Worthless headline for almost everyone, home sales could plunge in 2023

[GON]

This article's headline says home sales could plunge in 2023. This is only a meaningful headline for people that make money on real estate sales, like realtors, mortgage brokers, home inspectors, etc.

The article then lists the top ten areas predicted to have home sales declines in the USA. At the end of the article, the statistic that means the most to everyone. Home prices are projected to INCREASE 5.4 percent in 2023.

CBS News: Home sales could plunge in 2023. These cities could see the biggest dips..

Home sales could plunge in 2023. These cities could see the biggest dips.

Buyers are getting squeezed by higher real estate prices and soaring mortgage rates, which could force more out of the market.

www.cbsnews.com

 

[97K15004WD]

Blackstone's $69 billion REIT curbs redemptions in blow to property empire

Blackstone Inc limited withdrawals from its $69 billion unlisted real estate income trust (REIT) on Thursday after a surge in redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth. The curbs came because redemptions hit pre-set limits...

finance.yahoo.com

And Also:

https://money.usnews.com/investing/news/articles/2022-12-01/blackstone-limits-redemptions-from-69-billion-reit

Investors are fleeing the market now and dumping REITs

 

[Dave Hess]

I like watching Randy Patrick, Housing Bubble 2.0 on YouTube for great info.

 

[GON]

I like watching Randy Patrick, Housing Bubble 2.0 on YouTube for great info.

Dh, thanks- I will check out your recommendation.

Of note, when every year that single family home interest rates were above ten percent, the value of single family homes rose. I can't find a single statistic that shows higher interest rates means a decline in single family home selling prices. I primarily studied single family home prices from 1975 through 1985, a time when mortgage rates rose up as high as 18 percent.

Full disclosure - I am wanting home prices to reduce to Jan 2019 levels, as I am a cash buyer. As of today, I have yet to see prices fall to even January 2022 levels.

 

[GON]

Blackstone's $69 billion REIT curbs redemptions in blow to property empire

Blackstone Inc limited withdrawals from its $69 billion unlisted real estate income trust (REIT) on Thursday after a surge in redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth. The curbs came because redemptions hit pre-set limits...

finance.yahoo.com

And Also:

https://money.usnews.com/investing/news/articles/2022-12-01/blackstone-limits-redemptions-from-69-billion-reit

Investors are fleeing the market now and dumping REITs

97k,

Thanks for posting the article. As noted in the article, Blackstone sold some holdings for cash and at a huge profit in the last few days. Not sure the redemptions are negatives for the fund, just appears some holders of the trust want out.

 

[JeffKeryk]

I am rooting for San Jose to drop like a rock! I am looking for 2 places!

 

[GON]

I am rooting for San Jose to drop like a rock! I am looking for 2 places!

JK,

I think you are likely not going to see that happen-especially in California.

The regular influx of well-off people from Asia to California. I don't care what California real estate price are, these well-off immigrants are probably very content living in a 1500 SQ FT single family home, on a 5,000 sq foot lot, for 2 million US.

Of any state in the USA- California housing prices are most protected in my opinion. The immigrants from Asia that have money want California.

 

[JeffKeryk]

JK,

I think you are likely not going to see that happen-especially in California.

The regular influx of well-off people from Asia to California. I don't care what California real estate price are, these well-off immigrants are probably very content living in a 1500 SQ FT single family home, on a 5,000 sq foot lot, for 2 million US.

Of any state in the USA- California housing prices are most protected in my opinion. The immigrants from Asia that have money want California.

The interest rates have already had an effect. I am looking for an entery level condo, 2/1, 850 - 900 sq ft. I can get a McQuen in Blossom Valley area of San Jose for high 400's to low 500's. This is a 10% drop. This is the bang for your buck area of the Valley. If I see $400K I'm a buyer. My Schwab crew is alerted to be ready.
Blossom Valley Condo

I need one in the Santa Cruz area as well; that will be tough. Different set of needs and parameters.

But you are right, with the Semiconductor Mfg onshoring, new products, etc, the Valley is hot. If there is an opportunity, it will probably be short lived.

 

[GON]

The interest rates have already had an effect. I am looking for an entery level condo, 2/1, 850 - 900 sq ft. I can get a McQuen in Blossom Valley area of San Jose for high 400's to low 500's. This is a 10% drop. This is the bang for your buck area of the Valley. If I see $400K I'm a buyer. My Schwab crew is alerted to be ready.
Blossom Valley Condo

I need one in the Santa Cruz area as well; that will be tough. Different set of needs and parameters.

Ten percent drop off what? 2018 prices, 2019 prices, 2020 prices, 2021 prices? I suspect those homes in Blossom Valley are selling today, this very minute above 2021 prices.

