Consumers are feeling economic pain, and we need to talk about some of the things that are brewing. Today, I want to look at growing debt, distressed sales, and unemployment. I have both national and local stats. Sounds like a happy post, right? Look, some people really hype this topic and use it to magnify doom, but let’s talk about the market that actually exists.
UPCOMING SPEAKING GIGS:
5/9/24 Empire Home Loans (register here)
5/15/24 KW Roseville Event
6/5/24 Marketing Mastermind (register here)
6/6/24 Golden 1 Credit Union (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA here)
6/21/24 Exporting data from MLS (details TBA)
9/17/24 Downtown Regional MLS Meeting Q&A 9am
9/20/24 How to Think Like an Appraiser class (details TBA)
10/18/24 Prime Real Estate (private)
10/29/24 Orangevale MLS Meeting
MORTGAGE DELINQUENCIES ARE REALLY LOW
First off, we don’t have a big problem with mortgage delinquencies, but there is a little bit of an uptick. Basically, depending on the data source, delinquencies have inched up very slightly. This is something to watch, but it’s important to not amplify the small change to promote a narrative. Visuals from Calculated Risk, NY Fed, and ICE Mortgage Technology.
GETTING INTO CREDIT TROUBLE NATIONALLY
Consumers are getting into debt and missing payments for credit cards and auto loans in particular. We may not be in mortgage trouble right now, but some people may need to solve their financial problems by selling a home. However, people will fight to keep homes with low payments. In other words, letting go of a home to solve debt seems like a last-case scenario.
CREDIT & AUTO TROUBLE IN SACRAMENTO
These visuals come from the California Policy Lab credit dashboard. What I like is this is Sacramento only instead of a national stat that may or may not apply to the local area. Credit card delinquencies are above pre-pandemic levels. You can click on the link to play around with different areas of California as well as seeing which age groups are in the most trouble.
Auto delinquencies are also ticking up in Sacramento.
SHORT SALES AND FORECLOSURES HARDLY EXIST
In the local market, distressed sales barely exist. Technically, 1% of all sales during the first quarter of 2024 were distressed, but that’s 1% of a really low number (low volume is the reality in the market right now). Basically, both bank-owned sales and short sales are inching a little closer to pre-pandemic levels, but not quite back there yet. In short, we should see more distressed sales ahead since there is no longer a foreclosure moratorium, and there is no place to go but up. We have truly bottomed out.
HELLO THERE CREDIT REPAIR
Some people ahead are going to need to repair their credit, so I think it’s important for the real estate community to have solid credit repair contacts and help consumers understand the process. Honestly, I’d love to see more reels and posts about this, especially since we’re seeing credit and auto delinquencies rising.
WHAT SHORT SALES ARE HAPPENING THOUGH?
Here are current short sale active listings and pendings in the region. Keep in mind these listings represent 0.3% of all properties, so this is a tiny sliver of the market. What can we learn though? Well, it looks like there are some older loans with carnage, and a handful of reverse mortgages where the owner likely died and the lender is taking the property back (normal to see). The thing that is more striking is that about half the loans originated when the market was priced higher in 2022. Again, this is a tiny sliver of the market, but if you work in real estate, take clues here that some people might need your help. For whatever reason, these people needed to sell instead of hold on.
WHAT PROPERTIES ARE BANK-OWNED?
There are few bank-owned (REO) sales right now, but when they happen, they’ve been a combination of older loans and some newer ones (but not really people who bought in 2022 at peak prices). Remember, people can go into foreclosure for so many reasons, and it’s not just about prices in the market. In many cases, it’s about a personal financial situation. On a side note, I’m definitely noticing some familiar agents listing bank-owned homes right now (mostly people who were big REO agents back in the day).
LET’S WATCH UNEMPLOYMENT
We’ve seen an uptick in unemployment. This is nothing to hype since it’s very low right now, but it is something we want to watch and NOT ignore. As can be seen, Sacramento and California have a similar vibe through the years.
Here are six local counties. All ships rise and fall with the tide, right?
And this one is a sincere hot mess when adding in three more local counties. Honestly, this graph is too much since these areas are too different, but sometimes I like to share examples of chaos on my desk.
CLOSING THOUGHTS
It’s important to watch any red flags in the housing market, but it’s also key to stay objective. I find the tendency online is to highlight a trickle of doom and make it sound like an avalanche. There is no integrity in that. Likewise, some real estate professionals only want to talk about the glowing stuff rather than some of the issues we’re seeing right now. Overall, we don’t have a distressed market, but let’s keep our antennas up about all of this while actively cultivating objectivity. And if you work in real estate, be prepared to serve clients in all stations of life. The good times and the hard times.
Questions: What stands out to you most above? Anything to add? What did I miss?
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Objectivity is crucial in analyzing real estate! Important to look at the good and the bad through a nuanced perspective. There are certainly some headwinds to consider but overall real estate remains on solid ground given the uncertainty permeating across the economy.
Thanks Bob. I should have had you write the closing thoughts section. That’s a good way to put it.
Commodities and raw material prices of the last 50 years are something of the past. High prices are here to stay, value of goods has and will continue to deteriorate. Wages will not keep up, the strong (mega corps) will survive the next 50 years. Americans expectations will need adjusting, especially living expectations.
Thanks Diddy. A lack of listings coming to the market has really kept prices higher thus far. It’s been remarkable to watch. We’ve basically had some of the lowest closed sales volume ever, but without tanking prices. An atypical combination.
Atypical correct. We are in uncharted territory. I do not believe there will ever be a real ‘collapse’ anytime soon. I do however think what I mentioned above will be even more devastating overall than loss of home value.
