Home Prices Are Falling In More & More Markets Now | Nick Gerli

The housing correction has officially begun (it's just not fully distributed yet)

I find myself frequently repeating the advice that in today's highly bifurcated economy, it's critical to understand the difference between the mean and the median in order to get a true picture of what's going on.

And the housing market is no different.

On the mean, or average, level, US home prices hit yet another record high last month.

But in a growing number of markets (Texas and Florida, especially), many of them red-hot until recently, prices are now down by double-digit percentages. And inventory there is spiking.

To make sense of the growing divergences and find out where prices are most likely headed from here, we're fortunate to welcome back to the program housing analyst Nick Gerli, founder of reventure Consulting and creator of the new reventure app.

Nick warns that contagion is a very real risk here and that interest rate cuts by the Fed likely won’t help the situation (at least, not in the near term).

For his latest outlook on the market, click here or on the image below:

---

I’m so grateful to everyone who has kindly supported me by becoming a premium subscriber to this Substack. It’s making an important difference in helping me afford the substantial startup costs of running Thoughtful Money.

Premium supporters receive my “Adam’s Notes” summaries to the interviews I do, the new MacroPass rotation of reports from esteemed experts, plus periodic advance-viewing/exclusive content. My Adam’s Notes for this discussion with Nick are available to them below.

If you, too, would like to become a premium subscriber to this Substack (it’s only $15/mo, less than $0.50/day), then sign up now below.

---

Adam’s Notes: Nick Gerli (recorded 6.25.24)

EXECUTIVE SUMMARY

• The housing market remains in a bubble, with home prices being 30-35% overvalued compared to long-term norms. While national prices are climbing year-over-year, many local markets are witnessing month-over-month and year-over-year declines, signaling a potential correction phase, particularly in previously hot areas.

• States such as Florida and Texas are experiencing a significant spike in housing inventory, with some areas seeing a 70% year-over-year increase. This rise in inventory, combined with major sell-offs, particularly in speculative markets, indicates a looming large-scale correction.

• Despite historically low mortgage rates driving housing prices up over the past decade, the recent surge in mortgage rates has not yet led to expected price declines due to a supposed national housing shortage. However, claims of a national housing shortage are misleading. While real shortages do exist in states like California and Massachusetts, many areas are witnessing substantial inventory growth as new-build units come online and increasingly motivated sellers come off the sidelines. For example, Arizona and Florida have seen inventory increases of 68% and 70% year-over-year, respectively.

• Even if the Fed cuts rates and mortgage rates drop to 6.5%, it's unlikely to entice first-time buyers significantly. This is due to affordability issues and economic insecurity. Nick notes that historically low homebuyer sentiment and strained affordability mean that minor rate cuts won't boost home prices. Instead, more inventory could keep buyers on the sidelines, waiting for prices to drop further.

• Investor purchases, which surged during the pandemic, are now down 60% from their peak. Many investors, particularly large institutional ones, are selling properties at losses, exemplified by a 25% loss on a property in Florida owned by a major Wall Street landlord. This sell-off by investors could further