Homebuyers had enough. Spiked mortgage rates on top of record home price appreciation—up 42% since the onset of the pandemic—pushed monthly mortgage payments to a level that is simply unattainable for tens of millions of would-be buyers. As more buyers take a rain check, the housing market correction only gets more intense.
Even as housing transactions plummet, we’ve still not returned to a balanced market. Inventory levels remain a staggering 49% below July 2019 levels, giving most sellers—at least for now—enough leverage to hold off on selling below market comps hit earlier this year. That said, as inventory levels continue to rise, it’s possible some regional housing markets might actually see year-over-year house price declines in 2023.
On Friday, Redfin released its “risk score,” which identifies the housing markets that are at the highest risk of a “housing downturn.” The higher a market’s “risk score,” the higher the likelihood that market could see year-over-year decline in house prices. In total, Redfin looked at 98 regional housing markets and assessed factors including home-price volatility, average debt-to-income ratio and home-price growth.
Among the 98 markets measured by Redfin, Riverside had the highest likelihood of seeing a “housing downturn.” It was followed by Boise, Cape Coral, North Port, Las Vegas, Sacramento, Bakersfield, Phoenix, Tampa, and Tucson.
“Popular migration destinations where home prices soared during the pandemic—including Boise, Phoenix, and Tampa—are most likely to see the effects of a housing downturn amplified and home prices decline year-over-year if the economy goes into a recession, a scenario that some economists believe looks likely as inflation persists and stock markets stumble. Homeowners in those areas who are considering selling may want to list their homes soon to avoid potential price declines,” writes the Redfin researchers.
The sellers least likely to see prices fall? Redfin says Akron. Not too far behind it are markets like Philadelphia, El Paso, Cleveland, and Cincinnati. As the pandemic housing boom took off, homeowners in those places saw less investor activity and more modest levels of house price growth. Amid the boom, homeowners in places like Akron surely had FOMO as they watched their peers in Austin and Boise experience exorbitant levels of house price growth. But now homeowners in markets like Akron and Cleveland are likely thankful: Historically speaking, the sharpest housing corrections usually come in the fastest-growing markets.
“Relatively affordable northern metros—several of them in the Rust Belt, such as Cleveland and Buffalo—are most resilient in the event of a recession. Prospective homebuyers in those areas can move ahead with confidence that they’re less likely to see home values decline,” writes the Redfin researchers.
Every quarter, Moody’s Analytics calculates an “overvalued” or “undervalued” figure for around 400 markets. The firm aims to find out whether fundamentals, including local income levels, could support local home prices. It’s only troubling when a housing market becomes significantly “overvalued.” The bad news? In the first quarter of 2006, the median U.S. housing market was “overvalued” by 14.5%. In the first quarter of 2022, Moody’s estimates the median regional housing market was “overvalued” by 23%.
Simply being detached from underlying economic fundamentals doesn’t guarantee that a market will see plummeting home prices. However, as a market becomes significantly “overvalued” it increases the odds of falling house prices if both a housing correction and a recession hit. Moody’s chief economist Mark Zandi tells Fortune that housing markets “overvalued” by more than 25% are likely to see 5% to 10% house price declines. If a recession hits, price drops could be as large as 15% to 20% in those markets.
Already, we’re seeing “bubbly” markets like Boise and Austin see the swiftest corrections. Just look at inventory. Over the past six months, inventory levels have spiked 161% and 220% in Boise and Austin, respectively.
Earlier this month, John Burns Real Estate Consulting told Fortune that Boise is poised to be the first housing market to post a year-over-year price decline. The real estate research company predicts it could come as soon as December. For that to happen, house prices in Boise would not only have to erase all their spring 2022 gains, but also fall below their December 2021 price.
“You could make a strong case that in a lot of housing markets the last 10% of home price appreciation was purely aspirational and irrational, and that’ll come off the top really fast,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting “That’s exactly what we’re all seeing right now.”
Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.
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Coinbase is well positioned to successfully navigate this crypto winter and take market share, Bank of America said in a research report Tuesday. It maintained its buy recommendation following the exchange’s second-quarter results.
The results warrant “a muted stock reaction,” the report said. Net revenue of $803 million was below the bank’s and consensus estimates, while its adjusted $151 million loss before interest, tax, depreciation and amortization was better than the street expected. Importantly, the company remains “cautiously optimistic” it can reach its goal of no more than $500 million of adjusted EBITDA loss for the full year, the report added.
Coinbase shares fell almost 8% in premarket trading to $80.74.
Bank of America notes that Coinbase had no counterparty exposure to the crypto insolvencies witnessed in the second quarter. The company also has a “history of no credit losses from financing activities, holds customer assets 1:1, and any lending activity of customer crypto is at the discretion of the customer, with 100%+ collateral required.” These rigorous risk-management practices will be a “positive long-term differentiator” for the stock, the bank said.
JPMorgan said Coinbase had endured another challenging quarter, while noting some positives.
Trading volume and revenue were down materially. Subscription revenue was also lower, but would have been much worse were it not for higher interest rates, it said in a research report Wednesday.
