A Home Sales Crash is On the Way: Let's Discuss the Impact

Mish

Existing home sales fell to a Seasonally Adjusted Annualized Rate of 5.27 million compared to an estimated 5.335 million SAAR.

The lead chart is from the NAR.

  • In March, single-family sales were down 8.1% and condominiums sales were down 11.7% compared to last month.
  • Compared to a year ago. single-family home sales were up 1.3% while condominium sales were down 3.6% 
  • Single-family homes had an increase in price up 8.1% at $282,500 and condominiums rose 7.9% at $263,400 from March 2020.

Econoday economists expected existing home sales to decline 7.5%. 

Things were a bit worse than expected in March. April and May rate to be disasters.

Understanding the Economic Impact

From a household formation aspect (starting a family), new home sales arguably matter more. But in terms of sheer numbers, resales dwarf new home sales. 

For example, February new home sales were 765,000 SAAR vs 5.76 million SAAR existing home sales.

What Happens on Existing Home Sale?

  1. New Carpet
  2. New Kitchen
  3. New Appliances
  4. New Bathrooms
  5. New Furniture
  6. Painting
  7. Landscaping 

Not all of those things happen on a home resale. But some of them happen on nearly every resale. 

Few if any of those things happen on new home sales because things are generally all inclusive.

Home Sale Crash Coming

A home sale crash is coming, both new and existing. 

Given that new home sales are recorded at offer acceptance and existing home sales recorded at closing, the existing home sale crash may lag a bit, spread over more months.

Mish

Comments (55)
No. 1-19
magoomba
magoomba

Prices will wait, probably even inflate more as sales fall to near zero.
Then, we all hope, it will all get dumped on the market each to the highest bidder when the biggest oinks finally fail.
And that's how the recovery will begin.

MiTurn
MiTurn

This is going to literally kill the real estate market where I live. North Idaho seems to be the place every freaking Californian has to move to, and if they can't sell their suburban ranchers down there, they ain't gonna be moving up here. Maybe this is the upside!

CaliforniaStan
CaliforniaStan

“By year end, maybe no meaningful change to median home price for the country as a whole,” said National Association of Realtors Chief Economist Dr. Lawrence Yun when asked about 2020 year-end median home prices." Lawrence Yun is the economist for the National Association of Realtors, so he should be EXPERT about this. See, nothing to worry about!

Freebees2me
Freebees2me

Can I get the FED to buy my Florida home?

Inquiring minds want to know.

The FED is just like Mikey (from the old cereal commercial). Mikey will eat anything....

Freebees2me
Freebees2me

Home sales crash

It has to happen. In many states, realtors are not supposed to show homes. It's hard to sell something that can't be shown. Some are doing 'virtual' walk-thru's, but that's not a substitute for see and believing.....

MiTurn
MiTurn

I did a recent re-fi and the appraiser visited with a face mask and gloves.

CCR
CCR

Completely geography dependent.

tokidoki
tokidoki

So winning. Think about it guys. Home price crashing, oil price crashing, leaves more money for stocks. Dow 5 million!!!

Carl_R
Carl_R

There isn't much mobility at the moment, so a crash in sales volume was baked in. Other than a temporary hit to various businesses, it's not clear to me that this will have a long term effect. Eventually people who wanted to move will move.

SteveVT
SteveVT

but my refinance? Un affected? I guess it affects appraisals, we are beyond that. I think I am good. 5% to 3%, seems worth it. We are both still working.

gregggg
gregggg

Mish didn't even mention the finance end. People with near excellent credit scores are having a hard time qualifying. How about a refi on falling real estate prices, "Sorry, your house is worth 70% the loan amount you requested". Remember, the last wave of home buyers had a 3% average down payment. HELOC for a redo? Granite counter tops....forget about it.

SAKMAN
SAKMAN

I dont see it from my vantage point. I mean I paid of my California house in 7 years. . . so I wont be selling.

I know a lot of people who are going to be looking for deals if they come. Including myself. I dont know the people who will have to sell. They arent my friends.

psalm876
psalm876

Woe to Municipal budgets as property owners rightfully seek reassessments.

Worker
Worker

If I were a bank, I would focus on PPP loans. Zero risk. Maybe a mortgage I could definitely sell to the GSEs. I would be hesitant to make any other loan. Any home sale requiring a non conforming loan is in jeopardy. Unless maybe the buyers are putting 50% down.

Sequoia
Sequoia

I am already seeing 5-100k knocked off a fair number of houses in Colorado. The real issue to watch is the jumbo mortgages are drying up. This will push the houses just over conforming down which will start the compression across the curve. You get a lot of house when you go 100k above the conforming loan limit. People are paying 500k for 2500sqft cracker boxes. 600k gets you 4500sqft older better built home.

k-rits
k-rits

We have a purchase agreement right now for our house and one we're moving up to. The buyer of our house offered based on a video walkthrough and wasn't inside the house until they had an inspection done. So it's possible.

Sure, volume will take a huge hit. The real question is price. With the government offering forbearance for up to a year on 70% of existing mortgages, foreclosures are not going to be rampant over the next year.

A housing PRICE bust in the mid to low end may take years to develop. A bust at the higher end will come first since jumbo mortgages aren't federally backed and will not receive forbearance.

Old Walrus
Old Walrus

What are the chances of a Mortgage interest amnesty or about a mortgage jubilee?

Charlemagne784
Charlemagne784

So in light of so much uncertainty with Covid-19 related missed payments, forebearances and subsequent drop in home sales, whether new or existing, do you view higher priced areas like Austin, SF, LA, Denver, Memphis, Seattle as more insulated from housing correction?
Also loan servicers with reduced income due to forebearances and missed payments but still have to pay investors on mortgage backed securities, will the banks have a less liquid market to sell the notes? Basically will there be enough MBS buyers where the banks feel confident enough to issue new mortgages?

Jdog1
Jdog1

People need to understand what economic depressions really are. They are a reality check. They are a point in time when everyone sees simultaneously that the Emperor has no clothes.
Value is a strange thing as it is variable. There is an intrinsic value which is basically the real value, based on its need, and their is a perceived value which is skewed by factors other than an items actual need and purpose.
Inflation is caused by buying on credit. The effect of inflation is to raise values of items purchased using leverage (debt) faster than wages.
In depressions, things which have had their valued increased simply by the speculation that they will be worth more in the future, are revalued and brought back to their intrinsic value.
The more valuations have become inflated, the more they must fall.


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