Decline in potential home buyer traffic

At the beginning of each quarter, I prepare a short but in-depth conference call for RWM clients. Our team brings together the most revealing and informative slides In that half hour, I sprinkled ~40 slides that capture and explain what’s going on.

About a quarter of the October 2022 slides were focused on real estate. This is because housing is often where we see the most immediate impact of FOMC policy. Of course, RRE/CRE is a huge part of the economy, so its health is important. But for the purposes of our discussion of the economy and market conditions, real estate is where the rubber meets the road.

A rising fed funds rate makes capital and debt more expensive; Calculations around changes in both debt and equity. Nowhere is this easier to see than in their impact on mortgage rates and home purchases.1

The warning these days is that a vicious combination of events — the post-GFC slump in new home construction, pandemic buying, and less available inventory have made general home data harder to read.

This brings us to the chart: The top one shows the traffic of potential buyers looking at a new home (2014-2022); The one below goes back to the 1980s.

The four largest drops occurred during distinct periods of economic recession: 1990 (recession), 2006-09 (GFC), 2020 (pandemic/recession), and today (FOMC 300 bp rate hike).

When the probability of a recession for the next year rises to nearly 100%, that’s when those expectations begin.

in the past:
How Everyone Miscalculated Housing Demand (July 29, 2021)

Ambitious Pricing (May 25, 2022)

see more:
Housing Market Correction (Wells Fargo, October 5, 2022)


1. We’ve discussed in the past why the actual purchase price of a home is less important than the monthly carrying costs: Sales price is somewhat abstract when homeowners must pay their monthly mortgage, utilities, HOA and taxes. For anyone who isn’t a cash buyer of a home — which is about 75% of homes sold nationally (and about half in places like Manhattan) — these numbers can be budgeted.

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