When is housing market truly down? When sellers lose money. Here’s why

Carl Juste/cjuste@miamiherald.com

It’s that time of year when everyone makes bold predictions about what lies ahead in 2023. Just last month, the California Association of Realtors projected the average price of houses in the Golden State would drop nearly 9% next year.

But I have my own theory. Yes, prices are coming down, but that doesn’t mean sellers are losing out. Unless they purchased their homes within, say, the last 12 months, sellers aren’t taking losses — rather, they are taking less profit. To me, prices don’t truly “fall” until homeowners sell for less than they paid.

Houses today may sell for less than they would have, say, six months ago, but still for more than what sellers paid. You can’t lose what you never had, which, in this case, is the equity you build up over time as home values rise and fall.

The only way to cash in on equity is to sell your place or borrow against it. Unless you do one or the other, “equity” is a nebulous term for something you know is there, but you can’t touch.

To support my hypothesis, I give you the latest sales report from data services company ATTOM: The profit margin on the median single-family home slipped from 57.6% in the second quarter to 54.6% in the third. There’s still a lot of profit to be eaten away before sellers actually lose money.

HOUSING SLUMP

Housing is already in a recession, and the Federal Reserve Board isn’t likely to take its foot off the brakes until 2024, according to Robert Dietz, the chief economist at the National Association of Home Builders. Dietz believes the sector will rebound in 2024, but until then, the slowdown will only exacerbate the shortage of new houses.

“We’ve been under-building since 2008,” he says, noting that the market is short about 1 million houses nationwide. This year’s decline in homebuilding is the first since 2011. “We finally got to 1.1 million starts” last year, Dietz said. “That’s in line with what we think we need to meet demand. And by 2025, we should be back to that level.”

MANUFACTURED HOMES

Manufactured homes, aka mobile homes, are a less expensive alternative to site-built houses. Last year, the median price of a factory-made house was just $61,400 — that’s $220,000 less than that of a conventional single-family house.

One of the knocks against manufactured homes is that they lose value, rather than appreciate. But according to LendingTree, that hasn’t been the case over the last five years. Between 2016 and 2021, the median value of a manufactured house increased by an average of 34.6%. Single-family houses increased just barely more — by 35.4% — over the same period.

GOLDEN YEARS

Impressive: According to the National Reverse Mortgage Lenders Association, homeowners aged 62 and older saw their combined housing wealth reach a record $11.6 trillion in the second quarter.

More Signs of the Apocalypse:

Thanks to a title company error, a woman who thought she was buying a house outside of Reno wound up with the entire neighborhood: 84 houses plus two common areas. It seems the title company cut-and-pasted the legal description for the whole shebang onto her deed.

In Texas, a retired couple is being sued by their homeowners association for $250,000. Their crime: feeding ducks. According to the suit, neighbors claim the ducks defecated on their property and destroyed their gardens.

How would you like to live in a $1.7 million house in San Ramon, California, for free? Anita and Mahesh Khurana did just that for years: The couple made six payments on their loan and then stopped cold, somehow avoiding foreclosure since 2009. They were finally evicted this summer. But they may not hold the record: According to one source, someone in New York fended off foreclosure for more than two decades.

More buyers of newly built houses paid cash in the third quarter than those who financed their purchases through the Federal Housing Administration. According to Census Bureau data, 7.5% of all the new houses sold during the period were backed by the FHA. That’s the smallest share since the fourth quarter of 2007, economist David Logan of the National Association of Home Builders points out.

On the other hand, 9.5% went to all-cash buyers. That’s a 20-year high, Logan notes. Typically, cash buyers are those who sold their homes in expensive markets and moved to less costly places. Loaded with a pocketful of moolah, they can pay whatever a seller is asking, and then some. And that drives prices higher.

Census data also shows that 78% of the new places sold in the third quarter were financed with conventional loans, even though FHA-insured mortgages are somewhat easier to qualify for. In the existing-home market, meanwhile, 22% of the resale houses sold in September went for cash, NAHB reports.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.