Home Prices Are FALLING, Mortgage Rates Are RISING

Money Guy Show

The episode explores the shifting dynamics of the U.S. housing market, specifically focusing on the rare phenomenon where new home prices are

Key takeaways

• New home median sales prices have dropped to approximately $411,000, which is currently lower than the $429,000 median for existing homes.
• U.S. home sellers now outnumber buyers by over 560,000, marking a significant shift toward a buyer's market.

Main topics

• Housing Market Trends
• Home Affordability

Notable quotes

New home prices... are actually less than existing home prices.

Conclusion

The episode serves as a guide for navigating a volatile real estate ma

Transcript preview

Speaker 3 (0:06) Mortgage rates are up. Home prices are down. What do you need to know? Brent, I am so excited about this because I think, I think this is going to be a little glimmer of hope for a lot of people that have been overwhelmed and disheartened and frustrated with how difficult it has been to get on the home ownership side of the housing equation. Before Speaker 2 (0:29) we get into this important stuff, I do think it's important that we make sure we remind everybody. Guys, we're doing our millionaire survey right now. Make sure you get in there. We only have, what, another week left on this. So go check it out. And what's the website on that, Reeves? Moneyguy Speaker 1 (0:45) .com slash survey. That's right. Moneyguy.com slash Speaker 2 (0:48) survey. Speaker 3 (0:49) Now, let's jump Speaker 2 (0:50) into what I think is really worth talking about. Bo, there is a slide that just blows my mind. If we could pull that up. Look at this, guys. You know, forever. It has seemed like, and this makes common sense to me, is that new homes typically cost more than existing homes. Because, you know, when you buy a new home, you know, hey, nobody's poured grease down this sink. You know, it's seriously. Nobody's dog has gone over here and peed on this Speaker 3 (1:20) carpet in this corner right here. There are definitely Speaker 2 (1:22) things about the way, and historically, we are willing to pay a premium. for that new house. But I want you to see something here. Look on this chart and you'll see here in the last few months, now, because of how bad the real estate market is, and we'll get into why this market is so bad, home builders have realized, hey, we either need to start giving incentives, not only on the interest rates, but we need to start dropping prices so we can move inventory. And you have this weird dynamic now where new home prices... are actually less than existing home prices. So you're trying to figure out what does this mean? Speaker 3 (2:03) Yeah, if you're curious, the median sales for existing homes has dropped now to $429,000. And the median sales price for new homes is down just under about $411,000. So if you look at the numbers, new home prices have dropped about 15 % over the past four years. So we've seen... Sort of a steady, albeit not incredibly fast, but somewhat steady decline. And according to Realtor, the national median asking price fell for the 10th consecutive month in August. So we've seen a month after month after month after month of houses beginning to fall, of houses beginning to go down. Now, I don't want to overstate this because housing is still expensive and it's still difficult. It's not like we're... in a moment where all of a sudden housing affordability is way, way, way, way up. But I do think these are glimmers of hope. I do think that these are things that if you are in the market or you are someone who's thinking about buying, thinking about doing this, that your ears should perhaps be perking up because maybe there are some things that you should begin paying attention to. Speaker 2 (3:05) Well, Speaker 3 (3:05) and Speaker 2 (3:05) also a lot of you might be looking at this chart in just as much awe as me and you go, does this just mean that we're in this new paradigm where existing home prices are going to be more than new? No, we're just in a place where I think that there is a, and we're going to get into this in a minute, there's a lot of reluctance for your sellers. to adjust to the new norm of what's going on, the reality of the world. And we're going to give you all the answers so you know what to do to really take advantage of this marketplace as much as you can. So Speaker 3 (3:39) let's talk about what's actually driving home prices right now. What's the thing that's causing them to move? And number one, we think, is that there's actually a growing inventory of homes available in the market across the country. We're starting to now see... that inventory began to catch up with demand that existed as a lot of people were beginning to relocate after COVID, after the pandemic. And it's been this game of catch up that's now finally starting to get there. Speaker 2 (4:09) Well, we had all these huge, huge relocations. We had all these, you know, a lot of home building got stagnated in a lot of ways to not keep up with demand. So you got to a point that in 2022. We got to home inventories were less than 400,000. Now, as of August of 2026, there are now more than 1.14 million active listings. And I'm not saying that we have a, like, inventory is at all-time highs from, like, if you go look at all history, but it is definitely you've seen where we started catching up. in a lot of ways. And you're starting to see that impact pricing. And Speaker 3 (4:48) interestingly, U.S. home sellers now outnumber buyers by a little over 560,000. And that's a 58 % gap. It's very, very different than we have seen in recent memory. So I think it would not be too bold or too aggressive to say that if you're going to name the type of market this is right now in the moment that we are in presently. I think even with expensive homes, I think it's a buyer's market right now. Speaker 2 (5:18) Yeah, definitely a buyer's market, but with an asterisk on it. But I do, before we move on, because I just, I like everybody taking the, breathe in deep the history of what you're looking at, because when you see charts like this, this is what