 

[JeffKeryk]

Ten percent drop off what? 2018 prices, 2019 prices, 2020 prices, 2021 prices? I suspect those homes in Blossom Valley are selling today, this very minute above 2021 prices.

As entry level properties in a "pretty good" area, these condos have a lotta potential buyers. I think they were a good $50K higher not long ago.
But truth be told, I have only started looking maybe 3 months ago. As a reference, the same condos in Campbell, a better area, would be $600K up I believe, and there are none for sale. They go fast. Anyways, wish me luck. I might need it.

 

[Nick1994]

House prices here need to be cut in 1/2 to be realistic. Fingers crossed, but not holding my breath.

 

[RhondaHonda]

St Louis Fed Chairman said at a talk this morning that he expects 10-20% home price reduction in the Midwest, 20-30% in the mountain west.

 

[skyactiv]

St Louis Fed Chairman said at a talk this morning that he expects 10-20% home price reduction in the Midwest, 20-30% in the mountain west.

While interest rates could do that, who knows, it wont alleviate the fact there isn't enough houses to go around for everyone.

The new reality in many parts of the USA is that developers would rather build apartments and condos than houses.
Houses simply aren't being built like they use to to keep up with demand.

 

[GON]

St Louis Fed Chairman said at a talk this morning that he expects 10-20% home price reduction in the Midwest, 20-30% in the mountain west.

RH,

Price reduction of 10-30% off of what? When some gives a percentage, and then never gives the off of what- what they are saying is not very credible.

If IBM stock sells for $100 a share in JAN 2021, $150 a share in JAN 2022, and sells for $200 a share from FEB2022-NOV2022, and then on 1 DEC 2022 a fake headline that Microsoft is buying IBM for $350 a share, and IBM goes to $300 for a single day- and then returns to $200 a share, did shareholders of IBM of record from JAN 2022 lose $100, or 33 percent on 2 DEC 2022?

 

[mk378]

every year that single family home interest rates were above ten percent, the value of single family homes rose

That doesn't mean as much as you think it might, since high APRs are the Fed's response to general inflation. The price of everything is going up during those times.

 

[mk378]

I am wanting home prices to reduce to Jan 2019 levels

Is any economist expecting the price of anything to ever return to 2019 levels?

 

[GON]

Is any economist expecting the price of anything to ever return to 2019 levels?

I clearly am not an economist and can't speak for that group.

If housing prices rose at levels much higher than the rate of inflation, and much higher than the growth of peoples' pay- then I can see a foundation for real estate to be adjusted at levels that align with wage growth and inflation, on a MACRO level. But I have never made money on real estate- so my commentary is clearly from the peanut gallery.

I think one can take let's say 2015 average home prices, rate of inflation, rate of wage growth- and come up with a possible "fair value" for housing for DEC 2022. And if my formula for fair value for housing was accepted by accountants and auditors- there might be an overnight collapse in many financial and related institutions as they would not have enough in reserves to cover the paper loan losses. I think I answered my own question- the government in its efforts to provide a stable financial system has an interest to not have housing prices retreat- the second and third hand effects can be very detrimental to a sound financial system.

Lots of factors my commentary does not bring into the mix to include rise in populations, migration of Americans to the West and South, cost of building materials, reported labor shortages, etc.

 

[SC Maintenance]

I refuse to click on these real estate articles, all written by "unbiased' people that earn a living selling real estate.

Are they saying sales volume or pricing is going to plunge? Because sale volume is already plunging so if that's there call there not going very far out on a limb.

 

[Rod Knock]

It's time to leave earth.

 

[SC Maintenance]

I am no economist either, but the old saying is that if you torture the numbers long enough they will tell you what you want to hear.

So what then?

The historic norm home price is 5X average household income. Average household income was 71K in 2021. Lets assume that has now gone up 5% so maybe around 75K, making 5X = $375K. Median sales price is $455K which would be about 6X, so maybe 18% higher than the historical average. For reference, 2016 peak was 7X median income, so were no where close to that number.

Another way to look is the historical average mortgage should cost around 28% of gross pay. So with todays 75K median income that would be about 21,000 per year or $1750 per month of mortgage, which with 7% on a 30 year fixed would get you $265,000 of mortgage. So clearly by that measure the $455K median home price is over valued. If interest rates go to 9% as some were predicting, then there even more over valued.

Of course, inflation is a factor. The last large inflation we had was in the 70's and housing prices tripled because people wanted fixed assets not dollars. So even if you factored 6% core inflation compounded for 3 years then your $455K median home price should be pretty darn close to 5X your Median income. So if inflation holds and housing goes sideways for 3 years, were back to the norm.

Then of course there is the fact that the last time the fed started raising rates they broke the banks and we ended up in a lost decade. Japan had their lost decade 4 decades ago and haven't recovered. The fed continues to raise rates.

Pick your narrative - I can probably find numbers to match it.