The Housing Market Correction Is Spreading · On The Market · Radar

Real Prices, Concessions, and Hidden Weakness2:50 – 13:33

2:50

First up, we are in a housing correction.

2:53

Yes, the nominal home price of homes, like the price you see on Zillow, the price that gets put on the contract, the price you even see in the Case-Shiller index, that is going up.

3:02

The non-inflation-adjusted price is going up.

3:06

But if you look at what is really going on behind the scenes, what you see is that real home prices, and when I say real in this context, quote unquote, real, that's just an economic term for inflation-adjusted.

3:20

And so when you look at real home prices, they are going down.

3:26

Just as an example, if a property goes up 1.5%, that's about where most people say appreciation's been in the last year, but everything else went up in price 3.5%, your home price is not keeping up with inflation.

3:40

That is a real, quote unquote, real decline.

3:44

And this is really important.

3:45

It's not some, like, academic distinction that I'm just trying to call out.

3:49

It's basically how every housing correction works outside of 2008.

3:55

That was very different.

3:56

We had nominal declines.

3:58

Usually, the way housing prices correct is through inflation.

4:02

Everything else going up, hopefully including wages, faster than home prices, and that restores affordability.

4:09

Now, this is not where anyone wants to be, right? If you're investing in a property because you want it to appreciate as an asset and it's going up slower than inflation, that's not great.

4:18

If you're leveraged, right, if you're using a loan, you are protected a little bit th- from this, so you're not in as bad of a position if you bought for all cash.

4:27

But still, like, as an investor, you don't want to see prices going down in real terms.

4:33

And although this has been happening for a while, and it is real and measurable, it is not a crash.

4:39

I just want to call this out because they actually track these things, and according to the Case-Shiller and a great blog called The Calculator Risk blog, home prices right now are 4.8% below their 2022 peak.

4:52

So let's just round and call it 5%.

4:53

They're about 5% below in inflation-adjusted terms where they were in 2022.

4:59

So this is why I call it a correction, not a crash.

5:04

In four years, it's gone down 5%.

5:07

That's averaging about 1.25% decline over four years.

5:11

That is not a crash.

Real Prices, Concessions, and Hidden Weakness2:50 – 13:33

2:50

First up, we are in a housing correction.

2:53

Yes, the nominal home price of homes, like the price you see on Zillow, the price that gets put on the contract, the price you even see in the Case-Shiller index, that is going up.

3:02

The non-inflation-adjusted price is going up.

3:06

But if you look at what is really going on behind the scenes, what you see is that real home prices, and when I say real in this context, quote unquote, real, that's just an economic term for inflation-adjusted.

3:20

And so when you look at real home prices, they are going down.

3:26

Just as an example, if a property goes up 1.5%, that's about where most people say appreciation's been in the last year, but everything else went up in price 3.5%, your home price is not keeping up with inflation.

3:40

That is a real, quote unquote, real decline.

3:44

And this is really important.

3:45

It's not some, like, academic distinction that I'm just trying to call out.

3:49

It's basically how every housing correction works outside of 2008.

3:55

That was very different.

3:56

We had nominal declines.

3:58

Usually, the way housing prices correct is through inflation.

4:02

Everything else going up, hopefully including wages, faster than home prices, and that restores affordability.

4:09

Now, this is not where anyone wants to be, right? If you're investing in a property because you want it to appreciate as an asset and it's going up slower than inflation, that's not great.

4:18

If you're leveraged, right, if you're using a loan, you are protected a little bit th- from this, so you're not in as bad of a position if you bought for all cash.

4:27

But still, like, as an investor, you don't want to see prices going down in real terms.

4:33

And although this has been happening for a while, and it is real and measurable, it is not a crash.

4:39

I just want to call this out because they actually track these things, and according to the Case-Shiller and a great blog called The Calculator Risk blog, home prices right now are 4.8% below their 2022 peak.

4:52

So let's just round and call it 5%.

4:53

They're about 5% below in inflation-adjusted terms where they were in 2022.

4:59

So this is why I call it a correction, not a crash.

5:04

In four years, it's gone down 5%.

5:07

That's averaging about 1.25% decline over four years.

5:11

That is not a crash.