Housing Shortage has been cancelled
When even the agents are calling price-expectations "unrealistic" . . .
Publishing note: Random Walk is going to experiment with a different publishing cadence over the next few weeks (more details forthcoming). I will endeavor to trade some frequency for depth, at least some of the time.
sellers outnumber buyers, by a lot
price cuts galore
affordability-shortage-lock-in-crisis is OUT; actually, it’s the interest rates is IN
👉👉👉Reminder to sign up for the Weekly Recap only, if daily emails is too much. Find me on twitter, for more fun. It’s Friday, so we’re going to keep it short. Plus, I’m working on some slightly longer posts for next week.
Housing Shortage has been cancelled
Better late than never, but the absence of any housing shortage is starting to trickle into the mainstream.
The “affordability-shortage-crisis-mortgage-lock-in-home-values-infinitely-to-the-moon” has given way to “actually, prices are softening” to “price cuts are at a 10-year high” to “you know what, actually it’s a buyer’s market out there.”1
Again, no surprise around these parts, and yet, somehow people are acting surprised.
Sellers outnumber buyers by a lot
I mean, who could have possibly foreseen this <checks chart> 2-year perfectly linear trend coming?
Estimated sellers outnumber buyers by ~500,000, the highest spread since 2013.
The number of buyers has collapsed, while the number of sellers has been steadily piling up (as home sales clear at historically low rates), ever since rates began to move upwards in 2022 and peaked in 2023.
Now, the experts are expertizing:
Redfin earlier this month predicted that home prices will drop 1% year over year by the end of 2025, and the growing imbalance between buyers and sellers is the basis for that prediction.
When sellers are competing for a small pool of buyers, that indicates a buyer’s market. And when it’s a buyer’s market, home prices can fall because buyers have negotiating power.
Well, how about that.
If I didn’t already know for sure that NIMBYism is the sun, the moon, the everything, I might conclude that interest rates are, in fact, a pretty important driver—the most important, even—to a homebuyer’s ability to meet the seller’s asking price.
It’s almost like, rather than any shortage or affordability crisis, what happened is that buyers lost purchasing power, while sellers had neither the need nor the inclination to realize the diminished value of their homes.
In that scenario, where trades simply stop clearing (because no one can afford low-rate asset prices in a high-rate regime), it would be ludicrous to conclude that “home values are going up.” Eventually, though, in time, sellers would gradually capitulate to the new normal, but time and time alone, was the solution.
Price cuts rising, ever more
But, only an idiot would say such things.
Of course home values are going up. The indexes say so! And there’s a perma-housing-shortage-affordability-crisis—the biggest housing shortage ever!
And that is why . . . price cuts are at their 10-year highs?
Price reductions are rampant across the Sunbelt, but also the Mountain states and Oregon.
And you’d never believe what the underlying issue is:
“A lot of sellers are anchored to prices that aren’t realistic in today’s housing market.”
Well, I’ll be god-damned.
The Chief Economist of Realtor.com says the problem is that home prices are sticky? Sellers are anchored to the highest number they remember their house being worth? But those prices aren’t realistic in today’s housing market?
Who would say such a thing? She must be some kind of idiot too.
It has always been this way?
To be absolutely clear, sticky home prices has always been the problem (even if Chief Economists are only noticing now).
All the other stuff about lock-ins and shortages has always been fake.
There are more Random Walk links than I could possibly back-link to (even if I did my best), but this is from October 2023, although I actually started on this theory before then:
I mean, when I’m right, I’m right.
Yes, I know, the preening told-ya-so is unbecoming.
But, I did in fact tell you so, when it was rather ex-consensus to do so.
Plus, there is perhaps no smugger smugness with a higher degree of conviction in their total wrong-headedness than a BuIlD MoAr HoUSinG fair-weather Yimby. This is merely nature’s way of creating balance.
Previously, on Random Walk
AI is not taking white collar jobs
No, AI is (probably) not taking your jobs. Post-ZIRP took your jobs.
Secondaries will not save VC (reprise)
An OG of venture secondaries enters the chat, plus some actual data. Did you know, it's a seller's market out there? Bet ya didn't.
Random Walk is an idea company dedicated to the discovery of idea alpha. Find differentiated data, perspectives and people, and keep your information mix lively. A foolish consistency is the hobgoblin of small minds. Fight the Great Idea Stagnation. Join Random Walk. Follow me on twitter. Follow me on substack:
Heck, Citi Bank is saying that maybe slower housing means a recession is coming. I might write more about this next week, but housing is not as important to the economy as it once was. On the other hand, it has been one of the few pro-cyclical segments actually growing for the past few years, even if it’s been obviously and predictably slowing for the past year+.
Rising interest rates lead to price falls—that is what they do, every economist and most lay people know this. That absolutely does not mean there isn’t a supply glut or that housing is somehow becoming more affordable, because a price equilibrium will be reached at the same monthly cost burden consumers could support as before—which was unaffordable. The overall asset is more affordable, the loan most Americans require to purchase the asset is more unaffordable. There is no effect on supply that would lead to structural affordability, and these shifts in asset prices and financing have little to no effect on renters.
What is this article even trying to do?
I think in part the controversy is that most people alive have only seen housing prices fall during the recession, and thus assume that only large, catastrophic events can force housing prices down.
From a general commodities perspective though, this is strange because for centuries the price of housing has fallen relative to the time value of money, which is why people can afford to live in insulated, stand alone, structurally sound houses on their own without needing to always buddy up with two or three other families. If anything it’s housing value growth that is unusual.