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Welcome to the Deerwood Realty Show. I'm John Schink, founder and managing broker of Deerwood Realty in St. Louis, Missouri. How are you this evening? We have numbers that have come out indicating that pending home sales have plummeted—the worst since the flu a few years back. I avoid saying the exact event because YouTube will automatically downvote my video if I do. It's still an issue in 2024, which is bizarre.

Anyway, I wanted to go over the report with you. Should you be worried? It depends on who you are, right? Let's get to it. So, I saw it on the New York Post, and just to note, the same article can be found pretty much everywhere online. The National Association of Realtors puts out a press release, okay? And then all these writers come out for all these papers, and they just basically take what the press release says, change it up a little, and put it out there. So, I don't really feel like I'm going to get in trouble for copyright infringement on this because it's literally the same article everywhere.

But let's get to it. It says, "Contract signings for U.S. home purchases fell by the most in 3 years in April as the overall level of activity was the lowest since the onset of the big flu in the spring of 2020. High interest rates kept a lid on the housing market," the National Association of Realtors said Thursday. Now, blaming high interest rates is funny to me. And the reason why it's funny is because it's not necessarily the rates—it's the price of housing, okay? Which is inflation. I mean, if that hadn't happened, which was caused by interest rates being artificially low, it's like you're okay with them being low, but if they're high, it's bad, right? You caused inflation by the low rates, but now it's bad because they're high. It's just, it's ridiculous.

Anyway, it says, "The National Association of Realtors said its pending home sales index fell 7.7% in April to 72.3% from an upwardly revised 78.3 reading in March." So, I mean, is this a monster collapse? No. Did it plummet? Yes. It wasn't really expected, which is weird because, I mean, you can just kind of look out there if you've been listing homes, and you can kind of tell things are a little bit off, at least here recently. The drop was the largest since February of 2021, and the index level was the lowest since the record low reading of 71.8 in April of 2020. Now, so the lowest of the low was 71.8, and we ended up at 72.3. What happens if we get below pre-flu levels? I mean, it's pretty awful out there.

I showed a house this evening, and what used to have like showings booked all the way through the weekend, I couldn't even get one. There were maybe six or seven showings on a house that wasn't priced stupid, which is unusual because most of the time, you go, and people are just unreasonable with their pricing. They're still in this thought that things are rosy. It says the index is meant to be predictive of completed home sale transactions one to two months later. So this is like an early indicator, predictive. It's not good. That's going to look really bad later, if that's the case.

The impact of escalating market rates throughout April dampened home buying even with more inventory on the market, said Lawrence Yun, the National Association of Realtors' Chief Economist. Now, he's also the biggest cheerleader of housing I've ever seen. I mean, he'll take the worst numbers and say, "Well, they're the most awful numbers ever, but we expect things to get better," as if you would expect them to get worse. Anyway, the Federal Reserve's anticipated rate cut later this year should lead to better conditions with improved affordability and more supply. So he's pinning this specifically on the rate cut. Now, the first rate cut, if there is one, is going to be like a quarter of a point. So you think that that's going to spur the housing market into action? And if it does spur the housing market into action, won't that just inflate the cost of the price of housing even more? I really think they haven't thought this through.

Just saying, the impact of escalating interest rates throughout April dampened home buying even with more inventory on the market. Well, in theory, if there's more inventory on the market, the prices should go down. But also, they're saying that there's so little inventory at all, the prices can't possibly go down because of reasons.

It says, "The Fed raised interest

rates by 5.25 percentage points since March of 2020 to combat inflation. How's that working out? Have you been to the grocery store lately? Have you been to a restaurant? You know, for two people, I managed to spend $60 yesterday at a restaurant, and it used to be like $40, maybe $30."

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Even anyway, so that hasn't worked. Rates have been on hold since last July, and the year began with expectations for as many as three quarter-percentage rate cuts this year, but stiffer than expected inflation to start the year has changed the Fed's tone.

But like, when you're cheering for rate cuts, I just want to make sure you understand what's actually happening. The reason why you're getting rate cuts is because the economy is tanking, and they're doing their best to keep it afloat. So, do you really always want a rate cut? By the way, of a quarter point, it's not like it's a huge amount.

It says, "Bond market pricing now reflects the likelihood of no more than two rate cuts this year."

It's a mess. It's a mess. This is a mess they've created. A massive housing crisis couldn't come at a worst time for most people. We'll get into some intergenerational stories soon, probably this week.

I did have some questions I wanted to go over with you. I got to pull them up. Here we go: What are the primary economic factors contributing to the recent decline in pending home sales, and how do they compare to the initial flu period? Well, we went over that, right? It's inflation and affordability, or affordability really got thrown in the trash due to the inflated housing prices due to what people said was a lack of supply, which probably wasn't due to the fact that people are buying houses and turning them into Airbnbs, which pencil out much better. It's really a disaster. Don't know how it's going to end, but it's probably not good for someone, whoever's holding the bag.