I've been telling you guys is that A lot of times we have what's called recency bias. We go through a market dynamic and we just assume what happened last year will happen again. But we've gone through some crazy historic stuff. And sometimes you get so numb to just how big these movements are. Look at what happened pandemic from 2020 to 2023. Do you see the spike of buyers? I mean, the separation from sellers to buyers. No wonder most people's homes appreciate greater than 50 % is because you just got a distortion in the marketplace. Well, because of that distortion, I feel like, and we still don't know where this all goes, but you can see we're getting back to the healing process. Look at the number of sellers versus buyers. This is going to take a period of time to work through the system when you have. crazy distortions like this. Speaker 3 (6:25) Yeah, we're talking about, okay, what are the things, what are the things impacting home prices right now? I think the second one is stubbornly high interest rates are creating an environment where sellers are not as easily able to sell their homes as they have been since hitting historic lows in 2022. Mortgage rates have now climbed and are pushing close to 7 % for a 30-year fixed mortgage. 7 % is not historically a low mortgage rate for home buyers. Well, look, Speaker 2 (6:59) this is the thing. I think a lot of us out there are pretty frustrated. You've got the 7 % mortgage rate, but you also have the crazy high prices. I mean, because even on that earlier chart, existing home prices, you're like, crud. I mean, this is just yuck. I mean, you have to hold your nose. whichever way you're going with this transaction because of just the high interest rates plus what's going on with pricing. It's just not great. Speaker 3 (7:29) It's crushed affordability. And as a result now, homes are sitting for longer, currently around 60 days, and pending home sales are at some of their lowest levels in history. In July, pending home sales of existing homes dropped to the second lowest mark on record. So right now, again, this is... something where sellers are having a harder time selling their homes, I think is creating an environment for buyers that are positioned well to likely be able to capitalize on Speaker 2 (7:59) that. And you said it, and I think it's worth an echo because it is the third reason, is that home affordability, it just stinks. I mean, and look, usually when we try to do these Q &A shows, I always like to have one shock and awe stat to show you guys. If we can find a really good chart to kind of give you a teachable moment out of, This one is such a dynamic topic that I feel like every one of these three points has a chart that you're just like, how does your jaw not hit the floor when you see this? And the next one is just the housing affordability. If you look at what the Federal Reserve, they track this. And if you look at what the median income is, and really, if you're thinking about in terms of affordability, is it greater than 30 % of your median income or is it less than 30 %? If it's less, then 30 % compared to median income, then it's somewhat of an affordable period. And you can see that all the way from really 2009 to the beginning of the pandemic. I mean, fairly aligned. You could say, hey, affordability of housing was in a pretty good place. But then post-pandemic, really from 2021 on that 2022 spike, you can see now we've got separation to where it's a percentage of income. Housing affordability, it's in the cellar. It stinks. Speaker 3 (9:18) And as a result, there are fewer first-time homebuyers right now than ever before. The ones who end up buying a home are taking a lot longer to do it. When you look at the numbers, again, this is according to the National Association of Realtors, the typical age of a first-time homebuyer, not just a home purchaser, but one buying their very first home, has climbed to a high. of 40 years old. So there are less people able to move on homes and they're having to wait longer to do it because affordability is so difficult right now. Speaker 2 (9:52) So let's bring this all together. What does this all mean? And look, we live in a society now where our media is always trying to put us on high alert because they know that they get your ears, they get your eyes. So, you know, the easy thing to say is, oh my God, this is going to be something that is going to be. a situation where housing prices are going to get crushed. Everybody's going to lose 20, 30 % overnight, but I'm here to tell you, I think it's much more nuanced than that. Yes, this is a buyer's market. I stand by that fact that we shared earlier. But you just need to know the nature of real estate by itself. It's not a fast-moving marketplace. It's not like the stock market where we're used to what's called V-shaped recoveries, meaning that markets get overheated, they get crushed, you get into bear market status, and then you get that V-shaped recovery where it comes up. Real estate is... so much slower moving is because a lot of people are going to be anchored to their prices. I mean, because think of how many people, we see content all the time where people are like, I'm a millionaire. And you're like, okay, you're a millionaire. How are you a millionaire? And they say, well, look at my equity in my house. Speaker 3 (11:05) I bought Speaker 2 (11:05) my Speaker 3 (11:05) house Speaker 2 (11:06) in 2020. You're like, are you a millionaire? Because, you know, just because on paper, your house, you bought it for five, $600,000, and now it's worth a million dollars. Yes, on paper, you have a lot of equity. But, you know, I got caught in this. And this is why education sometimes can be very expensive for people is because I got caught up in this, too. You know, pre-2000, I had a house that on paper was worth a lot of money. And then I had a home equity line instead of cash reserves. I was like, I'm loaded. Got it all, yeah. And then we saw trees don't grow to heaven. And all the adages that God didn't make any more land, so real estate's always going to go up. We have learned that that might not be the case, especially