US Housing Market To Get Uglier In Near Future

Authored by Wolf Richter via WolfStreet.com,

Sales decline to steepen, no respite in sight.

The reasons for the housing-market downturn are in the eye of the beholder, as we will see in a moment. But whatever the reasons for it may be, the data on the housing market is getting uglier by the month.

Pending home sales is a forward-looking measure. It counts how many contracts were signed, rather than how many sales actually closed that month. There can be a lag of about a month or two between signing the contract and closing the sale. Last week, the National Association of Realtors (NAR) released its Pending Home Sales Index for November, an indication of the direction of actual sales to be reported for December and January. This index for November fell to the lowest level since May 2014:

“There is no reason to be concerned,” the report said, reassuringly. And it predicted “solid growth potential for the long-term.”

And the index plunged 7.7% compared to November last year, the biggest year-over-year percentage drop since June 2014. The drops in October and November are indicated in red:

All four regions got whacked by year-over-year declines:

  • Northeast : -3.5%
  • Midwest: -7.0%
  • South: -7.4%
  • West: -12.2%

The plunge in pending home sales in the West, a vast and diverse region, will prolong the plunge in closed sales for the region. Particularly on the West Coast, the largest and very expensive markets — Seattle metro, Portland metro, Bay Area, and Los Angeles area — have been experiencing sharp sales declines, a surge in inventory for sale, and starting this summer, declining prices.

Last week’s pending home sales data confirms that these trends are intact and will likely continue.

The NAR report blames the sales decline in the expensive markets in the West on “affordability challenges” – because prices “have risen too much, too fast,” it said.

And this is a true and huge problemHome prices have shot up for years, even while wages ticked up at much slower rates. At some point, the market is going to run out of people with median incomes who are willing to stretch to the limit to buy a starter shack; and the market is going to run out of people with high incomes who are willing to stretch to the limit to buy a median house.

For example, at the peak, the median house price in San Francisco was over $1.7 million. That median house is nothing fancy. And the market has run out of high-income people blowing so much money on a modest house. Hence prices have come down sharply over the past six months.

“Local officials should consider ways to boost local supply,” the report says. Alas, there is all kinds of supply suddenly coming on the market. It’s not that there isn’t anything to buy; the problem is that everything is too expensive, and that sellers and buyers no longer see eye-to-eye.

But the decline in sales on a national basis, according to the report, is a “short-term pullback” that “does not yet capture the impact of recent favorable conditions of mortgage rates.”

Sure, lower mortgage rates are a relief for buyers. But wait… According to the Mortgage Bankers Association, the average rate of conforming 30-year fixed-rate mortgages with a 20% down payment has dropped to 4.94% during the latest reporting week. This is 23 basis points off the high of 5.17% in early November.

But here is the thing: In January 2018, when the Pending Home Sales index plunged to the lowest level since December 2015 (indicated in the first chart above), the NAR blamed low supply of homes and surging mortgage rates.

Since then, supply has sharply increased, and mortgage rates?

Currently, the average 30-year fixed rate, at 4.94%, is still 54 basis points higher than it had been in January. And if an average mortgage rate of 4.4% was blamed for plunging home sales in January, then an average rate of 4.94% isn’t going to suddenly boost sales.

There is a lot more at play here than just wobbling mortgage rates. At the top of the list are woefully inflated prices that potential buyers now see as such.

And these potential buyers are now also confronting the fear that prices will decline, or further decline, after they buy. This is a scary thought, given the amount of leverage and the large dollar figures involved in a home purchase. Potential buyers now see that after the purchase, those fears could translate into some real and long-lasting headaches.

In Seattle, house prices dropped 4.4% in four months, the biggest four-month drop since Housing Bust 1, according to the Case-Shiller Home Price Index. Prices also deflated in the San Francisco Bay Area, San Diego, Denver, and Portland. Read… The Most Splendid Housing Bubbles in America Decline  

The Disappearance of AI

As the markets enter into the gyrations of this last December, with the Dow Jones now down 16% from the year’s highs, the idea that the party would never end is now giving way to grabbing the car keys and biding the hosts adieu, and those of us in IT are battening down the hatches in a serious way.

