Morning Brief: Red hot housing market could slow down the economy
Crack in the housing market are starting to show, likely to dent U.S. gross domestic product in the current quarter. Yahoo Finance's Myles Udland discusses.
Video transcript
JULIE HYMAN: But, first, we start with the Morning Brief and looking at the dynamics of the housing market, where we have seen a little bit of rockiness in recent months. Most recently, this-- over the past couple of weeks, we've gotten housing starts numbers. We've got existing home sales numbers.
We've got new home sales numbers that have all fallen a little bit short of expectations. And here, Myles, it does seem like in some ways that the sort of inflation or supply demand thing is sort of correcting itself. But at the same time, it's also providing a drag on growth.
MYLES UDLAND: Yeah, I mean, you know, Ian Jefferson writing about this week's housing data said that it's an accident waiting to happen. And so after yesterday's new home sales data, which showed new homes-- the number of new homes sold was the fewest in exactly one year, as we see here, the annualized pace of new home sales coming in at 769,000, significantly below what Wall Street had expected. We continue to see that these imbalances, which we've written about not only in the housing market, across the economy, but obviously housing is something that everybody is passionate about because everybody has a housing situation that they care about.
We've really started to see the-- the gears grind a lot more slowly. Inventory now in the new home market is up to five months of inventory. That's about six additional weeks of inventory, relative to what we saw just a couple of months ago.
And while the rising home price story, I think, has so many people saying, oh, bubble this, bubble that, I mean, it's-- it's clearly a negative on the market in terms of being able to get deals done. And I think buyers are both being priced out and also realizing that these homes are not worth what are being demanded right now, and that there might be a way to potentially wait for a better deal, right? What's the old saw?
The solution to high prices is high prices. And we've written previously about some economists looking for a buyer's strike in the market. And the existing home sales data we got this week, the new home sales data we got this week, shows that while there's a very strong backlog, transactions getting done now are really starting to slow down.
Now in response to this data, the team over at Goldman Sachs lowered their second-quarter GDP forecast by 25 basis points, not a huge move. It's not-- they're not taking a percentage off how fast they think the economy grew. But this is starting to have an impact on-- on where the economy goes. And I think what this cycle really looks like and how intransitory or not these-- these pressures are.
And so, you know, the "Journal" also out with a great story today on one of these under-the-surface dynamics that we don't talk too much about because it's really in the weeds of housing but, you know, this imbalance on appraised value versus sale value. If your home is appraised at less than what you agreed to buy it for, you've got to make up the difference. That's a lot of cash in a lot of cases and is, in general, why people don't buy homes for significantly more than the appraised value.
But that's the kind of stuff we saw come into the market. And those kinds of crazy things, you know, waving your mortgage contingency, waving inspections, which has been out there, that stuff doesn't last. You don't have years of people waving inspections.
That's crazy stuff. That's desperate stuff. And I think this market is starting to right size here. But the upshot is that it's going to likely slowdown that second-quarter GDP number.
BRIAN SOZZI: Myles, you're a recent homeowner. I'm really interested to get inside your head about inflation. Do you feel inflation when you go out and buy lumber, grass seed, any other equipment for your house? What are you seeing out there?
MYLES UDLAND: I have no idea what it costs before now. So all I know is that the inflation is all my money is gone. That's it. You buy a house, and all-- all the money is gone.
Every week, there's another $1,000 here, $1,000 there. I mean, the plumbing this, we've got to do the gutters. We did the floors. We did a bunch of electrical work.
The lawn mower just broke. I couldn't get the guy-- my neighbor has a lawn mower guy. I asked him if he could do the yard yesterday because my grass looks ridiculous right now because my mower broke and I can't get it fixed. He said he can't, doesn't have enough staff.
BRIAN SOZZI: Labor shortage.
MYLES UDLAND: It's a labor shortage story. I mean, it's ridiculous.
BRIAN SOZZI: The Fed will fix it. The Fed will fix it, Myles.
MYLES UDLAND: All I'll say about inflation is, to me, it feels like inflation is 100% because my costs are probably more than double what they were last year. And Lord hopes the bleeding stops eventually but look what I've gotten myself into. I've only got another 29 years and nine months to go, and then I can own the whole house.
JULIE HYMAN: You know, I might have to drive my mower over to you, Myles, and-- and do the lawn for you. As you guys know, my inflation indicator is the farmer's market, and we definitely have seen upticks there. One other thing I want to mention about all of this, Myles, is that one of the arguments about inflation or one of the signals perhaps that inflation is not transitory is when people buy something because they think prices are going to keep going up.
And they say, well, I have to buy now because it's going to be more expensive a month or two months or six months from now. And so clearly, that's not happening in this case. People are actually now, it looks like, waiting because they think that the prices are going to come down, or they're hoping the price is going to go down. So that's-- that to me would seem to be an indication that indeed inflation's going to be transitory or that at least that consumer expectations are that inflation's going to be transitory, right?
MYLES UDLAND: Yeah, I mean, look, economists love inflation expectations. But like inflation expectations, OK, they want them to be anchored and all these kinds of things. But inflation expectations, if you go ask some people how much you think prices are going to go up and they throw a number at you, and so we get 2% and some odd inflation expectations. And then everyone says, oh, it's anchored. It's so great.
I mean, to me, Julia, it comes down to-- when you think about the transitory conversation-- what has been driving higher inflation? It's been used cars, which are in short supply and high demand because we're reopening after the pandemic. It's been airfares because people are now traveling for the first time. It's where you're staying on that vacation, and it's where you're living, you know, if you're buying a new home because people are moving as a result of the pandemic.
All four of those things, to me, are very clearly going to change over the next year in terms of not facing this one time reopening pressure. That, to me, is the simple case on transitory inflation. All this other stuff, I think, is kind of a conversation for all time, how much stuff costs at Home Depot and at the gas-- you know, at the gas station, at the grocery store.
People are going to complain about that stuff going up in price forever. And that's-- no one's ever going to say, I love the grocery store. Prices have been very stable there, right? Everyone always notices when things change.
The things that are driving inflation, to me, are very clearly pandemic related, reopening, trades, housing a part of it. But as Brian Cheung so eloquently outlined for us, no one can be so sure that any one thing is or isn't going to happen. And certainly the Fed is not viewing it that way.
BRIAN SOZZI: Myles, are you-- are you an electric mower or gas mower guy?
MYLES UDLAND: Gas, got to be gas. That's--
JULIE HYMAN: I have an electric mower. We've been very happy with it.
MYLES UDLAND: It's one of these-- the back two wheels are the self-propulsion thing, and there's something wrong with the chain. And the guy can't get it fixed. The other problem as well is that I'm using actually my father's mower. So I don't even have my own gear, so I'm actually on Tractor Supply right now seeing if I can get something shipped.
But I'm leaving for a long weekend in about two hours. So even if I get it sent here, I'm not going to get it used. So I'm going to be the embarrassing house over the weekend here. No one look. No one look at the yard.
JULIE HYMAN: And that, ladies and gentlemen, is much more about the long saga of Myles Udland than anyone ever thought they needed to know, and yet we did.
