9.1% CRASH IN HOME PRICES IN ONE MONTH

Michael Zuber (0:01)

All right, well, let's try that again. When you try to go live, sometimes your computer misbehaves, and this morning, my VPN decided to reboot itself for no known reason. But hey, we are back at it. Let's talk about new home prices. New home prices crashed on Friday. The average, so again, usually we talk median, but I think the average is more telling in this example. New home prices crashed 9.1 percent. Okay, great, what does that mean? They fell $47,700 to a new average of $478,700.

This is the biggest monthly drop ever. So let's talk about why. Let's talk about where it goes from here. And yes, if you didn't catch that, that was nearly a $50,000 drop in the average new home price in a single month. Help me understand what's going on. Well, the first thing you need to realize is we are seeing a really disproportionate mix of real estate selling. One of the things that hopefully you've understood over the last two or three years that helps explain existing home sales, prices being up or flat, is we have a mixed problem. We have essentially lost the low end. We have lost the move up buyer. So, predominantly what we have is cash buyers, we have the top end of the K, the wealthy buyers who are transacting above the median. And when you lose, say, 25% of the low end, and you only lose, say, 10% of the high end, it's just math, folks. The median home price goes up. Now, we first brought you this unit mix problem three years ago. I still think it is going on. But what just happened in new home sales? Is it breaking? Well, maybe.

I don't think so, but maybe. So, what's happening in new home construction? First and foremost, we should all understand that home builders are very different than mom and dad selling a home. These home builders are running on inventory and cash flow. They are the ultimate motivated sellers. When a new home construction is not selling, they are motivated to move inventory. Think about the house that I'm in today. We got roughly 25 percent discount directly from a builder and all kinds of other goodies. That is what's happening with new home construction. I also think that what we saw this last month is an important milestone. I think what we're going to look at when the data, when the underlying details come out about new home construction, is they lost the top end.

Right? The top end of the K, the cash rich, the stock market, this, that, the other. Those folks seem to have pulled back. And I believe when we look at the details of new home construction, the low end, the FHA, the VA buyers, the first time home buyers, they are starting to step in.

So we saw perhaps the first month where at least in new home sales, the historical trend has changed. Now, by historical, I am just referring to the last three or four years. I am not referring to the last several decades. We may just be going back to normal. This is the only thing that I could think of that explains the largest drop in average new home prices. It's basically we lost the top end, and the low end is still transacting. So again, very, very interesting. Next up, let's talk about the 30 year mortgage. The 30 year mortgage came in Friday at 7.45. That again is a 52 week high. That's actually a multi-year high. We do seem to be screaming to 8%.

Just for a little clarity, a little color, a little oh my God, at 2.99% interest rate, which you could have gotten in 2021, on a 430K house, roughly the median home price, your payment would have been 1807

Today, same house, same price, except the interest rate is 7.45. Your payment is 2,986, 2,986. So $1,179 higher. Same house, same price. The only thing that changes is interest rate. So this is for the fans of Nick from Revencher Consulting, who is always talking about income and price. It's like he doesn't understand that most of us use debt when buying homes. So again, the ratio may look the same, 2021 verse 2026

However, the interest rate is more than double. So it is vastly less affordable today. Same price. But again, that's often lost on Nick, who likes to talk only income and prices, which in real estate doesn't make sense because there is this third component called interest rates. We do have a very, very important week that you should buckle up for. This could be very much market moving. We are going to get significant data on inflation and jobs. Yes, this is one of those rare weeks where we not only get PCE, but we get all three jobs metrics. So Friday, I'm sorry, Monday, we are going to get some Fed speeches again. The Fed speeches last week were very hawkish. Many of the Fed presidents talking about a need for another rate increase. Again, I do think we are going to get an October rate increase and quite possibly a December rate increase. Tuesday, we get Case Schiller. Again, obviously, we know the housing bears talking about a 38% housing crash, which isn't coming, but it's always fun to tweet that out every month that comes out. We will get Consumer Confidence and our first of three jobs numbers. We will get the Joltz Report, most often looked at for job openings. Are we going to see job openings increase, decrease, stay flat? Again, we got some good manufacturing or PMI data last week, manufacturing services. Are job openings increasing? Are companies leaning in? Is it just the big companies, right? Are we going to see the small less than 50 or the 50 to 500? So again, what's going on in the labor market will be first one on Tuesday. Wednesday, we will get our second jobs number. It's called ADP, aka private payroll. Is the jobs growing? Are we adding 50, 80, 100,000? Or is the job market shrinking? And on Wednesday, I do think the big number will be PCE, personal consumption expenditure. This is the third and most important inflation reading. Why? Because the Fed says so. The Fed has told us for decades that in the current model, the most important metric is PCE core. Now, obviously, I do believe that Kevin Warsh will change the inflation metric, but that will be in January. I do think he's going to finish out the year making PCE core. And then he will educate us on why PCE core is not the right answer and why he's got this new whiz bang gizmo that is a better indicator. So we will see what happens, but I do think that's January. Wednesday, we will also have some more Fed speeches. It will be interesting to see if they talk about the jobs and inflation as we get critical readings this week. Thursday, we will once again weekly unemployment claims. Again, we have two weeks in a row under 200,000. I think it was 196 and 197 So again, very good numbers. We will get consumer spending. And then Friday, it's the big number of the week. What is the unemployment rate? Again, it's been running at 4.1.