Robot Waiters In This Tokyo Cafe Are Controlled By Disabled People 

A cafe with an all-robot wait staff controlled by paralyzed people has recently concluded its eight-month experiment in Tokyo, Japan. 

Ten people with a variety of conditions including spinal cord injuries and the progressive neurodegenerative disease ALS (amyotrophic lateral sclerosis) were employed at Dawn Ver café, according to Sankei

The robot’s operators earned about 1,000 yen ($9) per hour – the standard rate of pay for wait staff in Japan. 

From home or hospital, they operated the small fleet of OriHime-D robots used in the cafe were developed by Japanese start-up Ory and were initially designed to be used in the homes of people with disabilities.

Sankei reported that robots could be told to move, observe, communicate with guest and carry objects to tables, even if their operator can only roll their eyes.

The pilot program started in April of last year and concluded on December 7 at the Nippon Foundation Building in Minato-ku, Tokyo. Researchers collected vital data on the connections between disabled people and robots, to encourage plans of integrating people who might otherwise be housebound earn a wage and interact with other people more easily.

“If the people operating the robots feel the joy of serving customers and working in a café, I think it’s wrong to leave that to AI,” said Kentaro Yoshifuji, the CEO of Ory Lab Inc.

This experiment, done in cooperation with The Nippon Foundation, Avatar Robotic Consultative Association (ARCA), All Nippon Airways (ANA) and Ory seems to have been a limited-time event, but a new crowdfunding operation aims to open a permanent location with disabled people controlling robot servers by 2020.

Maybe disabled people controlling robots in restaurants could be the first push back against AI. As we have warned before, AI robots were built to replace low-skilled workers that could trigger economic disruption far greater than we experienced over the past eight decades. By the end of the 2020s, automation may eliminate 20% to 25% of current jobs, so by allowing disabled people today to operate robots in the service sector, well, it is a start, but it will sadly not be enough to stop the AI takeover. 

House Defies Trump; Votes To Reopen Government With No Wall Funding

In what what can only be described as theatre, the Democrat-controlled House of Representatives voted late Thursday to pass two bills that would reopen parts of the government affected by the partial shutdown.

The only problem is that neither of the bills contain funding for what House Speaker Nancy Pelosi (D-CA) called an “inhumane” border wall – leaving Republicans and Democrats without any possible way forward during a Friday meeting at the White House following President Trump’s vow to veto any legislation that does not include money for perhaps his greatest election promise. 

Trump will meet at 11:30 a.m. with Pelosi and House Majority Whip Steny Hoyer (D-MD) along with other congressional leaders, according to the Washington Examiner

“We’ll go down there, we’ll talk,” said Hoyer on Thursday. “We’ll try to come to an agreement.”

That said, House Democrats held a Thursday afternoon hallway press conference where they took turns proclaiming how they would stand their ground against Trump’s wall. 

We are not doing a wall,” said Pelosi – calling it “an immorality.” 

Pelosi said the $5 billion Trump is requesting for the wall diverts money from other critical needs, although it is a tiny fraction of all federal spending. Still, she said the wall was a distraction put forward by President Trump who wants to shield his base from the negative impact of his agenda.

“It’s a wall between reality and his constituents, his supporters,” Pelosi said.

Shortly after Christmas, White House officials said they told Democratic leaders they would accept about half of their initial $5 billion request. But when asked about the offer, Pelosi suggested the Trump administration backed away from that idea.

“You can’t have an agreement that people walk away from,” she said. “Go to them and say, ‘Why don’t you stick to what you offered?'” –Washington Examiner

So at this point, tomorrow’s White House meeting looks like it will be a massive waste of everybody’s time – especially considering that Senate Majority Leader Mitch McConnell (R-KY) said on Thursday that he will not consider any House-passed bills that Trump won’t sign

The two House bills would fund several agencies through September 30, and the Department of Homeland Security through Feb. 8. The DHS funding would give the agency $1.3 billion for border security which could not be used for Trump’s wall. Just five Republicans voted for the bill, while sevel GOP lawmakers supported the other bill funding the other agencies until the end of September. 

Approximately 800,000 federal employees have been affected by the partial shutdown which began on December 23, representing around 25 percent of the federal government.