Nick Gerli Profile picture
Feb 22, 2023 9 tweets 3 min read Read on X
Mortgage Applications to buy a house just collapsed to an index level of 147.📉

That's the lowest level of buyer demand in 28 YEARS.

Lower than anything we saw in the 2008 Crash.

Down 41% from last year.

(Source: Mortgage Bankers Association)
1) Collapsing Mortgage Demand is a huge problem for the US Housing Market.

Because despite all the reports of "cash offers", they still only represent 29% of home sales.

The other 71% still require a Mortgage to complete the transaction.

(Source: NAR)
cdn.nar.realtor/sites/default/…
2) Why is Mortgage Demand collapsing so much?

Because both Home Prices AND Mortgage Rates are way too high.

Creating a situation where the monthly payment for a homebuyer (Mtg+Tax+Insurance) is now over $2,500/month.📈

In the 2006-07 Bubble it peaked at $1,400/month.
3) And Income Growth has NOT kept up with these increase in the cost to buy house.

Right now the House Payment / Median Income Ratio is 40%.

Meaning the typical American family CANNOT AFFORD to buy a house. ❌

This isn't a "choice". It's simple math.
4) Which makes the propaganda being spewed about a "recovery" in the Housing Market absolutely laughable.

Nothing in the fundamental data supports a recovery.

In fact, quite the opposite when you consider a Recession and increased foreclosures are likely on the horizon.
5) The default rate on FHA loans is going up fast right now.

Currently it's visible in the 30-day default rate.

But soon it could spread to 60 and 90-day defaults, which would be what triggers foreclosure filings.
6) Higher foreclosures is one thing which would trigger an inventory spike and lower prices.

Another is if the 14 Million Americans who own vacant homes decide to sell.

If only 5% of the owners of vacant homes sell and cash out, that would DOUBLE Homes for Sale.
7) As the old adage goes - "Something has to break".

The current state of the US Housing Market with:

1) Near record high prices.
2) 7% Mortgage Rates.
3) Sellers refusing to cut the price.

Will not last. Something will break.
8) The easiest thing to "break" is Home Prices. We're already seeing this among Home Builders.

When Builders cut the prices by 20%, the buyers come back.

Sellers of existing homes will start to catch on as 2023 progresses.

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More from @nickgerli1

Apr 20
The first market to bottom in this housing downturn will be Austin, TX.

Prices are already down 20% from peak.

And the market has shifted from being 46% overvalued to now only 8% overvalued.

Buy the end of this year, Austin will be a "buy". Image
1) The way Austin has become more fairly valued is through two mechanisms.

First - prices have dropped 20.4% from their peak in 2022. Returning affordability.

Second - the median income in the metro has continued rising, and is now up to $102,000, increasing relative affordability.
2) To understand this point clearer: the typical home value in Austin is $449k right now. Which is 4.4x the area's median income.

This 4.4x Home Value/Income Ratio is now almost back down to the long-term, 20 -year average.

Which is how you know Austin will soon be a "buy". Image
Read 8 tweets
Apr 15
A trend we're beginning to see across the US Housing Market are record price cut rates.

That is - a very high amount of home sellers cutting the price, as a % of totaling listings.

In the case of Arizona, the price cut rate (37.6%) is at the highest level going back nearly 10 years.

The more sellers that engage in price cuts, the more downward pressure on the market, and the more likely future value declines become.

Other states where price cuts are at a record: FL, TX, CO, TN, GA.Image
1) You can see the price cut rate by state on this map from Reventure App.

The redder the state, the more sellers engaging in price cuts.

Arizona is at 37.6%. Florida is at 32.0%. Those are two markets with the most downward pressure right now. Image
2) Now of course - a price cut doesn't mean houses are automatically cheaper.

Some sellers elect to cut the price $1,000. And that doesn't make a huge difference on affordability.

But the thing to thing about is when this price cut action happens across an entire market.
Read 5 tweets
Apr 14
What's going on in Orlando, Florida?

There are now over 13,000 houses on the market for sale.

66% above the long-term norms for spring.

Supply is spiking. And demand is not rebounding. Could this market be on the verge of another 2008-style downturn? Image
1) For context, home prices in Orlando dropped 53% in the last housing downturn from 2007-12.

The typical price of a home peaked at $264k and went all the way down to $123k. Image
2) So far, in this cycle, prices in Orlando have only started to drop.

Data from Zillow shows values are only down -0.5% in the last year.

And are still up from their levels in 2022, when the housing demand bubble peaked.
Read 11 tweets
Mar 27
NY Fed is estimating that 9 million borrowers are now in default on student loan payments.

And that credit scores could drop 75-150 points.

Could have a big impact on housing market. Image
1) If someone's credit score drops from 760 to to 590, that is going to have a big impact on their ability to borrow.

Particularly if they're interested in buying a house and taking out a mortgage.
2) During the pandemic, student loan payments were paused, and negative credit reporting from missed payments was paused.

The result is artificially high credit scores across the US population.
Read 13 tweets
Mar 24
It’s beginning to look a lot like 2008.

At least for home builders.

I took this picture outside a home building site 45 min north of Tampa.

They had over 20 vacant spec houses completed for sale. And are advertising 0% down mortgages to try to move the inventory. Image
1) here’s the Zillow snapshot of all the homes for sale. All of these homes were completed and move-in ready. Image
2) what’s interesting is that the builder agent told me they were going to start converting these homes to for rent.

I’m guessing it’s because they want to start on the next phase or construction, and they simply can’t do that with 20+ for sale.
Read 14 tweets
Mar 22
Biggest inventory growth markets YoY.

Listings up 40-60%.

5 of the top 11 are California. Image
1) Overall inventory levels in California's housing market are still fairly low.

With only 0.6% of all the houses across the state listed for sale.
2) However, such sharp YoY increases in inventory indicate that a shift is taking place. More sellers are coming to market, while demand is still very low compared to pre-pandemic levels.
Read 6 tweets

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