Markets

The Housing Market is Flatlining

Yuppie Capital

In one of the most epic bull runs in the history of the universe, the housing market is finally giving credence to the age old adage of “what goes up, must come down.” Zillow, the mega real estate marketplace company, got absolutely upended this week, providing less than ideal outlook, which just added to everyone’s fears that shrinking demand and rising rates are going to put a cap on the greatest run up in housing prices this world (and probably universe) has ever seen.

Zillow Group Stock, 1M

Zillow infamously reported that its now defunct home-flipping business, Zillow Offers, was losing $881 Million in 2021. I suppose this is another win for humanity, as the algorithm (or lack thereof) wasn’t able to outsmart human nature. One of the many L’s the company has taken since reaching absolutely nuclear levels in February 2021.

Although spring and summer are oftentimes the periods with the strongest home buying activity, Zillow’s forecast for the months ahead painted a grim picture for the near-term future of the housing market. The future is even more grim when you look at the 30Y fixed rate mortgage, which has absolutely defied the laws of physics and jumped nearly 3% in 6 months. That is insane.

30Y Fixed Rate Mortgage, 5Y

It doesn’t take much to look at this chart and realize that there is something fundamentally unhealthy about the housing market. Obviously, there’s a litany of different factors that impact mortgage rates. This sharp run-up is quite literally a cry for help. Current macro conditions seem to be OK, although with the nearly 20% YoY gain in housing prices and imminent Fed action in raising interest rates, mortgage lenders need to seriously hammer on the breaks and slow this gd freight train down, because the block is quite literally hot like a sauna. This, amongst other macros factors, are driving existing home sales lower, and will likely continue to do so until buyers are quite literally exhasuted.

I’d also like to mention that Spencer Rascoff (Zillow co-founder) went on Bloomberg and had the following to say about home prices going absolutely nuclear in the onset of the pandemic; “What’s driving home price appreciation is limited supply.” Couldn’t have said it any better myself, Spencer. I don’t think central bank MBS purchases and EFFR near 0% for 2 years in any way affected the housing appreciation craze.