The company is taking steps on expense management, and in addition to the June headcount reductions, is scaling back marketing and pausing some product investments, the note said.
The bank says the company’s near-term outlook is “still grim,” noting that the exchange expects a continued decline in 3Q 2022 monthly transacting users (MTUs) and trading volumes, but says Coinbase could take more “cost actions” if crypto prices fall further.
JPMorgan is less optimistic than Bank of America about the company in the near term, saying pressure on revenue from falling crypto markets will have a negative impact on the stock price. Still, it sees positives including higher interest rates, from which the firm will generate revenue. It also sees opportunities for the exchange to grow its user base, leveraging almost $6 billion of cash. The surge in crypto prices in July, and the forthcoming Ethereum Merge are also seen as positive catalysts, it added.
The bank maintained its neutral rating on the stock and raised its price target to $64 from $61.
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Elon Musk sold $6.9 billion of his shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.
“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk tweeted late Tuesday after the sales were disclosed in a series of regulatory filings.
Asked by followers if he was done selling and would buy Tesla stock again if the $44 billion deal doesn’t close, Musk responded: “Yes.”
Yes.
In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock.
Tesla’s chief executive officer offloaded about 7.92 million shares on Aug. 5, according to the new filings. The sale comes just four months after the world’s richest person said he had no further plans to sell Tesla shares after disposing of $8.5 billion of stock in the wake of his initial offer to buy Twitter.
Musk last month said he was terminating the agreement to buy the social network where he has more than 102 million followers and take it private, claiming the company has made “misleading representations” over the number of spam bots on the service. Twitter has since sued to force Musk to consummate the deal, and a trial in the Delaware Chancery Court has been set for October.
In May, Musk dropped plans to partially fund the purchase with a margin loan tied to his Tesla stake and increased the size of the equity component of the deal to $33.5 billion. He had previously announced that he secured $7.1 billion of equity commitments from investors including billionaire Larry Ellison, Sequoia Capital, and Binance.
“I’ll put the odds at 75% that he’s buying Twitter. I’m shocked,” said Gene Munster, a former technology analyst who’s now a managing partner at venture-capital firm Loup Ventures. “This is going to be a headwind for Tesla in the near term. In the long term, all that matters is deliveries and gross margin.”
At the weekend, Musk tweeted that if Twitter provided its method of sampling accounts to determine the number of bots and how they are confirmed to be real, “the deal should proceed on original terms.”
Good summary of the problem.
If Twitter simply provides their method of sampling 100 accounts and how they’re confirmed to be real, the deal should proceed on original terms.
However, if it turns out that their SEC filings are materially false, then it should not.
Musk, 51, has now sold around $32 billion worth of stock in Tesla over the past 10 months. The disposals started in November after Musk, a prolific Twitter user, polled users of the platform on whether he should trim his stake. The purpose of the latest sales wasn’t immediately clear.
Tesla shares have risen about 35% from recent lows reached in May, though are still down about 20% this year.
With a $250.2 billion fortune, Musk is the world’s richest person, according to the Bloomberg Billionaires Index, but his wealth has fallen around $20 billion this year as Tesla shares declined.
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Most of Gen Z is too young to remember the 2010 New York gubernatorial candidate Jimmy McMillan.
But over a decade later, they would probably agree with his signature issue (and catchphrase): the rent is too damn high.
This July, median rent payments were 7.4% higher than during the same period last year, according to a Bank of America report released Tuesday.
The national median price for a one-bedroom apartment has been hitting new highs nearly every month this summer. It was $1,450 for July, according to rental platform Zumper. In the country’s largest city, New York, average rent exceeded a shocking $5,000 a month for the first time ever in June.
But inflation in the rental market hasn’t hit each generation equally, and no one is getting squeezed harder by the higher monthly payments as Gen Z. Those born after 1996 have seen their median rent payment go up 16% since last July, compared to just a 3% increase for Baby Boomers, BofA internal data shows. “Younger consumers are getting squeezed the most by higher rent inflation,” BofA wrote.
The great rent comeback
Early in the pandemic, landlords slashed rents and gave significant COVID discounts to entice tenants to stay instead of leaving urban areas. Once those deals started expiring in 2021, many landlords suddenly raised payments once again, sometimes asking for over double their pandemic value.
Young people across the board have been hit hard, and rent burdens compared to age can be seen even within a single generation. Younger millennials had their median rent payment grow 11% from last year, while the median payment for older millennials rose 7%. Gen X experienced a 5% median rent increase, according to BofA.
It’s not a surprise, then, that Gen Z feels so strapped for cash. The majority of young people, 61%, said they want to receive their wages daily instead of twice a week, a practice typically reserved for workers living paycheck to paycheck, according to a report from the Center for Generational Kinetics, which specializes in research across the generations. Rising rent inflation has even priced nearly a third of Gen Zers out of the apartment search altogether. Around 29% of them have resorted to living at home as a “long-term housing solution,” according to a June survey from personal finance company Credit Karma.
It’s no wonder—the rent really is too high.
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