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The First Thing You’re Going To See Is A Glut Of Supply

A report from My Northwest on Washington. “You may have heard that the big chill has suddenly hit the Seattle housing market. According to the Case-Shiller home-price index, Seattle home prices are falling faster than the rest of the country. The Emerald City was leading only a few months ago.”

“But we mustn’t read too much into it, says Chief Economist Matthew Gardener at Windermere Real Estate. ‘In terms of overall house prices, in the last couple of months we’ve seen some significant softening,’ Gardner told Seattle’s Morning News. ‘There are some out there that are projecting a bubble, a major correction in housing values — I don’t see it.'”

“‘We’ve certainly reached a peak with a lack of affordability. There must be a ratio between home prices and incomes — we’ve breached that, but it doesn’t mean that housing prices are going to correct in the downside,’ he said. ‘Housing is not a stock. You shouldn’t look at it on its value day-to-day, month-to-month, or even year-to-year. It’s shelter, first, and an asset, second.'”

“Gardner says that part of the reason that prices have softened is that plenty more units are coming on the market and that people are trying to time the market. Invariably, when you get more supply, with a still reasonable demand, home price growth softens.”

From WKRN in Tennessee. “Housing numbers in Nashville are down month to month across the board. That includes inventory, closings, and median price. When you look at home sales year over year, November homes sales show a moderate decrease from November 2017, but inventory is up 25-percent.”

“There were more than 220 closings last November than there were this year and 2,550 more homes on the market in November 2018. Sher Powers with Greater Nashville Realtors told News 2 that more houses are on the market, but fewer have sold due to what she describes as ‘buyer exhaustion.'”

“She said, ‘They’ve been competing particularly in the lower price points with quite a few other people. They’ve gotten disappointed and decided that they would prefer to wait. They put in several offers and they don’t get a home and then they’ve got to find a place to live or their lease is coming up and they’ve got to make a decision for the next year. So things like that have impacted.'”

From Mansion Global on California. “The two catastrophic wildfires that ripped through separate swaths of northern and southern California this month have destroyed as much as $14.5 billion-worth of homes, according to CoreLogic.”

“‘The first thing you’re going to see is a glut of supply’ and a significant drop off in interested buyers, Nick Giovacchini, director of client solutions at AlphaFlow, a real estate asset management firm said of Butte County, where the average home price in the county hovers around $280,000.”

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This Post Has 62 Comments

  1. There must be a ratio between home prices and incomes — we’ve breached that, but it doesn’t mean that housing prices are going to correct in the downside’

    Seattle prices are sinking like a turd in a well Matt.

    1. The only alternative according to him is that wages are going to correct “in” the upside. 100+% raises for everyone, wow!!!

    2. I haven’t necessarily seen that, especially on the outskirts. I have seen a glut of houses that were grossly overpriced to begin with and are still so…as well as a glut of really ugly Ecru colored houses that all look the same that are also overpriced. I don’t think there area is any where near normalization where buyers are getting fair value for the money and the crook estate agents are shocked that buyers would start kicking the tires and measuring those break pads a lot closer and not hesitating to walk away from anything that looks and smells like overinflated BS.

  3. There’s a table at the Nashville link:

    Inventory November 2017: 9,454

    Inventory November 2018: 12,004

    Interesting that they mentioned prices being down but didn’t say how much.

    1. In the video at the end they say prices are up 16% YoY. Fastest something in the country. The undefined down is monthly.

      “It’s a national trend.”

    2. let’s see, you’re basic blue, ecru, some fake brick, one outlier of a red trac house, then repeat blue, ecru, some fake brick. When looking for houses, it’s like another serving of bad oatmeal with no sugar to make up for the inflated menu price. Long way to go to get to normal and a glut of houses that no one probably wanted to buy in the first place – relocating here to work, nothing left, damn…we’ll have to settle for that way overpriced Ecru development house and pray we don’t lose our shirts. Now that the eyes have truly tired of the Ecru, they have to be retrained to spot the wood rot on the Pepper Corn/Black houses – the new Deeeeziner colors the crook estate agents are peddling now that looks like it could hide anything. Don’t fall for it.

  5. ‘There are some out there that are projecting a bubble, a major correction in housing values — I don’t see it.’”

    So much wrong here. The bubble isn’t the correction: that’s the bursting of it. Secondly, no need to “project” anything: the facts (rate of increase of house prices relative to increase in incomes, for example) speak for themselves. Finally, “I don’t see it”. What is it that you don’t see? The drop in sales? The increase in inventory? The drop in prices? The increase in monthly costs based on interest rate increases? The upcoming tax change impacts for the coasts? The ongoing stock market rout and the implications of it continuing?

    1. The bubble isn’t the correction

      Actually it is in the language of the UHS. There is no “bubble” until it bursts. Then the decimated remnants are called a bubble. Illogical, I know.

