The Real Estate Reset: Context Beats Scary Headlines
Originally a thread on X/Twitter:
The media is having a field day reporting on falling real estate prices and the headlines make it seem like Armageddon has arrived.
This view is misleading because it anchors to all-time-highs which is nonsense for any asset class!
Here’s a data-rich counter-narrative:
Millions of homes are sold every year.
Source: Statista data from January 2022.
Freddie Mac’s House Price Index shows that home prices have appreciated significantly over the past 10 years.
Source: Statista data.
The average length of home ownership is 8 years.
– 16% have lived in their homes for less than 5 years.
– 47% of Americans have lived in their homes for 6 to 10 years.
– 35% of homeowners have lived in their homes for 10 to 15 years.
Some investors buy homes to flip them quickly, but most homes sold are sold to homeowners who intend on living in the property on landlords who plan on renting the property.
So anchoring to all-time-highs that happened less than a year ago is deceptive.
If you bought your home in the past 10 years and experienced average annual gains a correction isn’t a disaster.
– Purchased in 2020: Up 31%
– Purchased in 2018: Up 44%
– Purchased in 2016: Up 64%
– Purchased in 2014: Up 82%
– Purchased in 2012: Up 112%
And if you financed your house with 20% down, your gains are levered up by 5X.
– Purchased in 2020: Equity Up 155%
– Purchased in 2018: Equity Up 220%
– Purchased in 2016: Equity Up 320%
– Purchased in 2014: Equity Up 410%
– Purchased in 2012: Equity Up 560%
And while home prices are projected to decline in 98% of all housing markets in the back half of 2022, experts are confident that the declines will barely dent the increases we’ve already seen this year.
2022 is looking to be another 8-10% gainer!
And unless my math skills are terrible, it looks like modest (or even large) declines can be absorbed without homeowners being financially damaged in any significant way.
It’s the anchoring to all-time-highs that’s clouding the truth.
Here are some “headlines” that share what experts expect in 2023:
– Morgan Stanley: Home prices will fall 7%
– Goldman Sachs: Home prices poised to fall 5% to 10%
– Moody’s: Home prices will fall 5% to 10% — more if recession hits
– Wells Fargo: Home prices will fall over 5%
Here are a few more:
– ’Poison’ Ivy Zelman: Home prices will fall 4% in 2023 and another 5% in 2024
– Fitch Ratings: ‘Severe’ housing downturn possible, ‘but not yet probable’
– Capital Economics: Home prices will fall 8%
And there are even a few experts that predict gains in 2023!
– Zillow: Slight rise in home prices in 2023
– CoreLogic: Home prices will be up 3.2%
– Fannie Mae: Home price growth will ‘moderate’
Judge for yourself how bad the housing correction is likely to be given the gains a typical homeowner has experienced.
My personal view is that the asteroid, like most, is going to burn up in the atmosphere and not decimate the US Housing Market as headlines would suggest!