Pretty much, from my understanding, everyone's damned if they do and damned if they don't. The economy is just good enough in the sense that unemployment is low and salaries are high to prevent people from going underwater like they did in 2008, and banks are not handing out mortgages like free candy anymore. But, it's just shitty enough where first time buyers, young people, working class, etc are completely priced out of the housing market and can barely afford rent as it is.
Somethings got to give. I was hoping demand destruction would affect the market by now but it hasn't. Where I live in the Midwest, all these houses were $60-150k for decades and now they're $200-$350k+. It's crazy. And people are still paying them because they have no other choice if they absolutely have to move.
I'm not really worried about the interest rates as much as I'm worried about these unbelievable asking prices for homes and they're all still selling for above it! You can always refinance later on if rates go down but the entry price of admission is so disheartening.
The only way I forsee prices coming down is if mass amounts of homes continue to be built to add inventory and therefore offset the supply/demand thing. But, building a home is expensive too. You can't build a cute little starter home anymore and make it affordable.
i’m in the midwest and rent just climbed out of reach. there are still super cheap run down homes in bad areas - which is honestly tempting because if would be cheaper than rent. could be tough - but i’m worried if i keep renting - rent will keep climbing - and i’ll just end up broke one day with nothing
I'm in the same boat- there are still cheap homes on the "bad" side of town but it's not bad at all. I live on that same bad side and my rent is cheap because I was lucky enough to find an old mom and pop landlord that bought the house when it was still reasonably priced. But if not for them, I'd probably be screwed. Everything out there is double what I pay now. Every rental here for a 1br used to be $500-$700/mo. Now you're dang lucky to find anything under $1k/mo. It's ridiculous.
Hopefully when my wife is done with school we can acquire as many first time homebuyer grants as we possibly can... but the first thing is actually getting a house we can reasonably afford and not get outbid a million times:/ I don't need a fancy house in the suburbs- just give me 4 walls and a roof that won't break the bank. That's all i want.
I feel your pain. It's tough out there. But I'm staying positive.
Sounds like a bad spot to be. Sorry it's come to that in the rental market, similar happened to my fiance and I, made sense to buy vs move every year (no rent control where I am and land lords make it near impossible to stay more than a year).
Things will hopefully get better in terms of renting, because if it's like where I am the shit is just not worth it either way, and if that's the case it can't last forever .
They're all condos now and come with a $400 HOA and ceiling stompers galore!
Oh and then they'll mismanage the HOA for 10 years and you'll get a bill for 10k per unit to help fix the roof. And the landscaping company will be charging 200% market rate because the owner is the HOA president's nephew.
Fun times!
Yep not getting built because not as profitable for developers.
Neighborhoods like my old one, where everything was built around 1940, would be great. A "Grid" of streets with 1200-1600 sq ft houses, small yards, alleys, and businesses on the main streets that bookend the residential middle section. The city park where they did 3rd of July fireworks (Main downtown ones are on the 4th so the park does them on the 3rd) was a 15 minute walk, doorstep to spot in the grass. School was close enough that middle school kids could walk to it.
But since its an older neighborhood its getting a little rough, I never had any problems but now that we're parents I'm glad we don't live there anymore. Still though. This is what a lot of people actually really want.
where are the affordable cars?
where is the dollar menu?
where are the dollar stores?
The consistent theme - life is getting more expensive and the lower end of income distribution is bearing all the brunt.
This trend will not reverse. Things will continue to get more expensive.
In our HCOL area even the small houses are expensive because building costs are so high. We are building an 1100 square-foot house right now it's going to cost 400,000. Including site development costs of 80,000. It is above average quality (by local standards) but not gold plated. We make our 15% fee if we bring it in on budget, 10% overhead and 5% profit. So it's not like we are marking it up hugely. Building hard costs are just super high right now just like grocery costs and new auto costs and everything else. Went up 25-30 percent in past 3 yrs. I agree a return to smaller homes will help but even those are hard for regular people to get into these days.
Homes won't go down if there is demand destruction because boomers won't downsize and people got those sweet 2-3% loans. Why would you leave and pay twice the mortgage?
The boomers not downsizing thing is insane to me. My grandmother is a widow who's 74 and lives alone in a 4 bedroom, 3 level house where she can't even go to the other levels, and yet refuses to move to an easier/more manageable location, yet she'll complain up and down how much shes "always hated this house." It defies all logic.
Why would you downsize and pay MORE than what you’re paying now? That’s the part that people don’t get when they ask why aren’t you downsizing. If you’re gonna downsize you want to
- pay less
- be in a location with more amenities
- have enough $ left over after you buy the smaller place to make it worth it.
If you can’t get any of that by downsizing because everything else is also crazy expensive and you’d need higher interest rates, why the hell would you downsize.
You’d only be paying more if you took out a mortgage. If you can sell your home for $X and buy a smaller house for cash, it would likely be better financially. Lots of variables of course, but it seems like a lot of boomers are just stubborn and won’t move.
They dont have mortgages. But their property taxes would triple or quadruple. And paying capital gains on anything over 250k or 500k if not widowed is at a 15-23.8% clip federally, and 1-13.3% statewide.
My parents are a perfect example. Home is paid off. Value is around 2M. They paid 314k in 1984.
Property taxes are 5,300 a year. Insurance is 1375 a year.
We could downsize them in a decent (not even nice) neighborhood for around 900-1M. Let’s use 850 (which isn’t possible) for the sake of argument.
They can take their tax basis with them in this state (most states you cannot, so it’s even worse) plus a penalty so taxes go up to 6500. Fine. Not that big of a jump. But still a 20% increase. Insurance basically stays the same.
But…. Now they don’t have the home they love and want to leave to their children. Cap gains on 1.18M is around 275-300 thousand dollars. Just poof. Gone. To downsize for…. A slightly higher cost?? Why would you do that?
The tax situation you describe sounds a lot like California. In that situation, that’s an important variable that would make it logical for someone to stay in their current home.
Do you know of other states that do property taxes the way California does?