    2. Seems like Mr Yun may have been making some field calls today. He sent his damage control crew out to the media spouting “don’t panic, it’s gonna be alright. If you do panic it will make our precious RE industry tank”. We will soon be hearing about how everyone panicked which lead to bubble 2.0

      I’m not buying any of it

  6. I see people commenting on this blog posting statistics from movoto website, and upon a cursory look at the website it appears it does not use comprehensive data. For example, Ashland, OR was mentioned today and the headline of the comment read “Ashland, OR Housing Prices Crater 32% YOY ” and maybe I am missing something as I am not in this industry, but from the chart that was linked, it shows the active inventory in Ashland as 8. According to realtor.com, there are 233 homes for sale. Anyway, I enjoy the blog and keeping up with market conditions but just wanted to call attention to this and if I’m wrong interpreting the data, please feel free to let me know.

    1. There is some hyperbole there. MB finds a market where the
      “price has declined” and writes his own eye catching “headline”. Usually what you see is that the mix has changed i.e. smaller houses are selling at about the same $/sqft as the prior year.

      I think we are headed for a RE correction, there are a lot of headwinds as mentioned on this blog.

      Inventory is increasing, tax deductibility is decreasing, Asian demand has fallen off a cliff, mortgage rates are increasing …. If you are planning to sell, sell now or wait another 5 years. If you are planning to buy i would suggest wait 2 or 3 years you will likely get a better deal.

      1. Good advice, John. Thanks. If movoto statistics were slightly off, I would understand and would think that you could still glean some information, but I find the site completely useless (and misleading) being that the data is off- the -charts wrong. Do you have recommended RE sites with good data?

        2. No expert, but I think Case-Schiller is the most accurate as it tries to correct for quality. Zillow I suppose is OK but can be off by 5% (which is big if your putting 5% down)

      2. the same $/sqft

        Given to confuse you. If these Real Estate sites wanted to show you reality they would post sold price data.

    3. Ann…I have same issue trying to interpret Movoto. Also when someone as Marketwatch or another posts headline ‘Ashland, OR Housing prices crater 32%….’ I don’t find that on Movoto? What am I missing?
      We live here in Southern OR. Ashland RE has been high for several years, 32% crater?? Alot of Californians have cashed out relocated to South OR. We am not in Ashland however our area handful miles up I-5, houses were selling in days up until last Summer, I see houses on the market a bit longer now, but selling. With all Calif. disasters, many relocating here, all our neighbors are from Calif. Anyway

      2. I’m in Oregon as well, JPotter, and while real estate is softening where I’m at, it’s not tanking. Personally, even though I’m already in the market, I am not opposed to higher interest rates to counteract the high valuations. Having bought my first home in the mid 80’s when interest rates were very high, it held down the value of homes and while the payments might have been the same as if the price was higher and interest rates were lower, with lower principal, you can actually pay off the loan early and avoid the interest. I think the very low interest rates incentivizes heavy borrowing and does not properly reward savers. That’s just my take! Also, like you, the area I live in has had a very heavy influx of Californians over the past decade. I can’t really say I blame them for cashing out and moving North, but the influx has definitely changed our city.

        2. “…pay off the loan early and avoid the interest.”

          True for a “conforming mortgage.” However, the modern hybrid mortgage products frequently carry substantial penalties for early payment.

  7. Realtors have changed their tune this week. I work with a lot of them. The new message being pushed by sales managers is to blame ‘fake news’ for misleading headlines about the market getting clobbered. This week realtors are saying the recent news (and sites like HBB) about a slowdown is ‘fake’ and that the spring valuations will head north again. There are lots of youtube videos out this week by realtors pushing the narrative that this is not a real estate bubble. They are laughing at us.

    1. It’s good they can laugh out loud as their incomes are completely vaporized. When transactions are almost cut in half, and prices are falling, it’s like taking a 65% cut in pay at a normal job. I think I’m the one laughing harder.

    2. “The new message being pushed by sales managers is to blame ‘fake news’ for misleading headlines about the market getting clobbered. This week realtors are saying the recent news (and sites like HBB) about a slowdown is ‘fake’ and that the spring valuations will head north again.”

      That’s the tune I have been hearing as well amongst all the recent “reasonings” behind the downturn in RE. If this is all they have left, there is truly no hope left…

      There are some good people. But a good chunk of them will lie for no reason at all—it’ll be ten o’clock and they’ll tell you it’s nine. You’re looking at the clock and you can’t even fathom why they’re lying. They just lie because that’s what they do.
      —John Cusack

    3. This week realtors are saying the recent news (and sites like HBB) about a slowdown is ‘fake’

      We’ve been demonized before. And were proven right. Not by anyone admitting it, but by all the naysayers giving up and looking for other employment. It will happen again.

    4. “Realtors have changed their tune this week.”

      I’m sure they’re able to sing The Battle Hymn of the Republic or whistle Dixie with equal enthusiasm.

    1. I think per Case Schiller prices in SF are down 3% from the peak. Prices are going to go down, probably not as much as HBB thinks (collectively) but down. Wait if you can 2-3 years

      1. Wait if you can 2-3 years

        According to CS, prices of same homes dropped 40% over six years following the peak in 2006.

        1. I forgot the peak was that early (even though I sold in May05). It was kind of overshadowed by the financial meltdown of 08-09. It would seem that if the financial meltdown we are currently working on inflicts maximum pain before 2020 then that would be evidence that things are moving faster this time.