How might the current trend of rising mortgage rates influence the housing market in both the short and long term? Well, I think, and I'll be honest with you, I think that the Fed should have been raising rates earlier, much, much earlier. And I say that based on my experience in the housing market representing buyers. I mean, at Christmas time of like 2020, houses were flying off the market, and it was like, "Hey, this isn't good. This is going to cause inflation. You're keeping the rates too low for too long. You really need to make a pivot." And then, even when they did pivot, it didn't really make the impact that most thought it would. Who would pay 7% on a mortgage when they've been paying two and 3%? Turns out, a lot of people.

In the long term, here's the Fed's problem. The longer they hold the rates up, okay, the worse it gets for us, paying back our debt. Okay, the more expensive it is. Now, modern monetary theory, my understanding is we can just print more money forever. I don't agree with modern monetary policy. I think that that's absolutely ridiculous, and it's designed, it's just going to cause more inflation, which I don't see how they're going to stop unless they keep the rates high. But they also have to, in addition to keeping the rates high, they also have to stop spending like drunken sailors. They're not going to do that, though. And I say they, I mean the government. They just love to pass out money to everyone but you and me, unless it's through the form of a loan.

A loan, anyway. In what way are regional variations impacting the overall decline in the pending home sales, and why might certain areas be more affected than others? Well, I've said for quite some time, the boom in areas—the Austin, Texas, Florida, Miami has got to be just a mess right now, Phoenix—those places where there was a lot of iBuying, those places are probably going to get hurt, or they are hurting now. And so that is the regional variations. Here in the Midwest, it took them a while to get here, the iBuyers. And in St. Louis, it's a very odd market. If you weren't from here and you didn't have a good grasp of what was going on in the marketplace, you're probably still hired by some of these idiots running the iBuying programs and just making a mess of it. So, anyway, I expect regional differences to play out for a long time. I don't think we're going to get hit as bad in St. Louis as somebody would get hit in Texas.

What strategies can potential home buyers and sellers employ to navigate the current real estate market conditions effectively? Well, this is a very easy answer.

If you are a seller, you're likely up more than 40% over the past three years on your asking price after doing nothing. Okay, why don't you come to market at maybe 35% instead of 45%? Actually, cut your price down a little bit, so that when people walk through their house, they're thinking they're getting a deal based on everything they've seen over the past 6 months. I suspect you'll sell your house quickly and efficiently, even in this market. Now, if you're a buyer, what are you looking for? You're looking for a home that you can live in for at least 5 to 10 years and be comfortable. And this was true before the flu, and this always will be true. The longer you live in the house, the better chance you have of it not eating into your financial future in a negative way. But you know, I get it. People have jobs, people get divorced, people die, people have kids, and they need a bigger place. I mean, there's all kinds of reasons that make sense to buy a home and not stay in it forever. But those are the two ways to not have that problem affect you.

And then, number five, how do current challenges in the housing market reflect broader economic trends, and what potential policy changes could help mitigate these issues? Well, the Fed has an inflation problem. And the Fed has an inflation problem one because they don't believe in more of an Austrian economist perspective. And, you know, they also don't control Congress that spends, so they're in a spot, okay? And there's all this debt. So now, we're just going to start repaying the debt, or we're going to start paying off the debt at a higher rate, which is terrible. But look, we have not seen the inflation in energy prices yet, but the Strategic Petroleum Reserve has been drained to a terrible level and not refilled. There's one in the Northeast that's also being drained now, at this point. So, I expect energy prices to go higher over time, which will also contribute to inflation, and that's the worst kind of inflation because, you know, if you're driving across the country and diesel fuel costs three times more, that could be a problem. That could be a problem to the food supply as far as getting affordable prices to people, and it could be bad. So, what policy changes could help mitigate these issues? Well, if the government would stop spending, just stop spending, okay, that'd be number one. Number two, we could not incentivize buying third, second, third, fourth, fifth, 10th houses on a regular owner-occupant mortgage. That would be good. We could ban Wall Street from buying single-family homes. That's probably good as well. So, there are many policy changes we could try. One that's not a good idea is the one that's been proposed by the president, which is giving all new first-time home buyers a $110,000 grant. That's just terrible. That's just going to cause more demand, which is bad right now because what's happening is families are competing against investors, and the investors are easily dominating because they're more sophisticated.

I don't know. I just wanted to bring that to you. I think home prices going down is one of those odd things where if you're a seller, you're sad, and if you're a buyer, you're happy, but it hasn't gone down enough for most buyers to be happy, especially with the run-up in prices we've seen over the past years.

With that, I'm going to head on out. Thank you for watching. Thank you for listening. And I'll catch you on the next one.