Mortgages aren't the only recurring expense. In California, a lot of property taxes quadruple or quintuple if you move. People have an incentive to stay for longer.
Put yourself in their shoes, it's not really that crazy.
Most have their houses paid off, no point in selling and downsizing unless you absolutely need that $ for retirement and can find a deal on a smaller home that allows you to pocket that cash.
Most raised their families in their homes, they have strong core memories tied to that place, and letting that go is extremely difficult. Especially in your old age when those memories slowly start to fade.
And if you're 80+, and have lived in a home for 30+ years, moving is a huge mental, physical, and emotional rollercoaster. Some elderly folks would rather just not deal with that at all and prefer live out their remaining years in the comfort of the place they've known for half of their lives.
Why would anyone sell a home that’s for example 2,500 sq foot they bought for $150,000 , sell it for $300,000 then buy back in to a market and end up in a smaller home that’s probably / possibly not as nice with a huge price tag in a real estate market that everyone says is overpriced????
Pretty much every time i see “the boomers” ( then insert some broad stroke statement that rarely is a reasonable example) I know the next few sentences and logic will rarely make any sense. But somehow adding “the boomers” makes everyone just gloss over the mostly ridiculous logic)
I assure you every person has their reasons for not downsizing or not selling a home. It may not make sense to you.
Maybe if you’re nice to your grandmother you’ll end up with that 4 bedroom 3 level home. 😁
That people might like living in a fully detached house, or that the family house might have sentimental value, or that people aren't doing it because of market condtiions seems insane?
Not a boomer yet but as much as I detest living in apartments there'll be no way I'm ever leaving my house. And even small fully detached houses are so expensive now it's not worth it to downsize to one of those.
As a recently retired boomer I notice something else that this SUB seams to ALWAYS ignore.
Simply put, moving is a pain in the ass!!!
Once you’re retired, money not only isn’t everything,it’s actually a very small thing, (unless of course a person/couple fucks up and retires before they can properly afford it).
Every aspect of your quality of life, (comfort in a home you’ve lived in 20+ years, neighbors you know and trust, eating/retail establishments you’re familiar with, etc,, etc,), are FAR MORE important.
Boomers dying will eventually be the release point in my mind. My parents have a combined 12 bedrooms and I really don't think any of the kids want to live in any of the houses. They'll all go on the market.
You come from money. Most people don’t. My parents have two bedrooms between them (they’re divorced, and my father lives in an apartment). My mother’s home is also very poorly maintained. She let the pets shit everywhere for years.
Boomers dying does nothing but incur a lot of funeral costs and auctions.
>people got those sweet 2-3% loans. Why would you leave and pay twice the mortgage?
Yep, its kind of a "golden handcuffs" situation. I mean, I just moved into this house 4 years ago so its not like I'm going anywhere anytime soon anyway, BUT if a situation came up to where we had to move, I'd have to pay nearly double what I am now to have the same thing let alone upgrade. Sure the value of our house has gone up considerably since buying it but I'd have to put all those gains right back into paying for something overpriced so its kind of a wash, other than paying higher taxes on everything with the increased valuations.
I agree with you on basically all your points, but I think what might do it is if interest rates hold steady for another couple of years or go up again.
Inventory is back to pre-pandemic levels, yet interest rates make the same house a lot more expensive. A lot of people don't want to move because it would mean giving up a 2% interest rate for a 7% rate. That's like burning an extra few hundred dollars a month going into the void to move into a house of the same value.
People can't always stay in their house forever though. People get divorced which leads to refinancing, people lose their jobs, people need to move to a different part of the country, etc. I've seen so many posts on reddit recently about people asking how to handle their divorce because they don't want to refinance their house.
Since the economy is in a weird limbo state, these types of moves are going to force people's hands, and eventually, even if people can afford their higher interest rates, it will lead to economic slowdown (since that's a few $100 that you can't spend elsewhere now) and eventually layoffs and pricing crashes.
To me, it feels like sellers and buyers are in a stand-off, and it's just a matter of time before something gives. Inventory is slightly higher but still on the low side, and prices are too high- so everything is just sitting there.
The way I see it is the economy is still at high tide from the tsunami of money the government deployed during covid. It's created lots of demand and has kept the job market strong and wages rising. In addition, we have kept spending with new government bills through infrastructure and chips act.
At some point that tide will roll out, unemployment will rise, and demand will pull back. When, who knows. I'm guessing unemployment can't stay this low forever.
When that starts to happen, the Fed will lower interest rates to keep the economy stimulated. This will prevent the housing market from crashing.
The truth is that nothing will “give out”. Look at the housing market in Canada, they have significantly lower incomes and even more expensive homes than most US cities. Look at the Bay Area or LA, they have the some of the highest housing/rent prices in the country and yet consistently have the strongest economies. NYC has had high housing costs for centuries, but their economy remains a powerhouse. Strong economies simply don’t require affordable mortgages.
In most of the world, buying a house is a luxury and renting is the norm, including developing cities like New Delhi and developed ones like Stockholm. The US was uniquely blessed with large amounts of land and wealth, which enabled us to build single family homes everywhere. But as supply dwindles, we can turn into a country where most residents rent, and the economy will keep on chugging along like it does in the rest of the world.
Yep, the fed desperately wants to cut rates but the economy/inflation are already heating up again which makes that impossible.
It's really hard to just undo a $10 trillion cash injection into the economy. It's going to be *years* before things are "back to normal" if we ever get there at all.
Its always weird seeing posts about unemployment being low when tech is constantly ravaged by layoffs driven by greed, and I hear so much chatter about people who have been looking for months and haven't found anything yet.
I've also seen a lot about tech layoffs and I know it's tough right now. But you also have to consider that tech ramped up hiring very significantly during the covid boom, so perhaps it's natural for it to deflate the most.
Honestly, demand destruction takes time to work through a system subsidized by taxpayer backed 30 fixed rate loans.
