Gale-Force Winds

Staying Steady in 2024

It’s been a stormy start to 2024 with wild weather here in the United States wreaking havoc across the county. Fitting perhaps for what most of us expect for this election year with over 50 countries going to the polls amidst a conflict-riddled backdrop. As many that I respect look ahead at 2024 there is a lack of certainty as a result of getting 2023 “wrong”, while others scream with the same characteristic gusto despite their misses last year.

Most of you know that this Substack focuses on data, boots-on-the-ground research and the path ahead, not predictions (and certainly, certainly not investment advice). Housing is like the Titanic and it can take an exceedingly long time to turn, but we should also remind ourselves in recent history it changed in a far shorter amount of time. And, what does it mean “to turn”? Does that mean that our favorite repeat sales index shows a straight line down over the next several months and years as it descends the stairs down to the mean, or will we see a sometimes sideways, sometimes up, but largely path down? My guess is the latter.

I would argue that what matters more than anything this year is what mattered most last year: narrative. And there is going to be a brutal, bloody fight for your attention and focus. The housing bulls won last year if you purely go by decibel levels of their screams, but underneath the noise, I would argue that buyers made a quiet stand and Just Said No to the ridiculous prices. The way financial data is reported precludes our ability to actually understand what’s really going on: seasonally adjusted and annualized; year-over-year; month-over-month; repeat sales which exclude anything that transacted multiple times in a year; existing homes separate from new homes for sales and price…it’s like being on a spinning carousel, but one that is located within the funhouse. Just looking at a funhouse gives me anxiety…all those mirrors!

Did you know that if you look at the Fred median sales price series that includes both new and existing homes, that the median sales price has dropped -10.11% since Q4 of 2022. Probably not as Core Logic’s ((industry vendor) Case Shiller typically grabs headline attention.

And, if you look at the median listing price, or the median price at which homes are listed for sale on Realtor.com, since June of 2022, we’ve seen a -8.69% decline.

Although Case Shiller is at an all-time high, it tracks a limited piece of the story as it is an index which includes repeat sales (same house) and excludes houses that transact multiple times in a year. What we know for sure is that there has been rampant speculation where you would see homes go back on the market in a matter of months. And, that’s for the sales we know about and excludes private note sales where deeds may not be recorded (think “Sub To”). Additionally, Case Shiller uses a three-month moving average and is significantly delayed while also relying on information from counties, many of which have delays in recording documents.

The Freddie Mac House Price Index is also a repeat sales index which showed home price increases this year, but not for 9 states and certainly not for every city.

You may remember my visit to Austin last year - my first roadtrip. What I saw in Round Rock, TX was an abomination of speculation. I will never forget standing in a megasite completely overwhelmed and not believing what was in front of my very eyes. At the time, every Austin resident I met told me that hundreds of people were moving to Austin each day and every single home would be sold if it hadn’t been already. What no local or industry “expert” understood was the scale of the speculation, which is captured in this video for one neighborhood…and this speculation was rampant inside and outside city limits. My first tweet to go viral was my Austin tweet, thanks in large part to both Danielle DiMartino Booth and Rudy Havenstein for retweeting it.

But, Austin’s story is not finished as even today there has not been wide-scale acknowledgment of the risk that still exists there. So, what do I see ahead for 2024 and what navigation tools should we use to geolocate throughout the year? Let’s start with a review of headwinds and potential in-flight tailwinds.