Are Home Prices Done Falling?

For over a year we have been warned about a housing CRASH. The dominant story in real estate news included variations like CRASH, CRISIS, or other scary words in all capitals. Did it happen and I missed it? Is it coming?

Before we get into that, let's, as always, start with the data.

Mortgage rates closed up almost 0.25% at 6.57%, a lower for the month and almost 0.5% below the highs of 7% just a few weeks ago.

Inventory: nationally, housing stock continues at record lows for periods other than during the Pandemic, and has declined to match the rates of 2021. As I have repeatedly said, as long as inventory is low prices cannot go down much.

Locally, in Los Angeles, the market continues to be a seller's market, holding at a market action index of 40, slightly less of a seller's market rating than last month's 41.

So, are housing prices going to crash?

Well, in some markets, they have come down, and overall rates have been flat. Certainly, since early 2022 home prices stopped their explosive rise, and in fact have flattened out if not slightly corrected. See this chart from Mortgage News Daily that tracks both the FHFA (Federal Housing Finance Agency) and the Case-Schiller sets of data, 

Has this been a crash? Or just a minor correction? Well, it depends on future news, but so far, it's been NOTHING like the early 2000s housing crash and has been like the early 1990s correction. See this graph from Fortune Magazine.

To give it a historical perspective, look at the current correction and see how much prices increased since the pandemic started, and you would see that the pandemic was the best thing ever for real estate investing, even allowing for this current correction.

An analysis of the cities that rose the most are often the same ones that have corrected the most. Here is an interesting graph from First American Data's Odeta Kushi that plots them.

So, if that's all that has happened, what has the markets so unsettled?

One way to quantify it is the "yield curve", which plots the interest rate you get for buying a government loan over time. Normally, the rates go up, the longer out, the higher the rate, but the current yield is inverted in that investors can get a higher rate of interest, almost 5%, for 6 months, and only 3.5% for 10 years. So, if this mirrors investment decisions, do you put money in short-term investments or find a long-term investment that will pay off at a higher rate?

The main reason for concern last year was the banking issues that cause the 2nd and 3rd largest banks to collapse and the fear that it would spread to smaller regional banks. Last week, that concern was dominant and caused the stock prices of regional banks to drop about 30% versus the broader market, but that concern has seemed to level off. See this charge from Mortgage News Daily that shows this spread, but notice how it has remained stable for the past few weeks. So, unless there is more news here or a new factor, it seems like the market has stabilized.

The good news is unless something changes, the market seems to have stabilized and as a result, the housing market seems to be back on track.

Bad news: seems like over the last few years there have been nonstop massive disruptions.
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Bill Gross, The LAProbate Expert
I am a real estate broker in Los Angeles, CA focused on probate real estate and the leader of a team of over 1,100 agents national probate experts.

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