The Home Seller Market Crash
The home seller market crash is worse than we predicted. If you are in the Real Estate or Mortgage business, a year since the start of the pandemic in the US, you likely see the world as the haves and the have nots – especially when looking at seller leads and lead gen.
Let’s not candy coat it and call this what it is – This is the Home Seller Market Crash. Inventory is at historic lows, affordability is rapidly eroding due to price increases and on top of that, rates are climbing. Simply put – more often than not, people who want to move, can’t.
In September we predicted a Nuclear Winter for the Housing industry and much of that prediction has come true. The timing and scope of the prediction was accurate to start – as the inventory continued to fall in the winter months, however, we did not see this continuing to fall at this rate well into the spring sales season. It’s even worse than we predicted.
Rose Colored Glasses
Why then are some looking at our industry with rose colored glasses? Is the glass really half full?
Some prognosticators are still predicting the “housing market will be strong in 2021” and this baffles me. I believe they are taking a very narrow minded look at the market. For starters, these projections are typically only looking at price – home sale prices. Obviously this type of statement is ignorant and misguided – as the market, those of us in the industry understand that housing volume is what makes a strong housing market and feeds mortgage, title, real estate, photography, and inspections, and repairs to name a few. If those of us in the industry are to make forecasts – it’s not going to be made on median home sale price alone.
Furthermore – price instability and the upward trend has STOPPED people from being able to buy as affordability is out of the question in many markets for the majority of potential movers. Inflation is driving up the price of construction materials, eliminating new builds as an option for many. Rapid price increases in our industry is not good.
Using Realtor.com’s public data we can paint a pretty clear picture of the situation.
(March 2021 data)
-The Median list price in the US is up to $370k, or an increase of 16%y/y
-The Average days on market is down 9% to 54 DOM
-There are only 493,000 active listings in the US, a stunning drop of 54% y/y
Is Now The Time to Rent?
The classic real estate phrase “now is the time to buy” could not be further from the truth at this point in time in most of the US.
If you can convince your mover to sell for top dollar – where do you help them move? Try Renting. Seriously. Rent rates in March are up 1.1% y/y (in the top 50 markets) or relatively flat while home prices have leaped up. So selling now, and renting may be a temporary solution while your client awaits the return of inventory and the normalization of prices.
Invitation Homes currently owns more than 80,000 single-family rentals in 17 markets. Formerly owned by Blackstone, they started in 2012 in the depths of the Financial Crisis, and went on a buying binge. Currently Invitation Homes is sitting on a gold mine. Invitation has a reserve of properties that they can (and probably ought to) sell for top dollar.
So – Perhaps your next real estate business ought to involve placing renters?
On Black Monday, October 28, 1929, the Dow declined nearly 13 percent. On the following day, Black Tuesday, the market dropped nearly 12 percent. This 25% drop in the stock market is referred to as the stock market crash, but it would continue to free fall for over a year. This was the worst the industry had ever seen. Certainly if real estate transactions / supply drops more than 50% in a year – it’s worthy of being called an industry crash.
In the 1980’s house prices were low yet mortgage rates were in the upper teens – this limited movers due to affordability. Today we see the opposite. Prices are skyrocketing and rates are historically low – yet the same problem exists for buyers.
The last three years have had an impressive gain in prices, with the last year blowing the roof off at 16% y/y. For comparison, from 2000 to 2016 on average nationwide home prices increased a total of 32%.
Typically recessions increase supply and reduce prices as the graph below shows. (grey areas are recessions) However in this pandemic world, we buck that trend. Here we have a recession, with prices spiking.
https://fred.stlouisfed.org/series/MSPUS (image link)
So this begs the question – We don’t need a trickle, we need a wave of listings. What will flood the market with listings? Where will the supply come from?
-Will seniors move into care facilities and sell? Not likely, this baby boomer generation has wealth, and prefers in home care unlike prior generations.
-Foreclosures? With increased value, people who are behind in their mortgage payments have the option to refinance to catch up – rather than flooding the market with underwater homes like in the housing crisis.
-New construction? Perhaps, but building materials are at all time highs, the labor force is currently lacking and housing starts remain pretty consistent with prior years.
So I remain concerned for the future our industry. If you have insight on what will turn the tides – please comment below!