Housing Sellers Drop Asking Price as Demand Slip and Mortgage Payments Rise

The housing bubble may already have found a pin in mortgage rates.

Housing Theory vs. Reality: Where are Home Prices Headed?

Here's a Tweet thread that caught my eye. 

 

I agree with some of these ideas and strongly disagree with others. Some are a mixed bag of plusses and minuses. 

Consumer Balance Sheets 

The Tweet chart shows mortgage debt payments as a percent of disposable income. 

That reflects the past, not the present. Housing affordability has plunged, and the Fed has barely started hiking. 

The tweet did not really address overall balance sheets of the marginal buyer. Many people have recently been priced out.

Demographic Winds

The winds are not all in one direction. 

Millennials want to buy, but a huge wave of pending boomer deaths is on the horizon. That will add to housing supply. 

Fed Impact

The biggest mistake is the belief Fed rate hikes have no effect on housing demand if the property is not financed but bought in cash.

Wrong! 

Rate hikes will reduce demand across the board. And across the board means just that. There is no magic set of buyers or sellers who will not be impacted by the overall trends. 

Asking prices are already headed lower.

Demand Slips, Pushing More Sellers to Drop Asking Prices

Redfin reports Housing Market Update: Demand Slips, Pushing More Sellers to Drop Asking Prices

Redfin notes "price drops are climbing at its fastest spring pace since at least 2015, another sign that demand is not meeting sellers’ expectations."

“There really is a limit to homebuyer demand, even though the market over the past few years has made it seem endless,” said Redfin Chief Economist Daryl Fairweather. “The sharp increase in mortgage rates is pushing more homebuyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market anytime soon.”

Jessica Nutt appears to have a spotlight on the last sentence in the preceding paragraph.

I would emphasize the first sentence. 

Downtrends Start Then Accelerate

In every cycle, prices remain stick for a while. 

This cycle was certainly not as speculative as the last and the downturn will likely not be as steep.