3 Housing Market Trends That Could Change Home Prices

Dave:
A ton of new housing market and economic news came out this week and this is stuff you need to know to make smart investing decisions. Hey everyone, it’s Dave Meyer. Welcome to On the Market. Today we’re going to talk about three emerging trends that have shown up recently in the data and in the news that you all should be paying attention to. We’ll go over listing growth slowing and why I think this is a very crucial piece of data that everyone needs to be paying attention to. We’ll talk about new data on delinquencies. This is sort of the crash watch metrics that we need to keep an eye on. And third, we’ll also talk about some recent labor market data. We’ve got a lot of reports on what’s been going on in the labor market. This has huge implications for recessions and of course for what the fed’s going to do and which way mortgage rates are going to head.
Let’s get into it. Alright, so first up, we have seen data that the amount of new listings in the market is starting to slow down and I want to be clear, I’m not saying that they are going down, but the growth rate is declining and this is super important. We don’t always talk about new listing data that much on the show. We use a lot of other metrics for inventory. We often talk about active inventory or days on market or months of supply, but I think that new listings is one of the crucial things that we all need to be keeping an eye on right now because it’s one of the indicators of what happens next in the housing market. Now, new listings, if you’re not familiar with the data point, it’s how many people put their home up for sale in a given month, and this differs a little bit from inventory or active inventory of these other metrics because it’s just a pure supply side metric.
When you look at inventory, which is how many properties are for sale at any given point, inventory is a reflection of the balance of supply and demand because inventory can go up because there’s less demand or it can go up because there’s more new listings. It balances both sides. But new listings is just how many people decide that they want to sell in that given month. The reason this matters is because if demand stays relatively similar and new listings just shoot up, just say they double over the next year, right? They keep going up and up and up. That’s a potential crash scenario, right? If we just continue to see more and more homes flooding the market with demand staying the same prices are going to see pretty significant declines. I don’t know if it’s a crash like 2008, but then we’re talking five, maybe 10% declines.
Whereas if supply growth tapers off or adjust to market conditions, there still could be modest price corrections, but a crash remains really unlikely. And the reason I want to bring this data up today is because you probably see in the media, or maybe if you follow watching this on YouTube, you see a lot of these crash bros, people who have been calling for crashes for the last eight or 10 or 12 years, they point to new listings and they point to inventory and they show these trends that are true, that trends that they’ve been going up over the last couple of months and say, look at the trend it’s going up, it’s going to keep going up forever, but that is not actually what normally happens in a normal cycle. What happens is inventory starts to go up and that shifts the market from a seller’s market like we’ve been in for the last couple of years, more towards a buyer’s market like the one we’re in today.
But sellers, and we’re seeing this today, shockingly, they respond to those conditions as well. They don’t look at worsening sales conditions, say, oh, we’re in a buyer’s market where I’m not going to get my price. I might as well just throw my property on the market. Normally what happens is when we get into a buyer’s market, new listings start to taper off because most people who are selling homes aren’t investors, they are homeowners and a lot of them right now are locked into super low mortgages. And so when they see in their market that it is no longer an appealing time to sell their house, they might think twice about selling their house and new listings will start to contract again. So with all of that in mind, what’s happening in the market right now? Well, new listing growth is declining. That is what we would expect to happen and a very positive indicator that we are not heading towards some 2008 style crash.
Now I want to stress some of the caveats about the data here. If you look at the data from Redfin, it shows that new listings are still up year over year. Modestly, they’re up 2.5% year over year, but the margin between how much they’re up year over year is declining. It was at about 5%, then about 4%, then about 3% it’s declining. It’s now at the lowest increase it’s been at in five months. And that’s really notable because it means, yeah, still more people are listing their property for sale and that could continue some of the downward pressure that we are seeing on prices, but the idea that new listings once they start going up that they’re going to go up forever and the market’s going to crash is not Baird out in any of the data, nor would anyone who actually understands how the housing market work thinks that that’s what’s going to happen.
