April 7, 2022

Home Sweet Nest-Egg.

One of the real innovations of the internet has been the introduction of Real Estate Pricing.

I get several services in my email box, telling me the latest estimate of my home's value. Zillow, Redfin, and a couple of others come like clockwork.

But an interesting thing has been happening lately. My home's price isn't jumping higher like it did last year. There seems to be a definite decline in real estate appreciation, at least around here.

And when I go to the database, I see that the price of homes nationwide, peaked last summer. That's right home prices since last June, have actually declined about 3% nationwide.

Now I know that's not much, especially compared to some of the moves in the equity markets lately. The NASDAQ for instance is down about 13% so far this year. And we're only a little more than 3 months into 2022.

But it just isn't supposed to be this way.

In addition to being our shelter, a home is supposed to protect us from the long-term ravages of inflation. A safe haven from the decline in the dollar.

Up until lately, we've been doing pretty well. The long-term appreciation for real estate has been running about 4 to 4 1/2% per year. And appreciating about 7% over the past decade or so.

But not this year. Just a couple of more months like we've experienced lately, and we'll have the first down year for Real Estate since way back in the 1970s.

And if we follow some of yesterday's mortgage reports the future isn't looking so bright for real property. Now, of course, all of this is driven by mortgage interest rates. And right now they're pushing 5%, a level that I'm sure that we're only weeks away from.

Hard to believe that just 6 months ago the average mortgage had an interest of just 3%.

This jump in mortgage interest translates into higher costs. And as it does so, we're seeing fewer and fewer people willing to take out a mortgage. Yesterday reports show a nearly 7% overall in all mortgages. And a nearly 10% decline in “re-finances.”

What's more, the average size of mortgages is beginning to slide. Down about $8,000 dollars in just February. And this, of course, fits perfectly with the decline in home prices.

Finally, you know Real Estate has been a pretty good predictor of the overall Macro Climate. Turing down before the last 4 recessions. In 1991, 2001, 2008, and during the Pandemic of 2020.

That's because historically Real Estate has been a true measure of people's circumstances. Not like a stock or bond, which can be trading vehicles.

Traditionally homes have only been exchanged in reaction to life changes. A loss of a job, a death in the family, or some other major event.

I know that some on Wall Street may disagree with me. But, I think, that's how Real Estate is operating currently. And if I'm right, what we're seeing now is just the first stage of some major disruption in the average American's lifestyle. And it could well portend an overall slow down in this economy.