BOA calls peak housing

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It's been feeling like this for a while but now the "experts" at BOA (probably from the Countrywide division) are weighing in

BANK OF AMERICA: The most important segment of the housing market has peaked

Business Insider

Akin Oyedele

,Business Insider•September 24, 2018

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The top is in for existing-home sales, which make up 90% of transactions in the US, according to economists at Bank of America Merrill Lynch.

They cite worsening affordability, higher mortgage rates, and price cuts as reasons sales are unlikely to bounce back after peaking in November.

They no longer expect existing-home sales to contribute to the economy's growth.

The largest segment of the housing market has peaked and will no longer contribute to the US economy's growth, according to US economists at Bank of America Merrill Lynch.

"We are calling it," the team led by Michelle Meyer said in a research note on Friday. "Existing home sales have peaked."

Sales of existing US homes make up 90% of all transactions and recovered faster than the market for new homes after the housing crisis a decade ago. But sales have failed to top the level of 5.72 million homes reached in November. To Meyer, that was most likely the high-water mark.

Interesting.  I worked at ML back in the day.  They're so good at 'calling it', they missed seeing they're own fire sale / demise to BOA. LOL

Question.  If housing 'sales have peaked', what does that mean? The quantity of sales?  The number of transactions, right? Not that values have peaked?  I don't have much faith in BOAs crystal ball, either, just asking for clarification.  

In the 1930's BofA nearly went bankrupt because they failed to see the US downturn coming. The only thing that saved them was being well connected politically. 

In the 1980's BofA nearly went bankrupt because they failed to see the Mexican/South American downturn coming. The only thing that saved them was being well connected politically. 

During 2008-09 BofA nearly went bankrupt because they failed to see the financial crisis coming. The only thing that saved them was being well connected politically. 

See a pattern? So this time BofA has it figured out? I'm not saying the market won't go down, but the same pundits who have been so wrong in the past are now looking into their crystal balls again. Many have been claiming a downturn is coming soon for nearly a decade, and one day they will be right. I learned in 2007 not to speculate just on appreciation, and just assume the market may crash tomorrow. 

I just wonder if the next crash could be short-lived? There are many of us investors who watched people get very rich buying homes during the last crash, will we all jump in and push the market up? Thoughts? 

I'm a broker, not an economist, seek professional advice.

Interesting. Fortunately and unfortunately, each real estate market is different and will react a different way even if we've reached a peak on the macro level according to B of A. So, they called a peak, what do they predict next? A prominent southern California investor predicted that we'd see a peak in California within a few years. He believe that there are lots of positive and negatives factors that cancel each other to provide more stability to the housing market. He believes and I think he makes a great point of this, that the "peak" will be more of a pause before the markets recovers and continues a gradual climb upwards. We don't have the crazy financing pre-2008 that led to the housing collapse. Time will tell how accurate B of A ends up being.

Peak housing according to article means the number of sales has peaked.

Prices still continue to rise, albeit at a slower rate. (Case Schiller).

Also - rent

Apartment rental prices edged higher in the third quarter, but deals for renters still abound in major metro areas across the U.S. as landlords brace for more supply in the months ahead.

Apartment rents rose 2.9% in the third quarter from a year earlier, up from 2.5% annual rent growth in the second quarter, according to real estate analytics firm RealPage Inc. A strong economy with better wage growth helped boost demand for apartments. So did a weak home-sales market, as tight supply may have prompted more renters to put off buying.

“There definitely doesn’t seem to be the pressure to buy that was there a little bit earlier,” said Greg Willett, chief economist at RealPage.

The rental market has still slowed significantly from a few years ago, when rents grew by 5.2% in the third quarter of 2015. But Mr. Willet said that “an upward blip rather than a downward blip” shows at least that the slowdown isn’t accelerating.

I started looking at BP today for 'slowdown' after seeing the inventory on the market in my local area of Dallas. I understand that this isn't the most popular time to buy, but I'm seeing tons of houses on the market that I haven't seen in the past. I'm not an RE expert, but this looks troublesome for the housing market. 

I can make up 3-4 reasons that there would be a slowdown, but I don't have evidence or hard numbers, just my observations.

  1. Many apartment units have come online in the last year in the area, which is likely driving down rents. 
  2. Higher standard deduction limits have curtailed the benefit of the mortgage interest deduction. 
  3. Stagnated wages and increased home purchase prices have priced many out of the housing market.
  4. Limiting new mortgages over 750,000 for interest tax deduction have the effect of cramming down prices at the higher end. Those with expensive houses are less likely to seek an even more expensive house if it is over $750,000 instead of $1M as in the recent past.
  5. Sales volume has declined year over year.

Dallas, having been one of the hottest markets over the past 5 years, slowing down has far reaching implications for the overall housing market in the US. This could be the canary for the US housing market, where we have witnessed fast growth and job creation. This could also be a cooling off period before the market rips higher. Hard to tell.