So what we’re seeing with new listings is exactly what I would expect to happen at this point in the market cycle. Now that is of course on a national level and there are some regional differences that I do want to share with you. So new listings are falling in 20 of the 50 most populous US metro areas. The biggest declines Tampa Bay, Florida minus percent year over year San Antonio minus 14%, Orlando minus 11%. And you’re probably all thinking, well, aren’t those markets the ones that are crashing? Yes, that is exactly the point that I’m trying to make, that the markets that are seeing the worst selling conditions are seeing the biggest declines in new listings year over year because people in Tampa and San Antonio and Orlando don’t want to sell into this market and they don’t have to sell into this market, and so they are not listing their property for sale.
And so we are seeing a normal market cycle take place. Now, on the other end of the spectrum where we’re seeing new listings go up the most are places like Montgomery, Pennsylvania, up 14% war in Michigan, 13% Cincinnati 11, Baltimore 10, Cleveland 10. Do you recognize any of these cities? They are all markets where the housing market is still doing well. Again, this means it is still a good time to sell your home in these markets, which is why more people are selling their home. If you can’t tell already, this misinterpretation of new listing data kind of drives me nuts and I just want to emphasize for everyone listening right now that what we’re seeing going on is actually what we would expect and a good thing, a correction is normal in the housing market. If new listings go up, if inventory goes up again, we’re still below pre pandemic levels, those things go up.
That’s a good thing. We are getting back towards a more healthy market. Seeing sellers adjust to those conditions and maybe make different decisions based on whether or not to sell is also a normal thing. And so I see this as a positive sign for the housing market long term, even though there’s still going to be some downward pressure on pricing in the short term. I should also mention that this slowing new listing growth is also translating to inventory overall inventory active listings, which is again, the measure of how many properties are for sale at a given point are still up a lot. This year they’re up 14.3%, which is a lot for sure, but that increase year over year is the smallest increase we’ve had in 15 months. And so we’re seeing this across the market. We’ve entered a buyer’s market, sellers are reacting and the market is very likely going to stabilize.
So that’s what happens in normal market cycles and if this continues, that’s going to lead to a more healthy housing market I believe. So I’m pleased about this. So that’s the new listing situation, but there’s one other crash indicator that we need to watch for because new listings is one big one, but delinquencies and whether people are paying their mortgage or not is the other major thing we watch for. If we’re looking for a crash, we’re going to get into that new data. We have a lot of new data there, but we do have to take a quick break. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer going through three new data trends that you need to paying attention to. The first one was new listing data, which is something we need to watch for when we’re trying to predict whether there’s going to be a crash or a correction or where things are going. And as I said, I do think there is downward pressure on pricing right now, but the fact that new listings are moderating is a good sign that we’re not heading towards a crash. But as I talk about a lot in the show, I think the most important crash indicator is actually delinquency data. This is a measure of how many people are paying their mortgages on time because to me there are basically two things that need to happen if a crash is actually going to occur. The first thing is that prices need to fall.
You need to see people’s equity decline. Some homes are going to go underwater. That’s the first thing. And although in some markets we are seeing price declines nationally, home prices are still up, but there is a reasonable chance that national home prices do dip below zero in nominal terms this year. So we might see a little bit of that if I’m honestly trying to assess the probability of a crash, I think we need to see price declines way more than one or 2%, but we might see some price declines in some markets and we are seeing significant price declines in markets. In Florida, for example, Cape Coral has 11% year over year declines. There’s places in Texas and Louisiana that are seeing those price declines. So it is a worthy question to see if we have the other condition, which is what is known as forced selling.
Forced selling is basically when you take the option away from the seller, as we talked about in the first part of the show, right? Normally sellers react to adverse selling conditions by just choosing not to sell, and that’s what creates a healthy housing market. It creates this give and take, this balance between supply and demand. But the thing that can really disrupt that and send you into a crash is if the sellers no longer have a choice whether or not they’re going to sell. And the only way that happens is if they’re not paying their mortgage. I get this question a lot and it’s a good question. Some people ask me if your property goes underwater, if your property value goes down, can the bank foreclose on you? No, that is not how it works. Banks foreclose, they can only foreclose on you if you are not servicing your debt, if you are not paying your mortgage on time.
