Dollars with Decker: Finally Some More Darn Houses

It’s About Time We Got More Houses… But is it too many??

May housing numbers are out, revealing a significant turning point in inventory, with the count of home listings actively for sales growth compared to last year. This is the first time we have seen inventory growth since mid-2019. For three straight years every month, we continued to see fewer and fewer homes listed for sale. This was a major driving force in home values rising at a completely unsustainable rate.

However, with interest rates up over 2% from May of 2021 on primary home and 2.5% higher on second home and investment properties; falling demand is also helping us out. Sellers typically always list their homes for sale beginning in May each year to kick off the spring/summer season. Nonetheless, homes are still spending less time on the market compared to last year when priced correctly. Homes that are within $200,000 of the median home price in any one market are getting an offer within 18 days. Homes that are priced double the median home price are now spending longer on the market.

Here is a chart to show the total number of homes listed for sale by year over the last 5 years. At just 516,000 homes listed for sale, we are still down nationally 65% from 2017 and 2018 and 55% below the 2019 numbers. We need inventory levels to double from their current levels to truly see a balanced housing market.

The inventory of homes actively for sale in the 50 largest U.S. metros overall increased by 14.9% over last year in May. In the West, active listings grew most (by +33.6% year-over-year), followed by the South (+18.3%), Midwest (+5.8%), and Northeast (+1.1%). Large western metros saw new listings increase by an average of 7.2% compared to last year and in the south, they grew by 6.6%. Northeastern (-1.1% year-over-year) and midwestern (-1.0% year-over-year) large metros were still seeing fewer newly listed homes compared to last year.

Inventory increased in 42 out of 50 of the largest metros compared to last year. Metros that saw the most inventory growth include Austin (+85.8%), Phoenix (+67.1%), and Sacramento (+54.6%). Inventory is still declining on a year-over-year basis in 8 markets, with Miami (-32.1%), Virginia Beach (-19.3%), and Richmond (-15.3%) still seeing the largest declines.

As mentioned in my last bi-monthly update we are going to see housing markets really divide into three camps:

1. Continued Appreciation just at a slower pace: (expect 5% to 10% home price growth over the next 12 months
2. Flat Appreciation: these markets will see even low single-digit appreciation or depreciation
3. Falling Markets: these markets will expect to see around a 10% to 15% price depreciation over the next 12 to 18 months.

The chart below shows that homes still sell extremely quickly in most metro areas when priced below the median home price up to 33% over the median home price.

For example, in Temecula, CA if the median home price is $675,000, homes that are listed for sale at $825,000 or below are still sold in 30 days or less.

Active listing prices in the nation's largest metros grew by an average of 13.0% compared to last year. Miami (+45.9%), Nashville (+32.5%), and Orlando (+32.4%) posted the highest year-over-year median list price growth in May. Austin homes showed the greatest growth in the share of homes with price reductions compared to last year (+14.7 percentage points), followed by Las Vegas (+12.3 percentage points) and Phoenix (+11.6 percentage points). Large western metros saw the greatest increase in the share of price reductions (+7.7 percentage points), followed by southern metros (+4.6 percentage points).

The housing markets I am most concerned with facing the greatest price DEPRECIATION over the next 12 months are:

• Austin Texas: inventory is up 85% from 2021 and 19% of all homes saw a price reduction in May
• Sacramento, CA: inventory is up 55% from 2021 and 17% of all homes saw a price drop in May
• Boise, ID: inventory is up 100% from 2021 and 21% of all homes saw a price drop in May

The housing markets I see the best chance the greatest price APPRECIATION over the next 12 months are:

• Hartford, CT: Inventory levels are down 20% from 2021 and only 5% of all homes saw a price drop in May which is half as many as the previous year
• Orlando, FL: inventory levels are only up 6% from 2021 and only 9% of all homes saw a price drop in May down from 19% the previous year
• Miami, FL: inventory levels are down 32% from 2021 and only 5.5% of all homes saw a price drop in May down from 9% the previous year

We will be watching the next three Federal Reserve meetings very closely over the next few months. The markets have priced in a .5% rate increase this month, a .5% increase in the July 26th meeting, and a .5% increase in the September 20th meeting. However, given the overall condition of the economy, I think we could see the Fed announce in September that they are going to pause their rate hikes. If we get that result in September, I see the crypto and stock markets rallying on the news. I also would see mortgage rates fall back down to the high 4% level by the end of the year.

Right now I am continuing to invest in short-term rentals in markets I expect to benefit from the coming recession. These would be markets that have a very low seasonality (very little dead season) and where the driving force of tourism is cost-effective for families. These would be markets where activities are not extremely expensive. For example, it does not cost money to go to the beach, visit a national park or explore a historical town. Cities that revolve around an expensive hobby like ski towns or require one to fly to visit (Hawaii) are going to suffer in my opinion. I am currently submitting offers on properties in the following markets:

1. Flagstaff, Williams and Sedona AZ
2. Destin, Panama City, Tampa FL
3. Pigeon Forge/Sevierville, TN
4. Hot Springs, Arkansas
5. Hurricane, Utah