The Kobeissi Letter
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The housing market is frozen: Mortgage demand in the US has fallen to its lowest level since 1995, according to Reventure. Since the peak seen less than 4 years ago, US mortgage applications are down a MASSIVE -63%. Homebuyers are officially giving up. (a thread)
US housing affordability has never been worse: The annual income needed to buy the median-value home in the US risen to a record $109,564. This value has DOUBLED in just 4 years. Currently, the median US household income is $83,431, or $26,133 less than required.
To put this into perspective, at the 2006 housing bubble peak this difference was ~$10,000, or 2.6x less. The gap between income needed to buy a home and annual income has never been larger. This means that housing payments as a % of median income are now HIGHER than 2006.
Further emphasizing the halt in the housing market is existing home sales. US existing home sales closed 2024 at ~ 4.04 million in 2024, marking the worst year since 1995. This also aligns with the sharp drop in mortgage demand. Sales came in below 2008 levels.
High interest rates and record prices have been a lethal combination. The median age of all homebuyers is now 49 years old, up from 31 in 1981. Furthermore, 40% of US homes don’t have a mortgage. In other words, cash buyers are winning and long-time homeowners won't sell.
In June 2024, the housing market made history again. As seen in 2005, it became CHEAPER to buy a new house than an existing house. The median new home sold for $417,400 while the median existing house sold for $419,300. Something is wrong when new is cheaper than old.
As a result of high inflation and high interest rates, homebuyers are making smaller houses. The size of new homes being built has declined by 12% since 2016. The median new home is now ~2,175 square feet after nearing as high as 2,500 square feet in 2016.
Despite evaportaing demand and persistent inflation, asset prices keep rising. Home prices are now officially up over 50% since May 2020. The S&P 500 extended its run to over +100% since the pandemic. Historic run is an understatement.
Our premium members got ahead of this trend and bought market dips in 2024. Below are some alerts we posted recently. Since August 1st, subs are up ~2,000 POINTS on S&P 500 trades. Subscribe at the link below to access our alerts for 2025: http://thekobeissiletter.com/s...
Even as the "Fed pivot" began, homebuyers are not seeing any relief. Since September, the Fed has cut interest rates by 100 basis points. Over this same timeframe, 30-year mortgage rates are up from 6.10% to 7.26%. Homeownership costs have risen materially in 4 months.
To put this all in perspective: Buying a home 2021 with a 30Y mortgage meant you spent a total of $473K in principle and interest. As prices rise and rates rebound, you now spend a total of $873K on the median priced home. That's $300K MORE, or 63%, in ~4 years.
These drastic moves in interest rates and inflation have clearly spread well beyond the housing market. We are already seeing the Fed backtrack on the "Fed pivot." We are trading this. Subscribe to our premium analysis and alerts at the link below: http://thekobeissiletter.com/s...
Today's CPI inflation data showed that shelter inflation is still elevated, at 4.6%. This includes rent inflation of 4.3% and homeowner inflation of 4.8%. It will be a while before affordability improves. Follow us @KobeissiLetter for real time analysis as this develops.