And so the only way we disrupt this normal market cycle is when people are falling behind on their mortgage. And this is why I always say that mortgage delinquency data is sort of the canary in the coal mine. If you are looking for indicators that there is a crash or there might be a crash in the future, the thing you need to look for is mortgage delinquencies and see which direction they’re heading. So with all that, let’s talk about mortgage delinquencies. Are they going up? We need to actually split this into two sections because I think there’s some miscommunication, maybe some click wait and misinformation out there about these things. We’re going to break it down into single family residential and then we’ll talk about multifamily. The answer to if mortgage delinquencies are going up in the single family space is very clear. No, I’ll just say no.
That is what the data shows. Of course things can always change in the future, but if you’re looking for are mortgage delinquencies going up right now? The answer is no. There is data that comes out every month from both Freddie Mac and Fannie Mae to mortgage giants, and I’ll read you both of them because I think it’s nice to have two different data sets, but they are basically showing the exact same trend. So from April to May, the delinquency rate actually went down. In April it was 0.55% and in May it was 0.3% according to Fannie Mae, according to Freddie Mackin also went down from 0.57 to 0.55%. Now notably, they are up year over year, so they have gone up over the last year, which is not surprising because we’ve had some moratoriums and forbearance programs end most notably in VA and USDA loans, and so it’s not surprising that it’s up year over year and we saw a little uptick when that happened, but we are still below pre pandemic levels and we’re not even remotely close to crash levels that we were in in 2007, 2008.
Like I said, the rate right now is about 0.55%. So just roughly, I’m rounding, that’s about one in every 200 mortgages. Back in 2009, in 2010, that rate was 4% of mortgages or 5% of mortgages. So we’re talking about eight times more delinquencies than we’re at right now. Just want to reemphasize that this is actually very stable and actually went down modestly over the last month. Now like I said, there are of course things that can change this in the future. We’re going to talk about the labor market in a little bit. That’s obviously something that could lead to more delinquencies, but again, there is no evidence right now that delinquencies are going up. Now when you shift focus and look at the multifamily side of things, that is a different story. The actual overall delinquency rate is relatively similar depending on whether you’re looking at Freddie or Fannie.
They’re actually a little bit different here. If you look at Freddie, it’s like 0.45. If you look at Fannie, it’s up at like 0.65. But either way, when you look at the trend here, it’s pretty jarring. You may have seen this chart going around social media about a month ago and me railing against it on Instagram, I was getting really mad. People were saying that this chart was single family and they were completely wrong, but what’s happening in multifamily is serious. We are at delinquency rates that we haven’t seen since the pandemic back then it was at 0.6 0.8%. So we’re approaching those ranges and if you look at the trend, it’s just heading straight up. And so there’s a lot of reason to believe there is going to be more distress in the multifamily market. So while this is concerning though, I want to stress this is the least surprising news of all time.
We’ve been saying this for what, three years now on this show that multifamily was going to see distress. Everyone could have predicted this. The difference mainly is that they’re on adjustable rate mortgages, and so a lot of multifamily operators are now paying six or 7%, maybe even higher. Meanwhile, when we talk about the low single family delinquencies, those people are locked into fixed rate debt at three or 4%. So it’s no question why we are seeing delinquencies go up in multifamily but not in single family. And this is not really different from the trends we’ve seen in the last couple of years, but because there is so much talk about a potential crash because there is some softening in pricing, I really wanted to stress to everyone that yes, there can be downward pressure on pricing without the risk of a crash being all that high.