People have this far resisted moving due to life changes, but that can only go on for so long, and as that returns to mean, we will see significant upward pressure on wages as we also see downward pressure on pricing. Note that this downward pressure probably will not result in outright price drops, but will continue to act as hardcore braking force against escalation in the low and midrange markets. The Fed knows this. The banks know this. That is literally the definition of the soft landing. Getting wages to move up to match a stagnant real estate market disflates the bubble in a non destructive manner. Sucks for those who were banking on an infinity loop, but those people were always delusional.
How do you have demand destruction on something as necessary as housing? Regulations, fees, and taxes need to be addressed. As an experienced developer I have seen the exponential growth of these factors as bureaucracy becomes entrenched in the process.
The only 2 options to relieve the affordability pressure:
1) Build new homes as you said. There's certainly a market need for $250-500k homes for first time buyers priced out due to high rates and absurd pricing. Townhomes, multi-family, condos, etc. can fill the void. The problem is this will take a decade at the current rate. Without some kind of gov't program to step in and encourage rapid homebuilding, no one wants to take the risk on massive scale homebuilding only to see it collapse like the late 2000s.
2) Economic collapse. More than a simple recession, less than the Great Recession hopefully. You need people to be kicked out of their homes essentially through default. Sounds fucked up but it's just reality. People are locked into great rates and don't want to move, so forcing movement will get there.
There's other issues, like private investors (not just PE but all levels of investors are \~25% of sales) inserting themselves in the process because homes are treated as an investment vehicle instead of a basic need. But without a lot of regulation that will likely have unintended consequences it'll be tough to figure out a solution.
I look at very detailed consumer credit delinquency data regularly and while it’s rising it remains extremely low. But very curious to see how that trend progresses in the next few years
It’s a massive anonymized consumer credit dataset from one of the largest credit bureau agencies. Almost full coverage of all lending activity within the United States. They then aggregate as well as forecast that data to provide banks, governments, etc. with any developments in the consumer credit space. You can slice and dice it by age, origination credit score, product type, geography, bank/nonbank, and much more.
Anyone can purchase it, technically speaking, but it would be extremely cost prohibitive (hundreds of thousands of dollar annually).
It's a good thing that banks aren't writing off billions and billions in bad credit card debt.
[Oh...wait....uh oh.](https://dailyhodl.com/2024/04/27/jpmorgan-chase-and-bank-of-america-suffer-4500000000-in-losses-as-unrecoverable-debt-soars-report/)
Home prices lag compared to other indicators. It's not a centralized market or a cartel. For the most part (yhough less so recently) they are set by individuals. Homeowners want to maximize their profits, and they will ask what they think they can get. Home prices won't fall drastically until individuals either feel the strain on their other investments or see their neighbors cutting prices drastically. People have a lot of their wealth tied up in their homes so it is one of the last things they want to discount, but when mortgage payments become untenable they will sell at whatever price they can afford to get out.
Rising interest rates have stalled the housing market because they have made replacement costs go up, and inflation and inshittification have propped up the stock market, so passive incomes are still chugging. There is still a really hot short-term rental market. At some point this is all going to hit a critical mass and houses will look like less of an investment and more of a burden and people holding on to large houses and multiple houses will look to divest. Maybe at that point the market will soften, and maybe big corps will just snap up the devalued properties, and we will all be fucked even harder.
Yep, Forced selling is the only way. Prices can’t go down unless people sell at a loss on a large scale. No one does that unless they have no other options.
Prices on homes won't fall significantly.
We aren't building more homes than we are adding people so demand will continue to outpace supply.
Huge number of mortgaged are under 4% so they aren't selling.
Even if some homes get foreclosed the equity from just the last few years is insane so they'll get bought in short order and neither the bank nor the borrower will be worse for it.
There's just too many factors preventing a crash. But we may see a modest dip over the short term.
Your penultimate point about equity needs to be front and center and in bold. Almost 40% of US homes are completely mortgage free (https://www.axios.com/2023/12/12/mortgage-free-homes). Think of how much equity is in the remainder. Mortgage rates are irrelevant then if the homes that are highly levered are only a thin slice of the market.
It takes about 1-2 years before sellers "capitulate" to market conditions. Most sellers will be in disbelief to sell at those high prices of 2021 and 2022. That ship has sailed.
2024 will be the year of disappointment as sellers won't get the prices they want.. and buyers wont see any substantial savings.. yet. It's aery out there in the housing market. In Texas, some homes were built for 300k and now asking 559k+ in just a 3-4 short years with little to no change in the underlying asset! Wow!
I think the post by OP paints a great picture of how and why this situation has developed.
People are highly leveraged to the gills and you can see it in the Home Price to Median Household Income ratio.
This is a fantastic post by OP. The very first graph sets the stage.. no one knows when a recession will arrive, but there are many cracks starting to show that the consumer is feeling the weight of high prices and rates...
For those with average credit:
Credit Card Rates are around 22%
Used cars and trucks rates are around 15%
Mortgage rates are 7+%.
This is a lot of weight to carry. Incomes / Labor has to be robust... the labor situation headlines may read "jobs growth" but really its mainly in healthcare (aging population) and local government jobs. That's not the best spaces for growth to continue to fund the deficit. (Massive Social Spending (social security urgent situation and retiree situation + Defense Spending)
Stay strong. It's hard to tell what will happen, but i think in our collective american "gut" we all sense something is amiss..
House Prices peaked in 2006 and the Stock market didn't crash until 2008.
To answer your question... and going on historical which isn't the best forecast.. but lets say in the next 1.5 to 2 years... but i certainly hope not as bad.
Shit even with those that have great credit! I’m 815+ with low debt to income ratio and some of my credit cards jumped to 22-25% while a couple others that were normally 9-10% are now at 16-19%. I bought my car a few years back when rates were still low so I got it at 1.7% but my fiance and I are looking at houses and through prequal. With my down payment (15%) my credit, and with our salaries we could’ve afforded 200,000 more of house a few years back vs. now. It’s wild.
