Why the housing market is in an increasing form of immense trouble

Today's sell-off dragging rates lower the 30-year fixed mortgage rate is still hovering near seven percent and now home inventories are surging in certain markets as a lack of affordability curbs demand Diana Olek here with the latest details Diana yeah Sarah the mortgage rate is right right below seven percent but still.

Bouncing up and down again and new inventory and pricing data is showing why we're seeing a uniquely volatile market after dropping sharply in January the monthly payment required to purchase the average home jumped by nearly a hundred dollars by the end of February at current income levels it now takes just over 33 percent of the median.

Income to make those payments 24 percent is the 30-year average and that's according to Black Knight now that's nationally but some of the least affordable markets are now Las Vegas Nashville Seattle Miami and Los Angeles we actually went to an open house in Las Vegas last weekend just two sets of buyers came in three hours the agent.

Said inventory there is rising fast especially here in Las Vegas a lot of people move from California thinking this could be where they were going to live in their no state income tax Haven and then got the call from work after kovid saying nope we got to come back home and in fact inventory in Las Vegas is.

Now up 200 from a year ago and prices dropped in January but then Rose into the first week of March according to parcel why well those are closing so contracts signed in January when mortgage rates hit six percent along with Vegas parcel is also seeing homes go for well below list price now in Phoenix Tampa and Charlotte all of which.

Were some of the hottest markets in the first part of the pandemic now Sarah not so much all right Diana thank you very much Diana Olek let's trade that Tim look mortgage rates we thought that they had seen the top and then they climbed up again now with this banking trouble they're going back down well they're linear and they're connected on the way.

Up on the way down look there's also credit Dynamics and lending dynamics that suffer in the back of what's going on banks are not giving more money away now on the count of what's happened over the last couple days there's no question about it so anything standards will tighten up I think if you consider it's great that the FED funds I think went.

From 4 69 down to 428 basically in one day that does not necessarily mean the mortgage Market change more importantly the affordability dynamics that Diana just talked about are the ones we're talking about and and frankly you could see that in the xhp so the home builders ETF today down two and a quarter percent on a day when you saw rates plummet we.

Know and it's it's on some people it's nice when the market has a rational reaction to the news that bad news was not good news for housing and and I think all that's what's going on and again the wealth effect across okay Silicon Valley is not USA it's not Main Street but I think some of these Dynamics are slowly playing out and I.

Don't see why you want to own uh that the builders even on any weakness here anybody disagree with that everyone's been trying to find the bottom in the builders and on Range the problem though is to Tim's point on on affordability who is going to be putting their house up for sale if you have a three and a half percent mortgage or a four percent.

Mortgage and you have to flip it out you have to have owned that home for a long period of time to get some equity in it to be make it worthwhile for you to turn around buy something else for a seven percent mortgage who's gonna do that but doesn't that make it more attractive for a home builder right because there aren't existing homes being sold what's.

Happening is there's Millennials out there and there's basically five million more households created in the last decade than homes built and so now people are looking to buy homes and the existing homes aren't there anymore well they're enough though are there enough people that are going out because what's really moving the market are people who.

Are buying homes for cash now that that to me is a very very small population that could buy it well and some other part of just input costs labor markets haven't really softened up in terms of those input costs copper prices are almost near 10 to 20 year highs lumber prices are down but you know the inflationary and the stickiness.

Part of the PPI cycle is if anything has been you know resurging a little bit so there's not a whole lot of relief on the gross margin side again is this a market where you want to be paying I think at least on a relative basis above to where they trade to the s p i don't think so I feel like the housing trade has been all about mortgage rates for the last year.

And a half or so and and now today is the kind of day where you rethink the whole soft landing and what's going to happen to the economy right and and whether the hard Landing comes more into Focus already the market was there talking watching the yield curve this week it is and I do think that these are all.

Valid concerns I do think you're having a standstill in the housing market but I actually I continue to remain optimistic I think a lot of these issues we've been talking about we have been talking about over the last year but the home builders have actually done very well and I just think this Supply demand issue I mean there has been so many less houses built.

Over the last decade because of the housing crisis that happened last time that's just not going to get resolved and I think the home builders are going to continue to have somewhat of a floor under where they are

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