And when you take the two trends we’ve talked about together that new listings are moderating and that delinquencies are not going up in the single family space, that is a very solid sign that although the prices could go down a little bit in the residential market, a crash remains very unlikely in the multifamily market crash already happened. We’re already seeing prices go down 15 to 20% because everyone saw this coming, right? So again, this isn’t really surprising. If you’ve been paying attention, you wouldn’t be alarmed or surprised by any of this news, but I think it’s worth reinforcing because it is so important in setting your strategy in this industry right now. Okay, those are the first two trends both related to a potential crash and what’s happening in the residential market. Next, we’re going to zoom out and look at some recent data that we’ve gotten from the labor market, but we do have to take one more quick break. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer going through a couple important trends everyone needs to be paying attention to. We talked about new listings, talked about delinquency data. Third up, we are going to be talking about the labor market in this past week. I’m recording this on July 3rd. In this past week, we’ve gotten a couple of new jobs reports that were super interesting. The first one, which is the A DP private payroll. So this is basically not looking at government jobs, it’s only looking at private companies. It shows the first job loss on a monthly basis in over two years. According to ADP’s June report, private sector employment fell by 33,000 jobs. This was the first time that has happened since March, 2023. Now, that is a pretty surprising headline. The US labor market has been remarkably resilient over the last couple of years despite higher rates, which has been a bright spot for the entire economy.
But I do want to dig into the data a little bit because I think there are some things that are worth noting here. The positive thing is that widespread layoffs are not really happening. That is not why we’re seeing job losses. It’s actually happening because a lot of companies are just not replacing employees who quit or retire, and that obviously can have a negative impact on the overall labor market. They’re not listing that job up for sale, and that can lead to total overall aggregate job losses even though there aren’t mass layoffs. The second thing to note is that where the job losses are coming is mostly concentrated in white collar industries like professional and business services. And this whole thing really makes me wonder about the impact of ai. We’re going to obviously have to cover this a lot more on the show in the near future, but most experts on AI say that the jobs that are at most risk right now are mostly white collar jobs.
Jobs like paralegals and bookkeepers, A lot of these things can already be automated by ai. And so the theory here is that a lot of companies when someone retires or leaves voluntarily, they just decide to try and make do with what they have using some combination of their existing workforce and AI to replace those jobs. And this is one month of data. So we can’t extrapolate and say that that’s definitely happening, but it’s an interesting theory that I think we should all be keeping an eye on. So that’s what came in for a DP data. Then the very next day, actually this morning July 3rd, we got the government data for jobs, which comes to the Bureau of Labor Statistics, and that actually came in pretty strong. It was 147,000 jobs compared to 110,000 that was expected, and the unemployment rate actually fell from 4.2% to 4.1%.
So these are the two big jobs reports that come out every month, and they’re obviously painting very different pictures. One is saying we lost jobs, 33,000. The other is saying that we gained jobs 147,000. So there’s two things that are going on here. First is methodology. Two different firms collecting this massive amount of data are just going to be different. These are always different even when they’re going in the same direction. The other thing that’s going on is that when you look into the government data, the BLS data, what you see is the majority of the jobs, 80,000 of those 147,000, the majority came from government hiring in state and local government. These are still jobs. Of course, this is still employing people, but when you’re looking for the discrepancy from a DP, which again is only private sector employees to the BLS, which includes private sector and public sector employees, that’s the biggest difference.
Two other points that came out in the BLS data today that I think are worth noting. This is the second month in a row that we’ve actually seen manufacturing jobs losses. Obviously, president Trump has implemented a lot of policies to try and stimulate manufacturing in the United States. That hasn’t happened as of yet as we’ve had two straight months of job losses in the manufacturing industry. And then the second thing is that the reason the unemployment rate went down is not actually that we’ve added enough jobs, but actually we saw a small downtick in labor force participation because the way the BLS calculates their unemployment rate is they count how many people are actually looking for jobs, how many of those people have jobs. And so if fewer people are looking for jobs, the unemployment rate can actually fall. And that is part of what happened during this month.
