David Haggith, a leading contributor to Seeking Alpha, a crowd-sourced content service for financial markets, recently published an article entitled “Housing Market Crisis 2.0” on Seeking Alpha’s website.
Because Haggith’s article summarizes much of what has been said and written about the housing market here at Harris Real Estate Coaching over the past 18 months, we thought it would be useful to review Haggith’s piece for broader context and perspective.
We’ll begin with two questions Haggith and many of you Harris clients are asking. Is a recession coming? And, if there were a recession coming, would this recession look and be like the last one (and housing crisis) in 2007-2008?
Haggith believes, along with Forbes, Fortune, Money, CNBC, JP Morgan, Moody’s Analytics and Ben Bernanke (former Fed chair from 2006-20014) that a recession is 70% likely by 2020.
Would a potentially pending recession in 2020 be the same this time around? Haggith says, “No.” The recession in 2007-08 stayed stateside…this one is “…happening world-wide in the US, Canada, Australia, the U.K., etc.”
Part I of this series is a summary of how Haggith believes the housing market has evolved from the country’s longest economic recovery to this pending Housing Market Crisis 2.0.
Right off the bat, Haggith believes the cause of this pending crisis is the same as the crisis in 2007-08 – unsustainable Federal Reserve policy of pressing interest rates “…down and down and down again allowing those with flat incomes to keep buying increasingly expensive homes.”
Granted the Fed’s policy of decreasing interest rates to historically low levels kick-started the economy and home buying in 2008 BUT “…people buy payments more than prices and prices kept rising as payments kept in line with artificial interest reductions…(and)…by the time the Fed actually raised rates, prices would be unaffordable without the Fed’s artificially lowered interest rates and the markets would have to crash again because, again, people would find themselves under-water on mortgage payments.”
What began as a miniscule blip in late 2017 ramped up in 2018 along with the realities of the 2017 Tax Cuts Act and has developed into a decline in housing markets now accompanied with a global slow-down. Mirroring Haggith’s play-by-play format:
June – July 2018: Average housing demand fell -96% y/y with -15% fewer offers; bidding wars cooled; interest rates began rising; prices continued to climb; inventory and DOM began rising. On a quarterly basis, the number of home sales dropped -18% in Q2 2018.
August 2018: In addition to high-end markets (Manhattan, Westchester County, Connecticut, New Jersey hardest hit by the Tax Cuts Act of 2017), Midwestern farms began seeing bankruptcies. According to Haggith, “farm bankruptcies have everything to do with commodity prices and more people were selling in distressed conditions with fewer people wanting to buy into a falling industry…”
September 2018: High-end market sellers became, instead, landlords. Thinking they could “wait” until decreasing home prices turned around, potential sellers rented out their homes for sky-high prices to encourage “try-it, you’ll-like it” renters to buy properties in great neighborhoods. Also high-end owners now landlords could, after two years, use their homes as investment properties and deduct any potential valuation losses on their homes.
October 2028: New home sales dropped -8.9% m/m, the 7th straight month and a 2.5 year low; Midwest home sales dropped a staggering -22%; median prices dropped -3.6%; inventory soars +7.4% in one month. Clearly, according to Reuters, higher mortgage interest rates were hurting the housing market.
November 2018: Seattle, considered the “bellwether” for the entire housing market, saw home price drops of -11% within 6 months in a market where home prices had risen +10% y/y. Southern California sales plunged -12% y/y; house flipping in Chicago fell by nearly 50% in the first three quarters of 2018 and nationally by -12%, according to ATTOM Data Solutions; 70% of the homes for sale in Las Vegas did not receive an offer; the Bank of America publicly announced, “We are calling it: existing home sales have peaked,” and the US Census Bureau reported that new home sales had “…rolled off a cliff.”
December 2018: The median price of a home in NYC’s Manhattan fell below $1M for the first time in 4 years; in the Hamptons, home prices plunged -35%, the biggest quarterly loss since 2008; in Brooklyn, 20% of sellers lowered their asking prices; nationally, sales dropped -11%, the larges annual drop in total home sales since the Great Recession.
Part II of this series will look at David Haggith’s view of international housing markets and more.
Click here to see Haggith’s article:
https://seekingalpha.com/article/4240221-housing-market-crisis-2_0-jury-2018minus-2019
