It Started: The Reverse Housing Crash of 2023

What's up, Graham? It's Guys here. So, when it comes to the housing market, we have some good news and some bad news. Because in the last 30 days, despite ever-increasing mortgage rates and home prices falling by the largest amount since 2011, new forecasts now show that there's a higher likelihood of prices beginning to rise throughout the rest of the year.

And even though this sounds like a crazy episode of The Twilight Zone, experts are also beginning to warn of a new housing problem that's beginning to affect the entire market, creating almost like a reverse crash depending on where you live. That's why we got to discuss exactly what's happening, the latest data that was just released, the largest price changes depending on your location, and why this Las Vegas property company renamed their streets after Pokémon.

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Alright, so before we go into the precise numbers, all of this really begins with a very underrated aspect of the housing market, and that would be seasonality. See, even though housing prices generally trend higher in the long run, once you begin looking closer, you'll begin to see that there are consistent predictable price swings that happen on a regular basis.

As you're about to see, we are in the middle right now of one of the busiest times to buy a house. According to the National Association of Realtors, data from the last three decades suggests that buyers are more likely to move and buy a house throughout the spring and summer, leading to a mid-year bidding frenzy of homes that drives prices upwards.

Now, even though most seasonal pricing tends to lead to a sales price difference of 8 to 12 percent off the peak, some locations like the Northeast and Great Lakes lead the nation with a 22.1 percent variation between summer and winter sales prices. This means right now is probably going to be the most competitive it's going to be throughout the entire year to buy a home, with just under 70 percent of all sales activity taking place in just a few of these busiest months.

Although speaking of getting homes in contract, here's where things take a rather unexpected turn. Despite nearly one-third of homes selling over asking price, the average home receiving 3.3 offers, and 25 percent of the market bringing in all cash deals, home prices have fallen last month for the first time in six years. Except this trend downwards is about to get a lot more complicated simply because the number of homes on the market is shrinking really fast.

The Chief Economist at Realtor.com was quoted as saying that this week marks the first time that there were fewer active listings compared to a year ago in more than a year, which is a key reason why home prices have barely budged since the peak. In fact, what's remarkable is that new listings were down 29 percent this week from a year ago, despite a recent uptick in seller confidence.

Meaning, even though sellers are getting a lot more optimistic about the value of their homes, they're still refusing to move. All of this at the core really comes down to what's called month's supply of inventory, which simply refers to the number of months it would take for all the inventory to sell at current levels.

So, for example, if there's a thousand homes on the market with 200 homes being sold on a monthly basis, you would have a five-month supply. Generally, the rule of thumb when it comes to this is that if there's more than six months of inventory on the market, it's a buyer's market. Whereas, if there's less than six months, it's a seller's market.

Although today, the numbers are heavily, heavily skewed towards the seller. A recent report from Realtor.com found that the number of homes on the market in June was down more than 47 percent from the typical amount pre-COVID, and for existing homes in the market, current inventory stands just 2.6 months worth of supply. Because of that, home builders are beginning to fill the void with new constructions, now making up one-third of the total market inventory compared to just 13 percent in the years 2000 to 2019.

Or I guess, in other words, home prices are effectively crashing upwards just because there's so few properties on the market in the first place. And all of this is simply because of a term called the lock-in effect. The fact is, 92 percent of homes with a mortgage have a rate below six percent, and 62 percent have a rate below four percent.

So instead of selling and being forced to take out a mortgage at a much higher rate, sellers are choosing to stay put with golden handcuffs. As a result, fewer homes are sold. As proof of this, a separate study found that just over 27 percent of sellers who are considering listing their home in the next year would feel a lot more urgency to sell if rates dropped to five percent or below, and 49 percent would be likely to list if rates were to drop to four percent.

On top of that, existing mortgage rates are also found to matter a lot. For example, someone with an existing mortgage at two-and-a-half to three-and-a-half percent would be much more likely not to sell than someone with a five percent mortgage. Not to mention, sixty percent of homeowners with a mortgage have only lived in their home for four years or less.

So with the average length of home ownership at 13.2 years, statistically, we still have a long way to go until those people begin to sell, especially with high mortgage rates keeping one in seven homeowners from letting go of their home. This is why home prices nationally have barely fallen despite mortgage rates having skyrocketed.

It's also why this is the second time since last August the sale-to-list price ratios is at 100, meaning the average home is selling for exactly the price it's listed for. Now, anecdotally, when it comes to interest rates, I also tend to fall into this exact same category as well. I currently have five outstanding mortgages fixed for 30 years between 2.8 and 3.5 percent.

If I were to sell to rebuy something else, I'd have to pay substantially more in interest to the point where it just doesn't make sense to sell. However, you shouldn't get your hopes up quite yet because a new report from Realtor.com projects that housing inventory will experience a modest slip of five percent for 2023 as a whole, as early year gains turn into declines in the second half of the year.

How much of a drop, you might be wondering? Well, for them, home price growth is expected to fall by 0.6 percent for the entire year. Of course, keep in mind that these are averages throughout the entire United States, and some locations could see a gain or a drop to either end of the extreme.

Although in terms of what other analysts are expecting, here's what you need to know. Although before we go into those details, it's understandable that being able to save up enough money to buy a home right now is incredibly challenging. For example, one study found that it would take the average homeowner almost eight years to save the typical 20 percent down payment.