And the theory here is that there has been a crackdown on illegal immigration, and so we have lower labor force participation. Again, one month of data. We’re going to follow these things, but I think they’re noteworthy enough to mention here. So of course this data is relevant to anyone who has a job. Of course, no one wants to see any sort of job loss recession, but for investors, we want to understand what this means for both recession risk and for interest rates because the Fed watches very closely these numbers when they’re figuring out what they’re going to do with the federal funds rate. Now to me, I try not to take any single month of data too seriously. We see discrepancies. We’re in a very uncertain economy. We’re seeing a lot more volatility in pretty much every economic data point right now just with everything going on.
And so it’s important not to just look at one report one month and say, oh my God, we had a DP job losses most since March of 2023 and freak out. But I do think it is important. This is a big enough divergence from where we’ve been in the last couple of years to point it out. We have seen some other signs showing some labor market weakness, notably that private sector hiring in the government report wasn’t super strong. There’s another data point I haven’t mentioned yet called continuing unemployment claims, which is basically how many people are continuing to look for jobs and are on federal unemployment insurance. That has ticked up a little bit over the last couple of weeks and has stayed elevated. And so I don’t think it’s time to panic in the housing market, but there are signs of cracks. Nothing has broken for sure at this point.
So let’s just explore for a minute why this could be happening. First and foremost, I think it’s kind of just inevitable. We’ve had this very aggressive tightening cycle raising interest rates very dramatically from 2022 up until 2024. They’ve cut in 2024. It’s been stable for a while now, but normally what happens when interest rates go up is the unemployment rate goes up. And although that’s happened a little bit, the labor market has been amazing in the United States, and that’s awesome for our economy. But at some point you have to expect that it’s going to crack a little bit under these very tight monetary conditions. And so even though labor has been resilient, I do think that some breakdown in the labor market was kind of inevitable with interest rates this high. The second thing that could be contributing is lower consumer spending and lower consumer confidence business could see this stuff and maybe are holding off on hiring.
We could see some tariff spillover effect. I’ve looked at some analysis and they’ve estimated that tariffs have cost just medium-sized businesses alone, about 82 billion per year. That’s what they’re estimating if tariffs stay at their current level. And then of course ai, which is hard to quantify, right? There is no good solid data on this yet, but I think we can all sort of intuitively see that AI is going to disrupt the labor market. And frankly, if it’s started, it’s probably just the beginning and I think it’s going to get worse. I know everyone says there will be some job losses will create new jobs, and that might be true in the long run, but I do think it is inevitable that we see some adverse conditions in the labor market because of ai. It just has to happen according to everything that I read and see.
And so which one of these indicators is leading to this modest decline in the labor market? I don’t know, but I think there are a bunch of variables contributing to this, and it matters a lot for real estate investors because it influences what the Fed will do. Now, as of yesterday, when I saw the labor market data from a DP, I thought, wow, we might get actually a rate cut a 25 basis point cut in July because the labor market is showing some cracks. But now, as of today where we’re seeing the government data show surprisingly strong, the unemployment rate go down, my bet as of today might change, but if I had to bet today, I would say that we will not see a rate cut in July, but we will see a rate cut in September. That’s my best guess. Of course, I don’t know.
Now remember, with these projections and just following the Fed in general, that what the Fed does does not translate directly to mortgage rates, but if there is a rate cut, there is a chance that mortgage rates go down, and that would obviously be a boon to the real estate industry. So just as a reminder, what we’re seeing is new listings are slowing down. Sellers are starting to back off a little bit because we’re entering that buyer’s market, and this is normal market conditions, delinquencies in terms of mortgage delinquencies for single family homes, they declined modestly last month, and there is no indication that we are heading towards a crash. Multifamily delinquencies are up, but again, that’s as to be expected. Lastly, we continue to see mixed data on the labor market, but more and more we’re starting to see some signs of cracking, and I do think that’s increasing. The probability of a rate cut may not be in July, probably in September. That’s my best guess as of now. Thank you all so much for listening to this episode on the market. I’m Dave Meyer. We’ll see you next time.