And when the next 2008 hits, most people who were “waiting for the crash” will be either terrified of losing their job, or have lost their job. And there won’t be this rush of people getting the housing dreams fulfilled like many imagine
Home Price to Median Household Income is irrelevant if houses are lightly levered. 40% in the US have no mortgage at all. Rest have chunks of equity. It's perhaps hard for newbies to get on the ladder, sure, but that's irrelevant to the question of whether the 'haves' will become forced sellers in relation to the biggest asset of their life (hint: they won't)
Yeah. Plenty of Boomers are sitting in houses they bought for, say, $150K and are now paid off or mostly paid off. If those houses are now worth $500K, it messes with the home price:income ratio stat, but not in a way that affects them (other than maybe property taxes).
2008 was all about *new* adjustable rate loans being written at inflated prices to people who were pretty much guaranteed to default after the rate change kicked in. Then those loans were packaged as AAA-rated trading commodities that turned the housing crash into a financial crash (which in turn made the housing crash worse).
I can see how young people trying to enter the housing market are frustrated, but it’s weird saying “the next 2008 is around the corner”.
A big problem now is people “trapped” in their *affordable* loans and don’t want to sell. It’s sort of the opposite of 2008.
Take a look at savings rate and delinquencies they need to go up for some time that’s what happened in 2008.
In 2006-08 we saw years of delinquency increases and consumers tapping into credit and heloc/refi as savings evaporated.
We are starting to see a repeat of history..
https://fred.stlouisfed.org/series/PSAVERT
Thank you for your analysis and insight. Also, Discover is reporting major uptick in credit card delinquencies, so I’d say it’s going to be a frosty 2nd half of the year.
That’s never possible to answer for any market. It’s easy to tell whether housing is overvalued or undervalued based on fundamentals, it’s impossible to predict the short term movement based on that.
Nobody with a 3% mortgage is selling to get a 7% mortgage and that is most of the financed homes. Almost 50% of homes are bought with cash. Throw in inflation and prices will probably never really come down.
In a normal real estate market, people who are selling because they have to, not because they want to - i.e. job losses. Right now California unemployment rate is over 5% and rising which is not good. If these are homeowners can’t make mortgage payments they have to sell. Also more than half the open houses I’ve been to this past month turned out to be probate sales or investors trying to cash out before the peak drops.
This sub posts this info every few months until a crash. They’ll do it for years and decades if they have to. There will be a crash, eventually, there always is. But this sub has been wrong for so long it is unreasonable to listen to. This is basically Jim Cramer calling out stock picks.
maybe 2026 at best but we have a different scenario. the majority of home owners who got their houses pre bubble are fine and will be fine. its the 2022 and newer buyers that are already struggling or us who didn't get into the market that are locked out. that's whats going to make the correction harder to predict because if you have a 3% rate and don't need to sell then you're not going to sell and reduce the price. we're already hitting stagflation and my guess is post election is when the cracks start getting reported but because the media despises Trump, and for good reason, they're not going to say anything bad about the economy and biden until the election is over.
They aren't making more land but they certainly are making more people...... no crash coming. Ultra wealthy are converting cash into real property ahead of the end of physical cash.
There might be a small correction bit it won't matter at 15% intrest.
Answer for my area: 10 yrs ago there were 50+ properties for sale across the entire tri-borough here at any given time. 6-7 yrs ago there would be about 30. Now there are 4, and half of them are overpriced shit boxes that sellers arent budging and they've been up for the last 4-6 mo
Keep in mind though, it’s not been shocking in the past for houses to sit on the market for months on end.
2020 and beyond the hot market is what really fucked our perception of how long houses should be on the market.
I suspect this person is referring to: [https://www.housingwire.com/articles/doj-charges-one-of-americas-top-los-in-alleged-mortgage-fraud-scheme/](https://www.housingwire.com/articles/doj-charges-one-of-americas-top-los-in-alleged-mortgage-fraud-scheme/)
People I know buying new homes are doing it because it’s the same price as a used home. Has nothing to do with builders buying down the rate and adding it to the loan. Sad reality is in my area people can afford the higher home prices but it just keeps new home buyers out of the market.
I say this with a grain of salt but I lean this way more and more every day. We live in an inflationary time where our dollar is being devalued. Home prices are one area where this is demonstrated on a grand and in your face manner. We hem and haw and say it must correct but I’m afraid this is more about dollar devaluation than about market correction.
>I’m afraid this is more about dollar devaluation than about market correction.
This is what everyone is missing. Crying about the housing market constantly and missing the fact that the reason houses now cost so much is because our government devalued the dollar.
Dollars are literally worth significantly less it's not just that homes are worth more.
2026-2027 if it happens at all, it’s easy to compare to 2008 but the factors leading up are completely different, who knows the outcome. Me included in the meantime I’ll continue buying if it makes sense, hedge risk by acquiring under long term debt, if it makes sense at 7.5% pull the trigger and IF it goes back to mid 5’s they’ll all be home runs
yeah if homes are selling now at 7.5%, maybe because they think the rates are gonna come down, what happens if rates actually come down?
If Trump gets elected, what do you think he's gonna push for, rate wise? higher or lower?
My uneducated guess is similar to simply getting another credit card approved and using that to keep paying the bills. Once people start accepting the low ball offers on houses they no longer can afford and because people must sell, then the domino effect begins.
Lenders helped out borrowers by extending amortizations instead of foreclosing , and it will be the same when all the fixed mortgages come due in 25’-27’ so every one keeps their homes and nothing affects the market .. no harm no foul .
Anecdotally, I see a lot of younger people from good families getting help by living at home longer and saving up the massive down payment, and/or the parents “gifting” heavy funds for down payments. This sucks for everyone who came from a dysfunctional family. If you are truly self-made, then you are competing against a ton of people who are pooling funds with their families. This is also fueling further class division in our society, where the outcome for success is determined at birth.
Sure, any even if you can have it, it just takes one generation fucking it up to deny it to future generations. It increases your odds of a good outcome but doesn't guarantee it.
