These Real Estate Statistics Scare Me

One of the podcasts I listen to, Bigger Pockets, had an episode this week that included a focus on some housing market statistics that scared me.

I’ve been calling for a recession for some time now. Just weeks ago I said one was coming in the next 12-18 months. A huge driver in my opinion, among others, is that the housing market is out of whack and anytime that happens we tend to see a correction.

Based on the stats I’m about to share I think it is safe to say a correction has already begun.

Here are the stats I picked out of the Bigger Pockets podcast.

• For the past 9 months, home sales are below prior-year numbers. Translation - the housing market is cooling.
• Purchase loan applications are behind 2020-2021 numbers. Translation - fewer people are applying for mortgages. No surprise here. In fact, this will get even worse now that the Fed has announced a 50 bps increase in rates. Mortgage rates were already on the rise and that will continue. Side note - I’m on a few forums with groups of mortgage loan officers. The slowdown in mortgage applications has many companies starting to lay off mortgage professionals. According to one source, Rocket laid off 2,000 people or 8% of their staff. They are just one example of many I have heard about.
• The Consumer Price Index (CPI) is at its highest point in decades. Translation - A high CPI equates to negative consumer confidence. People are not very confident about things right now. When that happens they spend less. As spending slows GDP will slow. Remember, a recession is defined as two periods of negative GDP growth.
• Home prices are up 17% year-over-year. Translation - buying a home today will cost you 17% more than the same time last year. That might help you if you are selling your home but you are just going to pay it on the other end of the transaction. Prices are so out of whack in my area that spending 2x on my next house won’t get me any additional square footage or other benefits.
• The Avg. Monthly Payment for a house is 27%, or even 36% depending on the source, higher year over year. Translation - this is driven by rates. So, not only will you pay more for your next house but it will cost you almost one-third more in your monthly payment.

I want you to know that I am not trying to be dramatic or scare you. But, I am scared. Or, maybe nervous is the right word.

I do believe we are going to see a recession. In fact, we could be there already if this current quarter ends up having negative GDP.

And, here is the thing. Rates aren’t done going up. Inflation is still soaring. Even after their recent 50 bps interest rate increase, the Fed is signaling that we could see a total of 200 bps, that 2%, more in rate increases.

If the real estate market has slowed already, it will really slow on a 50-200 bps interest rate increase.

Add to that all the layoffs I am starting to hear about and you have a recipe for tough economic and financial times.

So, what am I doing about it?

I’m addressing it the same way I am handling my investing strategy. Which you can read about here.

In short, I’m hoarding cash. In this instance, relating to real estate, I am not personally looking to move anytime soon. Because houses are just too expensive.

But, I am holding onto cash for real estate investment purposes. I’ll wait for the markets to dip, for prices to recede, and then jump in while others are running away.