Steady as She Goes

Where to begin? Rocket and Mr. Cooper merger, FHFA and USDA program changes, the FHA story making it to CNBS (oops -meant CNBC), stock market selloff, Tarriff Tantrums (as my friend Danielle DiMartino Booth calls them), CoreWeave’s disaster of an IPO, recent moves in the 10-year treasury…and then of course boring old home sales and notable inventory increases? We have several options because each day brings a new headline. Spinning tops we must not be in the face of this media onslaught. For now, despite all of these headlines, nothing much has really changed except for perhaps 401K balances. For those who follow my buddy Nobody Special, the recent AI rout and CoreWeave story should not be a surprise as he warned his viewers over a year ago about shenanigans there and Nvidia.

Much of what is happening has been in the making for several years and many of these stories have been covered here in depth. My point? If you are paying attention, then often you can see these trends far before anyone else. What I’ve found - even amongst family and friends - is that when the good times are grooving no one wants to hear what you have to say. I also believe that risk takers who actually understand risk can take drastically different actions while those risks build and unfold and be fine and dandy. Why? Because they are under no illusions but instead profit off the illusions of others. That risk taker though is a very, very serious 10-000-hour student of the market. Armchair traders and proverbial shoe-shine boys are not that.

On more than one occasion in recent weeks I have heard RE bros talk about selling real estate and getting into Bitcoin. Despite what everyone wants you to think being a landlord has really started to suck. Long-term rental and short-term rental operators are getting hammered with rising insurance, taxes, cost to carry and a lack of takers. The sell-side keeps trying to fool everyone with their constant reach for green shoots, but those increases in both multifamily and single-family rentals is starting to burn. Short-term rental operators have been hurting since last summer. Airbnb did ok last quarter with their international listings, but here in the U S of A it’s getting hard out there.

Take for instance my last-minute trip to Myrtle Beach for Spring Break. We stayed in a very modestly priced, ocean-view Airbnb in a condo high-rise on the beach. Nestled in a prime location, the place was deserted until troupes of cheerleaders and dancers descended for a weekend competition. They however did not come close to filling up the joint. According to the NY Times, that might be because Canadians have decided in protest to stay home.

The high season for Myrtle Beach is June, so it is a bit too early to tell exactly how hard Myrtle Beach will be hit this year. Gone, though, are the days where those who worked from home could travel all year long staying in Airbnbs and zooming in to work meetings from desirable locations. None of the interior condos were rented, nor can I imagine a time when they would be as there are just so many from which to choose. The amount of empty housing stock across this nation is staggering. If you don’t believe me, embark on a night-time drive.

Just as I was taking a quick break to check social media, lo and behold a landlord enters the chat

Sentiment is changing. While we know that the top 10% accounts for almost 50% of spend in the U.S., they have started to get the memo, based on recent consumer expectation metrics, that perhaps it is time to reign it in just a wee bit.

Earlier in the year we saw the middle of the K meet the bottom of the K. Now high-income consumers have joined the party. Sentiment does not always translate to curbed spending. In fact, I think likely we will see a bit higher retail sales in March due to Spring Break and Spring Fever, but perhaps not. If we don’t, that to me will be a very strong signal.

And sentiment for housing particularly is definitely in the doldrums.

I wonder why that is? Today the National Association of Home Builders chimed in with something you and I have talked about ad nauseum.

NAHB recently released its 2025 Priced-Out Analysis, highlighting the housing affordability challenge. While previous posts discussed the impacts of rising home prices and interest rates on affordability, this post focuses on the related U.S. housing affordability pyramid. The pyramid reveals that 70% of households (94 million) cannot afford a $400,000 home, while the estimated median price of a new home is around $460,000 in 2025.

I remember talking to colleagues in 2021 and 2022 warning them that we were headed to unsustainability. Like friends and family, they did not want to hear it, cheerleading all the way to those nose-bleed home prices. Oopsies. My buddy, Mr. Awsumb, just did a deep dive in MacroEdge’s latest RESights, unpacking those very significant losses at the builders, and it ain’t pretty. While the getting’s good, it’s really good.

What about all those headlines above? Today, I will give you my initial thoughts or provide you links to those with even smarter thoughts than me on the above topics in the text below. Combined sales (new + existing) ranked as the 5th worst February since 1999 behind 2008-2011, but the details matter as to what’s next...especially fascinating the way the builders showed up this month.

Additionally, I will share the deep-dive summary presentation which will cover sales and price results by region. Since mid-January when the 10-year treasury peaked at 4.79%, rates have moved down to 4.20% as of this writing. Last night got spicy in the bond market but things moderated a bit today. One thing I can say for sure is 2025 is not going to be boring. My hope is to keep you grounded and informed along the way.

Let’s begin…