    2. Per socketsite SF supply is up 60% vs same period last year. Oh and transactions are down. So if you believe in ratios months of supply has gone up over 60%

  10. “It can’t be a bubble” there is softening, normalization, market taking a break, buyer exhaustion, slight dip, soft sand, blip, but can’t be a bubble.

    “I don’t see it” you know what else doesn’t get seen?

    Torpedos.

    Atleast some MOM data is finally coming to light.

    Next month? New set of buzz words from the industry, and I bet they will be more downward tuned. Whipsawed, sliced, sinking, quicksand, gravity, mean reversion, buyer paralysis etc. But “I still don’t see it” how about “here, try my glasses” hopefully vision will correct.

    Your welcome.

  11. I found this interesting from the article on the Chinese woman arrested in Canada and awaiting extradition to the US. She and her husband own two Vancouver properties:

    “The house is in West 28th Avenue in Vancouver’s quiet Dunbar neighbourhood, reported the Vancouver Sun.

    The police confirmed they received a 911 call at 5.30am reporting a home invasion at the property, which was most recently assessed at C$5.6 million (S$5.8 million).

    In 2016, they bought a second property, a brick-and-glass mansion set in a 21,000 sq ft lot assessed at C$16.3 million. Purchased with mortgages from HSBC, she has offered to post the family’s equity in both as part of her bail, reported Bloomberg.

    Ms Meng said in her affidavit that she tries to spend at least two weeks in Vancouver every year.”

    So, they bought $22.1 million worth of property to use two weeks a year? Yeah, no speculation or money laundering going on here…

    2. That is exactly what is going on, Vancouver has made it much harder for non-residents to own property. So she kind of got stung, on the other hand if she gets $20mill back (a 10% loss) she is still doing alright vs maybe what would happen in China

      1. Arrgh! Stupid comment. She doesn’t have 20mill in equity. She convinced some dumb bank to lend her the $$. She is likely wiped out.

    3. I found this interesting from the article on the Chinese woman arrested in Canada and awaiting extradition to the US.

      The rumor from China is that somebody relatively well known (I think a professor of some type) had dinner with her a day or two before her arrest and committed suicide the next day. So that’s the angle that’s being watched by some…

      1. Huawei has been stealing intellectual property from Cisco for years, but it looks like the transfer of technology to Iran was the opportunity authorities needed for a real case. What we are told is likely just the tip of the iceberg.

  13. Affordable housing now or be priced out forever!
    So much wrong with this article, so many buzzword….

    If the affordable housing issue isn’t addressed now, it’s going to cost two or three times more in the future, said Tahirih Ziegler, the executive director of the Detroit Local Initiatives Support Corp., which helps organizations revitalize their neighborhoods.

    1. Detroit sounds like a bottomless pit of problems from babies, housing, opioids, etc., not sure what will work there.

    1. “Correa was a close ally of Venezuela’s socialist, anti-U.S. President Hugo Chavez and saw Chinese loans as attractive because the Asian giant made no political or ideological demands, and the loans were a way of thumbing his nose at Uncle Sam…”

      Okay, I don’t feel sorry for them.

  16. Alas, Janet can’t make up her mind. Last year’s Janet said this:

    “Speaking in London in June 2017, shortly after leaving office, Yellen had said she did not believe there would be another financial crisis in our lifetimes because of financial reforms. However, she did warn at the time about the deregulatory efforts just then underway.”

    One year later Janet is saying this:

    “Former Federal Reserve Chair Janet Yellen told a New York audience she fears there could be another financial crisis because banking regulators have seen reductions in their authority to address panics and because of the current push to deregulate.”

    Yellen warns of another potential financial crisis
    https://www.cnbc.com/2018/12/11/yellen-warns-of-another-potential-financial-crisis.html

    1. The S&P 500 Death Cross Puts the “Santa Claus Rally” in Doubt
      By Chris Johnson, Quantitative Specialist, Money Morning • December 11, 2018

      Some traders like to listen to classical music, others to jazz or the blues. But I’ll listen to anything while I’m looking through my charts and data; it just depends upon the feel. So, this morning, when my Spotify shuffle went from Tony Bennett’s “Swinging on a Star” to Ted Nugent’s “Free for All,” I had to stop.

      Think about it: The markets are exactly that right now… a free-for-all. Was The Nuge hinting at some market savvy in a song?

      Nah, of course not.

      But there was this one line: “Here we go, look out below.”

      It’s not nice, it’s not pleasant, but it’s the reality we’ve all got to deal with right now.
      …

    2. “Is the Fed henceforth on hold?”

      They are painted into a corner. If they don’t raise, the stock market bubble is going parabolic, and they’re just adding gasoline to a tank farm fire. If they do, there will likely be a sell-off, but not guaranteed. However, if they do raise then they’re going to get an earful from the President.

      1. However, if they do raise then they’re going to get an earful from the President

        Doesn’t seem like a big price to pay. He gives earfuls to everybody.

        1. He gives earfuls to everybody.

          And he’s a loose cannon when it comes to earfuls. He might even give them one if they don’t raise.

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