Seeing more and larger concessions. Slightly longer DOM. Some building costs moderating. Permit fees seem to be higher. All mean nothing when compared to the dearth of listings. Not sure how the construction industry is fairing, higher number of casual labors at big box parking lots. Not to scientific more a litmus test.
Thanks David. I always appreciate your take. All important things to watch. New construction has been strong still locally. I have a 20-year graph of March closed sales. One of the stronger years still over the past decade, but I’m watching closely.
Ryan,
The charts of non-RE indicators is very insightful as they represent other pieces of the overall financial health of consumers.
You remain conservative and even keeled even when there is a storm brewing and not likely to project fairly significant impact to the RE market over the coming year or two as consumer financial state deteriorates.
Chart of area unemployment is ticking up, first tijme since the great recession (exclude COVID).
Auto delinquencies are ramping at 2008 rate, yet rate to date remains fairly low but increasing.
Credit card delinquency is raging with no relief in sight.
I can not comment on the last major RE pullback but it seems reasonable these indicators foretell what happens when consumers can’t pay credit cards or car loans.
Credit card rates are outrageous, it’s hard to understand how one gets out from under the debt burden with such high rates. Cars were sold over sticker and with dealers now begging buyers with big discounts below MSRP means consumers are more likely underwater thus risk repo.
The Fed keeps the pressure on creating more unemployment, only increasing the financial stress.
I don’t know the bookies have odds for a major RE correction but it must be far more than even odds.
When property owners lose their job, everything else is all set for REW foreclosure to ramp up once the constrained supply breaks loose.
Thanks DonF. I view my stance as balanced and objective rather than conservative. I think that distinction is important, but not everyone is going to track with that (which is fine).
I think there is way too much spin with this topic, and we need to be careful with our narrative in the midst of so much sensationalism. Often, people impose ideas about the future onto the housing market too, and that doesn’t really help us talk about the dynamic today. I find some people aren’t even able to have conversations about the market without painting everything with a sh*t brush, and that just gets weird. It’s like a fascination with the future impedes intelligent discussion today, which is a real bummer.
Regarding economic outlooks, I have to laugh at some of the ideas in recent years from really smart people. Just think about the comedy of recession predictions and how that just hasn’t panned out. Or think about the idea of rates going down, and how wrong people have been. So, there is place for pause, and objectivity wins at the end of the day. Of course, objectivity does not at all mean being naive.
Ultimately, we don’t know with certainty what is going to happen with unemployment, inflation, and rates ahead, and those are all huge factors with what happens to the housing market. Of course, everyone will be an expert with the benefit of hindsight, but for now, we ought to be paying attention to all of these factors as well as being real about the feel of the housing market at the present time.
It’s not a good thing to see debt increasing, and that’s exactly why I’m talking about this. I’m concerned. Yet, I’m also not going to amplify this to be more than it is right now. Some might call that conservative, but I think that’s what it looks like to be balanced. In other words, let’s be real about red flags, but also able to digest current housing trends in the midst of them.
All that said, the housing market is a weird place with subdued demand and subdued supply, and that’s what has kept prices up for now. I’m not one to say it’s a good thing either. The market would have theoretically started to correct already at some point after eight years of price growth through 2019 locally, but prices were inflated through policy (rates below 3%). Thus, for now, the housing market feels very stuck. Will it always be this way? Of course not. For now, there is mounting pressure from many angles, and many consumer are feeling it. But we haven’t seen an inflection point in the market yet. Let’s keep watching closely.
It’s interesting to see the foreclosures by age and all the 18-29 disappear. It seems that segment of the population just doesn’t want to own anymore or they are really good at paying their bills now compared to the 2000s.
Yeah, it’s hard to even see the trend. I’d actually love to see the right side of that graph zoomed in a bit more. It’s interesting to see credit card delinquencies by age. Gen Z and Millennials have been making the top of the list. Not a shocker that. We learn the hard way, and that’s the nature of the beast.
Am I reading an economics blog? Very nicely presented, balanced summary. Well done. See you tomorrow
Haha. I guess today I have an economics vibe. All things I’m watching closely. Looking forward to seeing you. I was just thinking I need to figure out the event details. I’ll look things up shortly.
I love the econ posts, Ryan. That’s a topic I’ve always paid attention to, but I haven’t been paying as much attention to debt/delinquency stuff as you provided here. It’s good to know. Hope to see you soon – I have that sweet longboard ready for hardware now! 🙂
Right on Steve. Thanks so much. And cool beans. Let’s make it happen. Those trucks and wheels are waiting to be installed. Hopefully I have enough grip tape too. We can figure something out. Just text me. It’s been a while since I’ve been out on my longboard, so this will be an excuse to ride. Next media story, “Two dudes who shouldn’t be on skateboards wiped out.” Haha.
When that happens (not if), please provide pictures!
Haha. Will do (if still alive).
Red Flags? or are they Green Lights? I guess it depends on which goggles you have, or what stage or perspective you are standing on. Much of these are, unfortunately, by design. The pendulum rarely stays within the middle for any considerable length of time. However, you are correct in that many ‘sensationalists’ prey on these charts because many who don’t pay attention unfortunately only pay attention to those making splashes, instead of actually noticing that it’s possible that the water is receding. By the time they actually notice anything their boat has run aground. Many of these numbers are hard to decipher for because of lack of either 1) reference and 2) understanding. In any case thanks for the visuals and as usual, keep skating. Take care of your health my friend. We’ll see you soon
Fair enough. Thanks Jon. I appreciate your take.