Housing Values are Dropping – Bad News is Good News | News or Noise

 

Housing Fiasco:

New home sales were released for the month of September last week, and in one word they were, abysmal. According to the HUD and the Census Bureau, sales of newly constructed homes dropped 10.9% and were down 17.6% from a year ago. Existing home sales were even worse , dropping -24%. This was the eighth straight monthly decline this year, making it the longest decline since 2007. The number of new home listings fell by 22%.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. This is our investment team‘s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money.

Before we discuss this week’s topic, bad news might be good news for the ongoing collapse in new home sales over the last six months; please take a moment to click on the subscribe button and click on the notification bell so you will be alerted when our team uploads our latest content.

Because of the Federal Reserve’s fastest interest rate increases in over 50 years, the average 30-year fixed rate mortgage has risen from about 3% 12 months ago to now, over 7%.

In fact, on October 20th, the Mortgage News daily survey hit 7.37%, that’s 3% higher than the 30-year Treasury on that day. A senior economist at Realtor.com estimates that with monthly mortgage payments 75% higher than last year, many first-time buyers can’t afford to buy and have lost $100,000 in purchasing power as rates have doubled. For the first time in over two years, housing prices are falling, and while they are still up materially year over year, they are rolling over at an accelerated pace.

The -2.6% difference between July and August in the monthly comparisons is the most significant monthly decline in the history of the index, which was launched in 1987, meaning price gains are decelerating at a record pace, and that’s before mortgage rates went over 7% in October. The West Coast, which includes some of the most expensive markets, saw the biggest declines, with San Francisco (-4.3%), Seattle (-3.9%), and San Diego (-2.8%) falling the most. Higher home prices combined with higher interest rates are keeping many sellers from listing their houses.

Why? . . .

Because, how many people who refinanced a mortgage in the last ten years, locking in low rates, want to sell and buy a new home with a mortgage at 7%. So, where’s the good news in a slower housing market with lower prices? Remember that the Federal Reserves’ key measures of inflation, CPI and PCE, have large components weighted toward what they call “owners equivalents rents.”

Calling it What it is:

Everyone besides the Fed calls it housing costs. The real-time data says that the housing component momentum peaked last spring. The data says we have seen the peak and are rolling over, coming down the other side. Well, that would be good news for markets as it will begin to hit the Feds lagging data series in the coming months.

Investors want to see the Federal Reserve slow their interest rate increases in the coming months and then pause to see their effects in 2023, and that would be the biggest and best news we’ve heard all year when it happens.

This is certainly news for you, your family, and your money!

Are you trying to meet your needs or your greed in retirement? Give us a call here and schedule an initial consultation with an Oak Harvest Advisor. We will sit down with you and help you and your family do the math to figure out if you will be able to meet your retirement goals and needs.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs instead of focusing on the past. The future is always uncertain, and that’s why our advisors and retirement planning teams plan for your retirement needs first and your greed second.

Give us a call to speak to an advisor, and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at (877) 896-0040, and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.

– I’m Chris Perras and from everyone here at Oak Harvest, have a blessed week.