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Alright, so in terms of what the future might hold, it seems as though most analysts are relatively in agreement. Because from what I could tell, most of these projections are coming in pretty close to one another. For example, the manager of the S&P K-Schiller Index believes that we could see a five percent decline peak to trough with two percent still yet to recover, which is not too bad.

Goldman Sachs also seconds this with the expectation of seeing a 2.2 percent decline in 2023, revised downwards—or I guess revised upwards—from their previous projection of a 6.1 percent drop. Or we also have the mortgage giant Fannie Mae. Last week, they revised their forecast, which projects that national home prices will decrease by 1.2 percent in 2023, followed by an additional 2.2 percent decline in 2024.

In fact, Zillow's taken note of this recent surge and they have quite a different opinion than Fannie Mae. They think that 2023 is going to end the year 5 percent higher than where it began, and this is all because pending home sales are down 15 percent, which means the buyers are snapping up inventory faster than it's being listed.

Of course, in terms of where home prices are falling the most, median values fell in 24 of the 50 largest U.S. metros, with the biggest drops being seen in Austin, Texas, followed by San Jose, Oakland, and Sacramento, California, with Phoenix coming in close behind at a 7.3 percent drop.

Now, the largest gains, on the other hand, can be seen throughout areas like West Palm Beach, Milwaukee, Columbus, Ohio, Miami, and Fort Lauderdale, all up between 7.8 and 15 percent from a year ago. I'm also going to link to all of the other markets down below in the description so you'd be able to check out your own county, because I have to say there is a huge divergence between the West Coast and the East Coast in terms of whether or not home prices are going up or down.

Now, I mentioned all of this before in a previous video, but for those who missed it, there's almost a right in the middle split between the country with the West Coast seeing declines while the East Coast rises. Now, even though this might seem to be politically oriented, the truth is the areas that declined just so happened to be almost exactly aligned with the areas that have the highest prices.

Basically, higher priced homes have had more room to fall or have seen a net migration out into more affordable locations, resulting in a split almost right down the middle. Separate from that though, in terms of what the future might hold, housing economists say that there are five main reasons why housing prices are unlikely to budge much from what we've already seen.

Number one is because inventory is incredibly low. Like I mentioned earlier, sellers who've already locked in a low interest rate are essentially locked in on their home unless they absolutely have to sell. This forces the buyers to bid up all the remaining inventory to elevated levels and forces home construction companies to build as fast as they can, which is unlikely still not to be fast enough.

Second, speaking of builders, they can't get enough homes done. Like as you can see from the chart, new constructions peaked in 2007 and 2008, and ever since the great financial crisis, home builders have never come close to surpassing those levels. Today, it’s said that regulatory approvals, supply chain constraints, and higher costs make it very difficult for builders to catch up.

So it's likely that we're going to see higher prices for longer. Third, Bankrate says the demographic changes are creating new buyers. For example, Millennials represent 43 percent of the overall housing market, which is the largest from any generation, and they're prioritizing affordability, slightly larger homes, do-it-yourself renovations, and a location that allows for all of this to be had at a lower price.

Fourth, banks are currently offering fewer loans. That's why the thinking today is that lending is already restricted, and if they eventually loosen this in the future, that's going to be a new wave of buyers to push prices even further. And finally, fifth, foreclosures are really rare. The fact is most homeowners only let their home go into foreclosure when they owe more on the home than what the home is worth, and that's not really happening today.

In most of those cases, if a buyer could truly not afford the payments, they would just list it on the market and get a higher price than what they paid, potentially even walking away with a profit. Plus, to show you just how uncommon foreclosure activity is right now, Reventure Consulting provided a really great chart showing just how far we are below the typical trend line. And if values continue to stay high, I have a feeling that's not going to change anytime soon.

In terms of my own thoughts though, I thought it would be a fun idea to look back at my past predictions to see what actually ended up happening. Like this video from March 2022. I went over all the reasons why we continue to see a strong market: a shortage of supply, fewer mortgage defaults, and rising prices.

I also found it interesting that this video is pretty much exactly a year ago on July 8th of 2022. Today, we could probably see some softening with a few areas declining five to fifteen percent, but since real estate is highly location-dependent, we could also see other areas continuing to go up in price.

So it's hard to say. Or how about Jason Oppenheim's prediction last year? Because he owns The Brokerage, The Oppenheim Group, throughout the West Coast and is also the star of the hit show Selling Sunset. Sellers are realizing, and buyers are realizing, that they should buy or sell based on their own unique circumstances and whether it actually makes sense for them, as opposed to just trying to make a business decision.

But the reality is this is what any realtor or long-term investor should want: normalcy. Right now, the biggest catalyst that I see is whether or not the Fed continues to increase interest rates or if they cut and people feel like they could finally get a break on the mortgage.

So many people have already bought or refinanced at extremely low interest rates to the point where, if history is any indication, we probably got another eight to ten years left before a lot of these people begin to sell. That, of course, is assuming interest rates aren't even higher in the future than what they are today.

Oh, and as far as the streets named after Pokémon, this is happening in the Henderson area of Las Vegas and features streets with Jigglypuff, Squirtle, Snorlax, Charmander, and Charizard. And since Millennials are right now the driving force on the market, maybe this is actually going to help them sell.

Let me know what you think down below in the comment section. As always, thank you so much for watching. Big thank you again to Rocket Money for sponsoring this video. Feel free to subscribe, hit the like button. Uh, that's it. Thank you so much, and until next time.