How Do Home Prices Fall When...

By
Mortgage and Lending with Mortgages in AZ, CA, CO, DE, FL, GA, MD, MN, MT, NC, NJ, NV, OK, OR, PA, SC, SD, TN, TX, UT, VA, WI NMLS #138061 MMCD #1141

Real estate is local.  Kind of.  It's also regional, and also national.  But keeping in mind that the US is a very big place, before discussing home values, it's important to note that in the US, there can be large differences from region to region and from one metro area to another (not to mention the even larger disparities from the major metros to the rural non-metros).  So, of course some markets are going to differ, but....

 

How do home prices fall when...

 

- Inventory is still below pre-covid levels

- Rents have continued to keep pace with the increases in home values, so the historical fallback plan from buying (renting) is no longer the money saving, cashflow increasing option it once was

- Household formations (a key indicator of near-future demand) continue to climb

- Year over year new home starts are down, and pending permits are down, meaning inventory growth will be slow

- Nearly all data metrics point toward current or near-future recession - an economic phenomenon which historically supports flat or increasing home appreciation

- Inflation remains high, and real estate remains one of the best assets to hold in inflationary environments

- Based on economic forecasts and indicators, mortgage rates should decline through at least the end of 2022, adding to demand and improving affordability


- Employment numbers (the only metric the Feds have to hold onto in their "we're not in a recession!" propaganda) remain solid with job openings and decent pay available in most industries (for now)


- As of July 2022, 44% of contracts involved multiple offers (if you remove April 2020-February 2022 from your analysis, today's market looks like a heavy seller's market!)


- Builder confidence numbers are dismal, meaning future inventory numbers will likely be low, and builder focus on multi-units and high density housing should give more value to the SFR market

 

There's a large contingent today, in the media and elsewhere, that are negative on housing.  Most of the metrics and data they cite to formulate their negative opinions seem to point toward comparisons to early 2022, 2021, and 2020 - I argue that if you remove those numbers, and look historically, today's market looks healthy, still unbalanced with more power to sellers in the majority of markets, and primed to pick up further if/when rates fall.  

 

The above bullet points are supportive of a healthy market with home values primed to climb (albeit at a slower tick than we saw in 2020-2022).  For those with alternative viewpoints, my question is simply:  If you expect home values to decline or the market to "correct" in the near future...how?

Posted by

John Meussner
NMLS ID #138061

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Comments (13)

Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good afternoon John,

Good question! How do you expect home values to decline or the market to "correct" in the near future? Not what the facts are telling us.

Aug 16, 2022 02:29 PM
John Meussner

Thanks Dorie!

Aug 17, 2022 08:56 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Great post, John... it's still about supply and demand and that means in many markets (like mine) home prices will continue to increase, albeit at a slower pace.

Aug 17, 2022 05:12 AM
John Meussner

Supply & demand rule the day.  If rates dip, the demand side should pick up.

Aug 17, 2022 08:57 AM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi John- I'm not great at economics but one thing I do remember is supply & demand. The pace may slow a bit but that's not a bad thing. 

                                                                 

                         You' ve been feature in the group Bananatude.

Aug 17, 2022 09:38 AM
John Meussner

Thanks Kathy!

Aug 17, 2022 03:59 PM
Doyle Davison
Hawaiian Beaches Hawaii - 714-968-6767 - Huntington Beach, CA
30 years as your Concierge services listing broker
What’s up john… my prediction is a huge shift. I predict a massive change like we have never seen before. We can already see jitters. Unlike past history the fed reserve has been telling the government we are at zero to no inflation, then they went to it’s just temporary and the people know this is a complete lie. Supply and demand is just a piece of the pie, food cost has gone from 10 dollars to almost 100 dollars a bag of groceries, gas has almost doubled in my area, lumber went from 3.50 for a 2x4 to almost 11 dollars. Oil went from 40 per barrel to over 100. And the list goes on and on and on.. last massive indicator, reports show wallets are also on empty, all this free money government giveaway has not kept up with savings. I can list about 50 other indicators that are completely upside down. I have been l licensed broker now over 30 year’s, just got off contract with Federal government and have banking recon loan info the general public does not see and it’s bad… real bad news… buckle up.. the media has been lying big time..
Aug 17, 2022 10:22 AM
John Meussner

Hi Doyle - I actually agree that "things" will be bad.  But in reality, things are never all bad.  People have made money in each year, and in each decade.  I ancitipate unemployment to spike and for the Fed to, once again, bring in quantitative easing because it seems all they know how to do is manage the boom-bust cycle - but recession also historically has reduced rates (seen in the chart here), and on a global level, to borrow a quote from an old mentor "we're the cleanest shirt in the dirty laundry".   I don't anticipate rosy economic times ahead, but I expect housing to be a strong point in an otherwise tough environment.


 


Aug 17, 2022 04:04 PM
Pete Xavier

Hey Doyle,


Yes, high inflation is here, it was amplified while I was temporary working in San Francisco & the East bay area recently (San Francisco really S%&#$!). Gas was $7./gallon at one point last month in San Fran, it's now $3.50/gallon here in the Dallas area.


We need to stay above it as individuals/business professionals, it's like the roaring 20s for me. How did that equity recommendation I gave you turn out? It turned out to be nothing short of a home run! 


Things are bad inflation wise, but, make that money to cushion that blow.


 

Aug 17, 2022 02:30 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

John Meussner, you have made very cogent, lucid and well-researched points. However, the economy is as unpredictable as the direction of a rudderless ship in stormy waters.

Aug 17, 2022 07:57 PM
John Meussner

I would respectfully disagree, Dave --- fiscal policy and global federal banks have consistently acted in boom & bust cycles.  I'd agree that the exact specifics are unpredictable (ie in the beginning of the year, I predicted rates would hit high 4s/low 5s, but when they hit the 6s, it took me by surprise), but the general trends, directions, and what's to come is somewhat predictable (certain variants - war, acts of God, etc keep us guessing!).  Thanks to historical data and consistent policy, the crystal ball isn't entirely murky.

Aug 18, 2022 09:30 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Another wonderful exclamation from somebody who is a master, without a doubt

Aug 17, 2022 09:20 PM
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello John - "interconnected"  definitely plays a role in real estate as well as in everyday life.

Aug 18, 2022 02:20 AM
Ginger Harper
Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

This is good to know.  Thanks for sharing.

 

Aug 18, 2022 08:43 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi John:

The question about home prices is an excellent one, and you've responded to it with a thoughtful and compelling analysis.

Jeff

Aug 18, 2022 12:23 PM
Peter Mohylsky
PMI. Destin - Miramar Beach, FL

Many variables are in play here but the weighted concerns are still the most important ones.  Low interest rates, low inventory, high demand are only a few of the concerns. 

Aug 18, 2022 02:13 PM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

Agree that supply and demand tell the true story. Our area is quite brisk as new people continue to move to our area.

Aug 18, 2022 06:09 PM
Edward Gilmartin
CRE - Boston, MA
Plus I know a lot of landlords buying up starter hoMes and renting them out to migrants …usually 4 per room. This has taken tens of thousands of homes off market.
Aug 20, 2022 04:37 AM