when you have a distortion in the marketplace. But what I'm here to tell you is that. We are in an adjustment period right now, but it doesn't mean that you have to get in a hurry to find your answer. I do think that now let's break this into segments. Let's talk about sellers. Look, if you're trying to sell a house in this market right now, you better be honest with looking at what that house is worth. Because if you're anchored to what Zillow told you a year and a half ago, you're probably going to have your heart broken a little bit. I have this going on even in my own neighborhood is because a house across the street that had a home gym, swimming pool, golf simulator, it went under market, went under contract like that. But a person up the street who has a bigger home was thinking, oh my gosh, I'm going to make a gazillion dollars because this house sold and their house has been sitting for weeks on weeks going on months. Because they just assume that all houses are going to be stabbed up. No, it's going to matter. Your location is going to matter, the type of house, the features, all those things matter. So if you're a seller, you better sharpen the pencil, make sure it's a really good price and it's with the market. Because this is not one where you just say, let's see if we can get it. If you're a buyer, don't get in a hurry. You don't have to. I think that a lot of this, you know, look, I know a person that you all know, we trade techs. He's doing an upgrade right now. If you're a person that's looking at, you've been sitting on the sidelines, you have lots of capital, probably not a bad time to upgrade or start looking at the marketplace with all this inventory. If you're looking to build and you have capital, you know, lumber costs are in the cellar right now. It's because there's so little demand on these type of things. You're starting to see that price impact, but don't feel like you have to get in a hurry. I feel like so many things in the news cycle is like react, get scared. No, this is going to be a slow correction process, but you can start choosing your shots. You can start looking and paying attention, but you're going to have to measure twice, cut once, because the math is still going to stink because of these high interest rates. Speaker 3 (13:56) And if you are someone who is a buyer, if that is the side of the equation you're on, we want you to make that decision. Take a little bit longer. Maybe it's the... slower market gives you a better choice to do the analysis. And we've got tools available for you. You can go out to moneyguy.com slash resources and check out our home buying calculators. That way you can make sure, okay, is this home that I'm buying, even though rates are still high, even though prices are still elevated, maybe they've come down a touch, but still elevated. Am I going to make sure that I'm buying a house that's going to make sense for me long-term and I'm not going to get myself in a situation where I'm. house rich and life poor. Go check out the calculator and make sure you're doing that. And when you buy a home, make sure you subscribe to our 3-5-25 rule where we want you to put, if it's your very first time home, you don't have to put 3 % down. You don't have to put 20 % down so long as you're going to be in that home for at least five years and your total housing expenses don't exceed 25 % of your gross income. If you can follow those rules and stay inside those confines. It'll prevent you from getting too far out Speaker 2 (15:02) over your skis. During this big run-up in housing, when we had low inventory numbers, it was not uncommon. You had to make yourself stand out in the marketplace. You were waiving inspections. You were waiving appraisals. I'm so happy we're back to, it's not normal. This is still a weird, distorted market. But at least the common sense that you have the time. That's what I'm telling you. You don't have to get in a hurry. necessarily, because now you can go do the full inspections, go make sure that this house is not covered in mold, has water issues, has termites, do all the things to protect yourself, because this is a big, big purchase. But then also, you now have the privilege or luxury or opportunity that appraisals will matter again, especially with what's going on. So make sure you're building all that into your due diligence period. You don't have to get in a hurry and waive your rights or waive your, you know, all the things that typically go in this transaction is because this is such a big thing. Slow down, make the right decision, use our calculators, go to our checklist, go to moneyguy.com slash resources. Because a lot of you, I remember the first time I showed up for the first house I ever bought. I showed up with a checkbook and I'll never forget that real estate agent. He looked across the table and he was like, did you bring, we don't have funds for the closing. I was like, I got a checkbook. He's like, I'm sure he was thinking, bless his heart. Because this is all the things. If you don't know what you don't know, we're going to try to load you up so you can make this complicated decision. with at least the knowledge to make the variables work in your favor, because I'd rather you be an educated consumer instead of just letting it happen to you. Because that's like most things in life. The more you know about the process, the more you know about the transaction, the better and more empowered you will be. I love that. Speaker 3 (16:57) The more Speaker 2 (16:58) you Speaker 3 (16:59) know about the more you don't know, the more empowered you can be. It's why. We love that we get to do this. It's why every single Tuesday at 10 a.m., we get to sit in these chairs and answer questions that you care about. Speak to the things that you're curious about. So if you have a question you want to get our take on, we have a team out in the wings collecting your questions right now. So make sure you get them in the chat so that we can help you not know less things that you don't know about. Speaker 2 (17:28) I was trying to figure out if it was a circular reference when you said, know the things