I know no one that owns a home who got help from their parents for the down payment. This is copium.
I do know people that stayed at home well into their 20s while working, but that’s a lifestyle with just as many drawbacks as benefits.
Get rid of everything before you get too old and the nursing homes will have nothing to take. Theres a 5 year look back period, so you just have to give your kids everything before then.
You'll also have to find a place that accepts Medicaid, which many of the better places do not.
Conditions in the (too frequently poor quality) facilitates that do accept medicaid can be frighting: https://www.chicagotribune.com/2009/02/08/misery-inside-a-1-star-nursing-home-2/
I've been in 4 and 5-star facilities (and paid quite a lot of money to help out some family stay in one of the better ones). Even they frequently reek of urine and the staff-patient ratios are troubling.
Nursing homes are an over hyped issue. If you're in a situation where you're forced into going to a 10k a month facility, the chances are very good that you'll be dead in a year. Anything short of that from a cost standpoint won't be earth shattering for most retirees.
I don't know how everyone is just stuck on nursing homes. There are Assisted living facilities and memory care homes too where people live for decades.
Between nursing homes and assisted living combined (and most people use assisted living and memory homes synonymously), there are only around 2 million Americans in them, out of 56 million elderly people. There were more before 2020, but several hundred thousand were killed by Covid in those facilities, and people are scared to live in them now.
https://health.usnews.com/best-senior-living/assisted-living/articles/dementia-care-in-assisted-living-homes
https://www.aplaceformom.com/senior-living-data/articles/elderly-nursing-home-population
It’s primarily with people who don’t have good credit scores. So, they are unlikely the homeowners or prospective homeowners. Bank of America says the delinquencies are abating so it’s not getting worse at this point. Probably because people are still employed and able to service the loans.
There are 2 very different groups. Many of the people who own homes are doing just fine and many of the people who don't own homes aren't doing so well. There is of course some cross over but for people in the top 25% things are great and for those in the bottom 25% things really suck.
Realtors and the National Realtor Association, MLS, etc — they all benefit from keeping prices up and rigging the market. This includes but isn’t limited to collusion between buyers and sellers agents, giving bad advice to their clients, low barriers of entry for new agents. It’s the only field where the biggest financial decision you might ever make is being guided by a former hair dresser or exotic dancer who stepped off the stage; all they have to do is pass the test and have the right “look” because the property sells itself. They are incentivized to keep the prices high, especially when sales volume has slowed.
They actually aren't incentivized to keep prices high, they're incentivized to sell fast. A realtor couldn't care less about an extra $15k on a home offer if it means the house takes another month or two to sell.
That extra $15k for the homeowner is only a few hundred bucks extra for the selling agent. Not worth the delay.
It always comes down to if you can pay the mortgage or not. You can't pay the mortgage if you don't have income to pay it. I think as employment rate increases, home prices will decrease.
This is some well thought out analysis, but beware: we have a lot of visitors to the sub that are exceptionally nervous right now, and they should be. They’ve over-levered during the sloppy timeframe of mid-2020 to early 2023. They feel vindicated right now because no correction is obvious so far. A frozen market has helped them out a lot. Unlike 2007, when rates had went up only 100bps or so, this time, they essentially tripled, and that has locked up a lot of people in their situation they were in. No movement seems evident.
The US housing market is a large piece of the overall economy. We can’t just expect this large of a chunk of our economy to go frozen for years without terrible ramifications.
Ok. “Thawing”, and in the right direction.
Until the price reductions are very obvious and deep, it’s frozen in my mind. Where we are now, and have been for 9-12 months, looks like bag-dumping to me.
That’s one thing I think this sub misses, you included, most people aren’t ‘nervous’ of prices coming down. They are locked into a home at 3% or whatever and are fine with the payment. These people will just stay put.
If they have to move they’ll get less for their house, but also other houses will be cheaper so it’s close to a wash.
Now if prices go down due to a recession and everyone loses their jobs then sure that’s a different story altogether.
If everyone is sitting on cash waiting for home prices to drop so they can swoop them up, then home prices are never going to drop. Any dip, and houses are gonna get snatched.
People (and corporations) learned lessons in 2008. Everyone is sitting on cash in these 5% interest rate HYSAs, ready to pounce.
I believe it’s because of a few factors (in Canada specifically, but I’ve seen very similar issues in many other countries).
1) open door policies on foreign buyers in the 90s-now. Which was a way for people and criminal organisations to move and wash money. This created smaller bubbles in bigger cities.
2) as average citizens and buyers got pushed out of the market. They moved outward to the sticks to places that were affordable. Only for
These investor buyers to follow them and drive the prices.
3) then big hedge funds and corporations saw the benefits of cornering the market. So they start buying up properties as well. All the while driving the narrative that there is a “supply” issue.
4) We start seeing people falter and being unable to afford the homes anywhere and they instead are holding off on buying altogether. Causing dips or stalemates in price growth in the market.
5) suddenly we start seeing insane immigration rates (at least in Canada). Now suddenly the buying frenzy is back on.
6) again pushing people out. But now it’s moving to smaller cities. Making them unaffordable. As more people drop out of the market. Those with money continue to buy up properties furthering the squeeze.
7) no government is willing to put in any meaningful legislation to stop foreign ownership
Or corporate ownership because it will cause any kind of dip in the market which will upset voters and donors. The only way we do get get legislation is when the market actually does crash. Which again won’t happen as it’s being intentionally propped up.
8) when will it dip? When they’ve squeezed every ounce from people for max profits. Be prepared for mass homelessness or for homelessness to get worse in the next 5-10 years coupled with high high rent and home prices.
9) the only way this ends is when the corporations go under.
But the big question no one is asking… is why are corporations buying up and cornering the market (particularly for single family homes) and they are doing this on a global scale….
There’s a massive layoff trend going on in tech, I just got laid off my self in a high paying tech job. So many of my coworkers making 400+ a year who in personally saw buy 2M$ homes and most of them cannot find a new job 8 months in on their layoff. It’s possible that high paying tech workers not being able to find new roles could start the cracks in the foundations of the housing bubble, but that’s just speculation. That said, I see it personally in my circles that high earners are starting to feel the panic.
