Sunday, October 6, 2013

A Closer Look At The Residential Real Estate Market

The U.S. residential real estate market has been evolving over the past few months, which has gone almost unnoticed through the eyes of the mainstream media. This is due to the fact that real estate data, specifically price data, occurs on a 3 to 6 month lag. In addition, the prices are usually quoted on a year over year basis which skews the data even further. With home prices and interest rates now moving higher simultaneously, the rent/buy affordability factor has shifted back in favor of renting.


This will only shift more favorably toward renting if (when) mortgage rates move higher. This is one of the main reasons the Fed backed away from their tapering.


Inventory (supply) bottomed in 2012 and has been rising steadily through 2013.


While existing home sales have risen over the past few years due to strong investor demand, new homes sales have been grinding along the trough at depression levels. Why? Investors, that currently dominate the market, do not have the ability to purchase new homes at the steep discounts available in the existing home market. New home sales make up only 7% of all sales in the post real estate crash world.



Bidding wars on homes, which heated up during the early part of 2013, have cooled down.

With the tremendous momentum in place, prices will most likely continue to move higher over the next few weeks and possibly months. However, the underlying fundamentals do not justify the move and real estate prices will once again meet gravity.


h/t Mark Hanson, Dr. Housing Bubble, ZH

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