-month annualized rate also peaked at 12.6% in June. It has declined significantly to the current 3.7% rate. There is a very good chance this rate will go below 2% in the next few months.

With the 3-month and 6-month annualized rates in the 2% range, it is apparent that annual inflation is headed towards that figure. I think there is a good chance by the end of the 1st Quarter 2023 annual inflation will be below 5%. And by the end of the 2nd Quarter 2023, it should be below 3%.

A side note re the Fed Funds Rate. The average time between the last increase and the first decrease is 4.5 months. This doesn’t mean that on April 27th the Fed will drop the Fed Funds Rate. But, if the Fed sees annual inflation around 5% and steadily declining, it does give hope that they won’t be increasing rates. The first drop might not occur until they see all of the above data solidly in the 2% and under range. That cannot occur until at least the 3rd Quarter of 2023.

So, there you go re the thinking of The Mann. I hope it makes sense. Albeit, I am sure some of it is confusing and I don’t explain enough. If you ever have any questions, just send me an email.

Oh (there’s this non-stop brain thinking away…), let me throw this out there. Back in the Spring I talked about how virtually no one could see home prices declining by the end of this year. And now here we are and that is reality. Is there anyone saying that by April-June next year the economy will be on the rebound? Housing moves slower and follows the economy in changing direction so a bottoming in prices should occur later in the year. Have you seen anyone seeing such occurring? I have not. I only hear about Jamie Dimon and everyone forecasting a recession next year (which has already occurred this year!!!) and overall just a terrible year. I have not seen any forecasts for a turnaround starting slowly in the 2nd Quarter and becoming more apparent in the 3rd and 4th Quarters. I will revisit this forecast in 6 months:)

Shalom and Happy New Year!!! I hope 2023 is a great year for you.

The Mann

BULL MARKET, INTEREST RATES, & MORE

DECEMBER 2, 2022 – The DJIA bottomed at 28,661 in October. Yesterday, it surpassed 34,393, which is a 20% rise and what the market defines as being a Bull Market. I didn’t see that mentioned anywhere in the media. Strange.
I read that the average time between when the Fed stops raising rates and lowers them for the first time is 4.5 months. It appears that the stock market is telegraphing such.
Bottomline, the market is saying things will be bad through the 1st Quarter of 2023 and then improve from there.
The 30-Year Fixed Mortgage Rate declined to 6.49% this week. This is down from the top I called when rates were 7.22%. And, we are already over halfway to my forecast of rates going below 6%.
As for the US Dollar, it has declined from the top of 114.778 in late September to 104.533 at today’s close. That is a hefty 8.9% decline.
The forecasts are going well. As everything ebbs and flows, I would expect there to be some movement against my forecasts before the trends resume.
One last tidbit of information that I found simply incredible. The American Enterprise Institute reported that ‘for every [25- to 54-year old] guy who is out of work and looking for a job, there are four guys who are neither working nor looking for work.’ That is insane. For those who try to say it is unfair to generalize that the younger generations do not want to work, the facts say you are wrong. The labor force participation rate is down to 62.3%, which is well below pre-pandemic levels. I wonder how the economy holds up when that rate goes below 50%?
My inflation forecast is 7.5% to 7.8%. The Fed is estimating 7.49%. I am not expecting this report to be shocking in any way. We will find out on December 13th.

Happy Holidays to all!

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

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

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