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  • Jonathan Poyer

A Deep Dive Into Residential Real Estate - Bullet Points, Charts, and Graphs, Oh My!

Let's have some fun with charts considering the state of the US residential housing market. It is worth considering this asset class as it is ENORMOUS.

Starting with primary statistics through December 19th, 2023 from Statista (U.S. Residential Housing - All Statistics & Facts | Statista):

  • There are 85.2M owner-occupied housing units

  • There are 44.2M housing units occupied by a rent

  • The homeownership rate is 65.9%

  • Average price of new homes sold is $540K

  • 644K new houses were sold

  • Value of new private residential buildings put in place is $899B

Pretty outstanding information from Statista. They also break down the US mortgage market through December 18th, 2023 (U.S. mortgage industry - statistics & facts | Statista):

  • The value of mortgage debt is $19.3T

  • Residential mortgage backed security issuances were $18.1B

  • Delinquency rate of real estate loans at commercial banks was 1.25%

  • Foreclosure rate was 0.23%

Some additional statistics from lendingtree (Mortgage Statistics: 2024 | LendingTree):

  • Americans owe $12.14T on 84M mortgages - average of $144,593/person with a mortgage on their credit report

    • By comparison, the average mortgage size/account in Q4 2012 was $96,516

  • Americans owe $349B on 13.1M HELOCs

  • Americans originated $1.1T in new mortgage debt in the first three quarters of 2023

    • 77.4% was issued to super-prime borrowers with credit scores of at least 720

    • 3.6% was issued to subprime borrowers with scores below 620

    • Historically: subprime borrowing as a share of origination volume peaked in 2006 at 13.6%, while super-primer borrowers with scores of at least 720 held their smallest share that year at 65.5%

    • In 2020 and 2021, super-prime borrowers comprised around 84% of the volume

Now to the charts...

Demographics is destiny. It so happens that LOTS of Americans are nearing prime home buying age. We are in a several year stretch of pent-up demand in housing and millennials are near or in their prime:

Amidst these demographics, the U.S. housing inventory remains the lowest on record. The percent of US homes for sales was 0.5% of total housing...a number not seen since 1965 (58 years):

A closer look at the housing stock compares existing versus new home sales per month. After a catch-up period from COVID including low rates, new home sales had a bump. In fact, the supply of homes for sales is almost all in new home sales and builders are increasing their capacity to catch up to market demand:

Continuing to investigate homes for sale and home sales, you can see below the MBA Purchase Index nearing its lowest levels since 1995. Mortgage rates and sales move at inverse rates (for the most part), which seems intuitive. One might assume that the decrease in demand should have an impact on housing prices:

One of our favorite graphs compares existing mortgages over time looking at the number of adjustable rate mortgages in existence. ARMs peaked in 2006 when they represented, in one form or another, nearly 50% of all mortgages. Today, ARMs represent about 2% of all mortgages. We highlighted above as well the change in the number of super-prime vs. other categories of borrowers:

Our second favorite chart is to look at what the current mortgage rate is for existing borrowers. The current mortgage rate is around 6.6% for new issuances although in recent days that has gone up a tad. For mortgage debt outstanding, the average rate is 3.8%. That is the lowest it has been in over 45 years. Considering the balance sheet of these borrowers, one must ask whether the home or the mortgage is the asset?

What impact does mortgage rates have as it relates to purchasing power? Quite a lot to say the least. Since the GFC, low rates made it very affordable and sensible to purchase a home. That all flipped in 2021-2022 when rates started to increase. Below we show how much house one could afford based on different rates. These rate changes make it very difficult for potential buyers to buy the homes that they might have once had their eyes on.

One way that the marketplace has adjusted to these rate changes is in the size of homes that home builders have been constructing. Builders are adapting to these macro-changes by reducing square footage. You can see below how square footage has been decreasing since at least 2015:

For a final comment, let us take a look at homeowner credit is reacting given the state of the economy and macro-environment. Inflation has put pressure on purchasing power and household finances. This is reflected in the amount of debt that continues to grow, broadly. As a result, we have seen an increase in delinquencies on auto loans, credit card loans, etc. However, delinquencies on mortgages is near the lowest levels in over 20 years. Mortgage delinquencies are the lowest out of all loan types, making up just 2.2% of all 90+ delinquent loans.

Housing is an asset where prices are set at the margin of buying and selling. Money in motion, through sales and purchases, is what sets the market. This velocity is greatly impacted by interest rates and the economic position of borrowers/homeowners. At this time, existing homeowners are doing whatever it takes to stay in their homes and to keep paying their monthly mortgages. This is good for housing and good for those asset holders. It also puts pressure on those seeking homes and those just entering the market. Builders and buyers are adjusting their demand curves and the market will surely adjust. For the time being, the housing market is strong.

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