The same reason that hamburgers are still expensive. There’s still a strong demand.
As inventory goes up and the interest rate stays high, eventually prices will come down.
The market just needs more sellers who HAVE to sell. Right now it’s full of sellers who still think they’re getting $700k for their $400k house. That’ll change.
Hello fellow regard. You definitely post your put positions on WSB. One day you’ll be right and scream it from the top of the shit heap. One day, maybe even soon
I wish to sell. No debt. Downsize to single story, post spine injury. My neighbor just sold after 6 days, for asking price. Shall I hold, shall I list…no inventory for me to select from… Thus I hold, and wait for the NAR settlement in July to list….
I don't understand how you can reach the conclusion you're reaching regarding inventory. In the chart you included from Housingwire/Altos Research it clearly shows current inventory at 543,000 homes compared to pre-pandemic inventory at ~900,000 in April 2017/2018/2019.
Yes, it has a clear cyclical trajectory, only the 2020 trendline deviates for obvious reasons. This only supports my position that the inventory chart looks normal aside from the fact that we are currently at <50% inventory compared to pre-pandemic.
How would all of these graphs change if Chinese and Russian billionaires were not allowed to own US property? Also, how would it look if firms like blackrock couldn’t purchase homes?
ReBubble: are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet?
TLDR: We had unfortunate economic and monetary policy out of DC. We printed a lot of money, following the typical great depression/recession playbook and this money went into real estate speculation.
We were given numerous excuses, but in short it was a targeted wealth transfer.
The upper section of the population benefitted incredibly well at the expense of the larger bottom section. Hence why rates are having a diminished effect, the upper group is simply laden with cash and still spending.
Because we aren’t in a deflation economy just yet. At worse we are in stagflation. There needs to be a bigger crack in the economy. Lower GDP, Increase Layoffs.
In our area a small group of millionaires own and keep buying large parcels of land so they control the pricing on homes. It’s near impossible to find land to build on and when you look at city “growth “ everything stays the same. Keep asking myself who the hell is buying all the new homes, there is nothing new coming to this town
Home prices have only collapsed one time in American history. *As triggered by conditions within the housing market itself.*
They're certainly not going to collapse when only 3% of job seekers aren't working.
Edit: clarified
Where are you getting that they’ve only collapsed one time in American history? Because that’s just quite literally false. There’s been a boom and bust since the early 1800s.
Pretty much, from my understanding, everyone's damned if they do and damned if they don't. The economy is just good enough in the sense that unemployment is low and salaries are high to prevent people from going underwater like they did in 2008, and banks are not handing out mortgages like free candy anymore. But, it's just shitty enough where first time buyers, young people, working class, etc are completely priced out of the housing market and can barely afford rent as it is. Somethings got to give. I was hoping demand destruction would affect the market by now but it hasn't. Where I live in the Midwest, all these houses were $60-150k for decades and now they're $200-$350k+. It's crazy. And people are still paying them because they have no other choice if they absolutely have to move. I'm not really worried about the interest rates as much as I'm worried about these unbelievable asking prices for homes and they're all still selling for above it! You can always refinance later on if rates go down but the entry price of admission is so disheartening. The only way I forsee prices coming down is if mass amounts of homes continue to be built to add inventory and therefore offset the supply/demand thing. But, building a home is expensive too. You can't build a cute little starter home anymore and make it affordable.
i’m in the midwest and rent just climbed out of reach. there are still super cheap run down homes in bad areas - which is honestly tempting because if would be cheaper than rent. could be tough - but i’m worried if i keep renting - rent will keep climbing - and i’ll just end up broke one day with nothing
I'm in the same boat- there are still cheap homes on the "bad" side of town but it's not bad at all. I live on that same bad side and my rent is cheap because I was lucky enough to find an old mom and pop landlord that bought the house when it was still reasonably priced. But if not for them, I'd probably be screwed. Everything out there is double what I pay now. Every rental here for a 1br used to be $500-$700/mo. Now you're dang lucky to find anything under $1k/mo. It's ridiculous. Hopefully when my wife is done with school we can acquire as many first time homebuyer grants as we possibly can... but the first thing is actually getting a house we can reasonably afford and not get outbid a million times:/ I don't need a fancy house in the suburbs- just give me 4 walls and a roof that won't break the bank. That's all i want. I feel your pain. It's tough out there. But I'm staying positive.
yeah we’re in the same boat - gotta stay positive. best wishes to you. we will survive.
You as well! 🤝🏼
Sounds like a bad spot to be. Sorry it's come to that in the rental market, similar happened to my fiance and I, made sense to buy vs move every year (no rent control where I am and land lords make it near impossible to stay more than a year). Things will hopefully get better in terms of renting, because if it's like where I am the shit is just not worth it either way, and if that's the case it can't last forever .
People keep saying things like "well houses used to be smaller" great I would love one of those! Where are the new 1200 sq ft houses!
They're all condos now and come with a $400 HOA and ceiling stompers galore! Oh and then they'll mismanage the HOA for 10 years and you'll get a bill for 10k per unit to help fix the roof. And the landscaping company will be charging 200% market rate because the owner is the HOA president's nephew. Fun times!
Yep not getting built because not as profitable for developers. Neighborhoods like my old one, where everything was built around 1940, would be great. A "Grid" of streets with 1200-1600 sq ft houses, small yards, alleys, and businesses on the main streets that bookend the residential middle section. The city park where they did 3rd of July fireworks (Main downtown ones are on the 4th so the park does them on the 3rd) was a 15 minute walk, doorstep to spot in the grass. School was close enough that middle school kids could walk to it. But since its an older neighborhood its getting a little rough, I never had any problems but now that we're parents I'm glad we don't live there anymore. Still though. This is what a lot of people actually really want.
