Housing: Is it a Correction or Worse?

The real estate section of the Sunday edition of the local paper featured a guest piece by a local broker/salesman. The softening of the market isn’t the beginning of a crash, ala 2008, but a “housing correction.” Lending standards are tougher, not many foreclosures, prices have exploded, so everyone has plenty of equity, and, as always, Las Vegas is a world class tourist destination. 

So, correction. 

He hopes.

Big builder Lennar sent out a sales flier via email, advertising 3.99% mortgage interest from Lennar Home mortgage plus price reductions of $40,000 to $50,000 a unit. These reductions included units in subdivisions selling from the $300,000s all the way to over $1,000,000. 

Builders are not as confident as the writing broker. U.S. Builder confidence has fallen 8 months in a row and now sits at 49, just below the important 50 level.  Robert Dietz, chief economist for the builders association, calls it a “housing recession.” 

“After months of racing to put up homes in order to meet the red-hot housing market conditions, builders are suddenly seeing more and more contract cancellations, sellers of existing homes cutting prices and homes lingering on the market,” Nicole Bachaud, economist with listing site Zillow was cited by the LVRJ’s Eli Segall. 

According to employees I talk to at the new home subdivision I just moved into, the flood of California cash buyers has “stopped cold.”

The slow down extends beyond housing. Cannabis Superstone operator Planet 13 Holdings released 2nd quarter earnings with Co-CEO Larry Scheffler admitting, "Since we reported Q1 we've seen a material weakening of the consumer, which has impacted tourist spending in Nevada.”  The company’s revenues were down 13.5 percent from a year ago. 

Steph Pomboy points out that inflation adjusted retail sales topped out in April 2021. Not coincidentally, final stimulus checks went out the month before. And, after consumers paid down their credit card balances during the shut down, they have ramped up credit use since to pre-COVID levels.  

Meanwhile, the Federal Reserve continues to stomp on the brakes. Pomboy, who keeps a keen eye on credit, says credit downgrades switched to two down grades for every upgrade in July, a complete 180 from early in the year. 

The proprietor of MacroMavens believes we are already in a recession and that we are headed for a “2008 scenario.” She points out the lead time from an increase in junk bond rates to a spike in default rates is 12 months. Starting next month we should start seeing more companies with speculative grade debt to begin to default with more regularity.

Meanwhile, the Fed continues to over do it.  

Just a correction? Not hardly.