Summary of "This Housing Correction Could Last Years"

Summary of “This Housing Correction Could Last Years”

Presenter: Dave Meyer (On the Market)

Key Topics Covered

Definition and distinction between a housing correction and a crash
Current state of the U.S. housing market with regional and price-tier breakdowns
Macroeconomic context: inflation, mortgage rates, affordability, business cycle phases
Investment strategies and risk management during a correction
Outlook on duration of the correction and future price expectations

Finance-Specific Content

1. Correction vs. Crash in Housing Market

Crash: Rapid, widespread price declines of at least 10-15% nominally within a short period (e.g., 2008-2009 crash saw ~20% drop).
Correction: Slower, modest price declines or flat growth, typically 3-10% over several quarters or years, representing normalization after overvaluation.
Housing market crashes are rare; only one major crash in 100+ years (2006-2009).
Current market is in a correction, a normal business cycle phase following a peak.

2. Current Market Data and Regional Trends

Nominal home prices (not inflation-adjusted) are slightly up (~1.7-2% YTD), per Case-Shiller, Redfin; Zillow shows near flat.
Real home prices (inflation-adjusted) are down approximately 1% due to inflation (~3% inflation rate).
Widespread cooling in almost all regions:
Strongest markets (Midwest, Northeast: Detroit, Milwaukee, Rochester, Hartford) still show modest positive nominal growth (~3-4%), but real returns are near zero or slightly positive (~1%).
Major markets in Florida, Texas, California, Arizona, Colorado, Washington, Oregon are flat or negative nominally.
Price tier breakdown:
Upper-priced homes: nominal growth slowed from 5% to 6% year-over-year.
Mid-priced homes: down from 4.7% to 2%.
Low-priced homes: declined from 4.5% to negative 1%.

3. Macroeconomic Context

Mortgage rates remain elevated (~6.35%), down from ~7.15% at start of year, but still high enough to limit affordability.
Affordability is at a 40-year low, driving the correction.
Business cycle phases explained: Expansion → Peak → Correction → Bottom.
Correction’s role: restore affordability through price declines, wage growth, or mortgage rate reductions.
Inventory is rising (~20-25% year-over-year increase in active listings; 8-10% increase in new listings), but no flood of inventory or forced selling.
Foreclosures and delinquencies remain low; slight upticks in FHA and VA loans (15% of market), but no systemic risk.
Sellers are reluctant to list properties amid falling prices, which limits inventory growth and supports market stability.

4. Risk Management and Investment Strategy

Assume flat nominal home price appreciation and flat rent growth for 2025 and near term.
Focus on precision in acquisitions: buy only the best deals in great locations at great prices.
Prioritize assets that cash flow well to hold through the correction.
Increased inventory means more choice and potentially better cash flow deals.
Avoid panic selling; paper losses are normal in corrections and only realized upon sale.
Hold quality assets to benefit from eventual market recovery.
Expect a “Great Stall” lasting several years, with real home prices stagnant or declining before growth resumes.

5. Outlook and Timeline

Real home prices peaked in 2022 (~38 months ago).
Historical data suggests it can take 5-9 years or more for real home prices to recover after rapid appreciation periods like COVID.
Mortgage rates likely to stay in the mid-to-high 6% range for at least 6 months, barring aggressive Fed intervention (e.g., buying mortgage-backed securities).
Wages may rise, but uncertainty remains (e.g., impact of AI on jobs).
Low probability of crash unless unemployment spikes or mortgage rates rise sharply again.
Next episode will feature a panel with James Dard, Henry Washington, and Kathy Fecky to discuss tactical responses for buyers and sellers.

Explicit Recommendations & Cautions

Do not panic; correction is normal and healthy for market.
Prepare for flat or slightly declining real prices for the next few years.
Be precise and patient with acquisitions; focus on deals that cash flow.
Avoid selling quality assets out of fear of paper losses.
Monitor mortgage rates, inflation, and unemployment as key risk factors.
Understand nominal vs. real price dynamics for realistic investment expectations.

Disclaimers

This summary is not financial advice. The presenter shares personal views and data-driven probabilities. Market timing is difficult; scenarios could change with macroeconomic shifts. Individual investment decisions should consider personal circumstances and risk tolerance.

Presenter: Dave Meyer, On the Market