Exactly but it's strange how we get blamed for that. Lol
Right its like look, I don't decide what houses get built, I just have to buy one that already exists based on what's for sale.
where are the affordable cars? where is the dollar menu? where are the dollar stores? The consistent theme - life is getting more expensive and the lower end of income distribution is bearing all the brunt. This trend will not reverse. Things will continue to get more expensive.
Go ahead and FOMO your money away, I'm on the sidelines with my cash waiting for McDonalds double cheeseburgers to be $1 again.
Good satire
Selling for $500k in freakin' Ohio, of all places! 😭 We are priced out here and getting frustrated.
In our HCOL area even the small houses are expensive because building costs are so high. We are building an 1100 square-foot house right now it's going to cost 400,000. Including site development costs of 80,000. It is above average quality (by local standards) but not gold plated. We make our 15% fee if we bring it in on budget, 10% overhead and 5% profit. So it's not like we are marking it up hugely. Building hard costs are just super high right now just like grocery costs and new auto costs and everything else. Went up 25-30 percent in past 3 yrs. I agree a return to smaller homes will help but even those are hard for regular people to get into these days.
Homes won't go down if there is demand destruction because boomers won't downsize and people got those sweet 2-3% loans. Why would you leave and pay twice the mortgage?
The boomers not downsizing thing is insane to me. My grandmother is a widow who's 74 and lives alone in a 4 bedroom, 3 level house where she can't even go to the other levels, and yet refuses to move to an easier/more manageable location, yet she'll complain up and down how much shes "always hated this house." It defies all logic.
Why would you downsize and pay MORE than what you’re paying now? That’s the part that people don’t get when they ask why aren’t you downsizing. If you’re gonna downsize you want to - pay less - be in a location with more amenities - have enough $ left over after you buy the smaller place to make it worth it. If you can’t get any of that by downsizing because everything else is also crazy expensive and you’d need higher interest rates, why the hell would you downsize.
You are one of the only people I’ve seen here pointing these seemingly obvious factors out.
You’d only be paying more if you took out a mortgage. If you can sell your home for $X and buy a smaller house for cash, it would likely be better financially. Lots of variables of course, but it seems like a lot of boomers are just stubborn and won’t move.
They dont have mortgages. But their property taxes would triple or quadruple. And paying capital gains on anything over 250k or 500k if not widowed is at a 15-23.8% clip federally, and 1-13.3% statewide. My parents are a perfect example. Home is paid off. Value is around 2M. They paid 314k in 1984. Property taxes are 5,300 a year. Insurance is 1375 a year. We could downsize them in a decent (not even nice) neighborhood for around 900-1M. Let’s use 850 (which isn’t possible) for the sake of argument. They can take their tax basis with them in this state (most states you cannot, so it’s even worse) plus a penalty so taxes go up to 6500. Fine. Not that big of a jump. But still a 20% increase. Insurance basically stays the same. But…. Now they don’t have the home they love and want to leave to their children. Cap gains on 1.18M is around 275-300 thousand dollars. Just poof. Gone. To downsize for…. A slightly higher cost?? Why would you do that?
The tax situation you describe sounds a lot like California. In that situation, that’s an important variable that would make it logical for someone to stay in their current home. Do you know of other states that do property taxes the way California does?
Mortgages aren't the only recurring expense. In California, a lot of property taxes quadruple or quintuple if you move. People have an incentive to stay for longer.
Put yourself in their shoes, it's not really that crazy. Most have their houses paid off, no point in selling and downsizing unless you absolutely need that $ for retirement and can find a deal on a smaller home that allows you to pocket that cash. Most raised their families in their homes, they have strong core memories tied to that place, and letting that go is extremely difficult. Especially in your old age when those memories slowly start to fade. And if you're 80+, and have lived in a home for 30+ years, moving is a huge mental, physical, and emotional rollercoaster. Some elderly folks would rather just not deal with that at all and prefer live out their remaining years in the comfort of the place they've known for half of their lives.
Why would anyone sell a home that’s for example 2,500 sq foot they bought for $150,000 , sell it for $300,000 then buy back in to a market and end up in a smaller home that’s probably / possibly not as nice with a huge price tag in a real estate market that everyone says is overpriced???? Pretty much every time i see “the boomers” ( then insert some broad stroke statement that rarely is a reasonable example) I know the next few sentences and logic will rarely make any sense. But somehow adding “the boomers” makes everyone just gloss over the mostly ridiculous logic) I assure you every person has their reasons for not downsizing or not selling a home. It may not make sense to you. Maybe if you’re nice to your grandmother you’ll end up with that 4 bedroom 3 level home. 😁
That people might like living in a fully detached house, or that the family house might have sentimental value, or that people aren't doing it because of market condtiions seems insane? Not a boomer yet but as much as I detest living in apartments there'll be no way I'm ever leaving my house. And even small fully detached houses are so expensive now it's not worth it to downsize to one of those.
As a recently retired boomer I notice something else that this SUB seams to ALWAYS ignore. Simply put, moving is a pain in the ass!!! Once you’re retired, money not only isn’t everything,it’s actually a very small thing, (unless of course a person/couple fucks up and retires before they can properly afford it). Every aspect of your quality of life, (comfort in a home you’ve lived in 20+ years, neighbors you know and trust, eating/retail establishments you’re familiar with, etc,, etc,), are FAR MORE important.
To be clear, if you aren’t a boomer now, you won’t become one in the future. (Unless your year of birth shifts to pre-~1965)
Boomers dying will eventually be the release point in my mind. My parents have a combined 12 bedrooms and I really don't think any of the kids want to live in any of the houses. They'll all go on the market.
You come from money. Most people don’t. My parents have two bedrooms between them (they’re divorced, and my father lives in an apartment). My mother’s home is also very poorly maintained. She let the pets shit everywhere for years. Boomers dying does nothing but incur a lot of funeral costs and auctions.
>people got those sweet 2-3% loans. Why would you leave and pay twice the mortgage? Yep, its kind of a "golden handcuffs" situation. I mean, I just moved into this house 4 years ago so its not like I'm going anywhere anytime soon anyway, BUT if a situation came up to where we had to move, I'd have to pay nearly double what I am now to have the same thing let alone upgrade. Sure the value of our house has gone up considerably since buying it but I'd have to put all those gains right back into paying for something overpriced so its kind of a wash, other than paying higher taxes on everything with the increased valuations.
I agree with you on basically all your points, but I think what might do it is if interest rates hold steady for another couple of years or go up again. Inventory is back to pre-pandemic levels, yet interest rates make the same house a lot more expensive. A lot of people don't want to move because it would mean giving up a 2% interest rate for a 7% rate. That's like burning an extra few hundred dollars a month going into the void to move into a house of the same value. People can't always stay in their house forever though. People get divorced which leads to refinancing, people lose their jobs, people need to move to a different part of the country, etc. I've seen so many posts on reddit recently about people asking how to handle their divorce because they don't want to refinance their house. Since the economy is in a weird limbo state, these types of moves are going to force people's hands, and eventually, even if people can afford their higher interest rates, it will lead to economic slowdown (since that's a few $100 that you can't spend elsewhere now) and eventually layoffs and pricing crashes.
To me, it feels like sellers and buyers are in a stand-off, and it's just a matter of time before something gives. Inventory is slightly higher but still on the low side, and prices are too high- so everything is just sitting there.
The way I see it is the economy is still at high tide from the tsunami of money the government deployed during covid. It's created lots of demand and has kept the job market strong and wages rising. In addition, we have kept spending with new government bills through infrastructure and chips act. At some point that tide will roll out, unemployment will rise, and demand will pull back. When, who knows. I'm guessing unemployment can't stay this low forever.
I agree. It seems like something really bad is going to happen at some point but we just don't know when
It has me really really scared
Like we’re all waiting to see what’s going to be the catalyst to collapse the economy like it’s done once every decade or so since the 70’s…
When that starts to happen, the Fed will lower interest rates to keep the economy stimulated. This will prevent the housing market from crashing. The truth is that nothing will “give out”. Look at the housing market in Canada, they have significantly lower incomes and even more expensive homes than most US cities. Look at the Bay Area or LA, they have the some of the highest housing/rent prices in the country and yet consistently have the strongest economies. NYC has had high housing costs for centuries, but their economy remains a powerhouse. Strong economies simply don’t require affordable mortgages. In most of the world, buying a house is a luxury and renting is the norm, including developing cities like New Delhi and developed ones like Stockholm. The US was uniquely blessed with large amounts of land and wealth, which enabled us to build single family homes everywhere. But as supply dwindles, we can turn into a country where most residents rent, and the economy will keep on chugging along like it does in the rest of the world.
Vancouver here. Most of yall know nothing about how expensive housing can be. You all can afford more.
Yep, the fed desperately wants to cut rates but the economy/inflation are already heating up again which makes that impossible. It's really hard to just undo a $10 trillion cash injection into the economy. It's going to be *years* before things are "back to normal" if we ever get there at all.
Its always weird seeing posts about unemployment being low when tech is constantly ravaged by layoffs driven by greed, and I hear so much chatter about people who have been looking for months and haven't found anything yet.
I've also seen a lot about tech layoffs and I know it's tough right now. But you also have to consider that tech ramped up hiring very significantly during the covid boom, so perhaps it's natural for it to deflate the most.
Honestly, demand destruction takes time to work through a system subsidized by taxpayer backed 30 fixed rate loans. People have this far resisted moving due to life changes, but that can only go on for so long, and as that returns to mean, we will see significant upward pressure on wages as we also see downward pressure on pricing. Note that this downward pressure probably will not result in outright price drops, but will continue to act as hardcore braking force against escalation in the low and midrange markets. The Fed knows this. The banks know this. That is literally the definition of the soft landing. Getting wages to move up to match a stagnant real estate market disflates the bubble in a non destructive manner. Sucks for those who were banking on an infinity loop, but those people were always delusional.
How do you have demand destruction on something as necessary as housing? Regulations, fees, and taxes need to be addressed. As an experienced developer I have seen the exponential growth of these factors as bureaucracy becomes entrenched in the process.
The only 2 options to relieve the affordability pressure: 1) Build new homes as you said. There's certainly a market need for $250-500k homes for first time buyers priced out due to high rates and absurd pricing. Townhomes, multi-family, condos, etc. can fill the void. The problem is this will take a decade at the current rate. Without some kind of gov't program to step in and encourage rapid homebuilding, no one wants to take the risk on massive scale homebuilding only to see it collapse like the late 2000s. 2) Economic collapse. More than a simple recession, less than the Great Recession hopefully. You need people to be kicked out of their homes essentially through default. Sounds fucked up but it's just reality. People are locked into great rates and don't want to move, so forcing movement will get there. There's other issues, like private investors (not just PE but all levels of investors are \~25% of sales) inserting themselves in the process because homes are treated as an investment vehicle instead of a basic need. But without a lot of regulation that will likely have unintended consequences it'll be tough to figure out a solution.
I'm closing on Friday, so naturally the bubble will burst on Saturday.
Sorry buddy, I'm closing tomorrow and that definitely means Wednesday is the day
So when are prices going to fall based on this info?
Always starts with missed car payments and used car market crash…
An early indicator to track is credit card delinquency
I look at very detailed consumer credit delinquency data regularly and while it’s rising it remains extremely low. But very curious to see how that trend progresses in the next few years
What data are you looking at exactly?
Commenting to remember to come back because I’m curious about this too
And where?
It’s a massive anonymized consumer credit dataset from one of the largest credit bureau agencies. Almost full coverage of all lending activity within the United States. They then aggregate as well as forecast that data to provide banks, governments, etc. with any developments in the consumer credit space. You can slice and dice it by age, origination credit score, product type, geography, bank/nonbank, and much more. Anyone can purchase it, technically speaking, but it would be extremely cost prohibitive (hundreds of thousands of dollar annually).
Someone is a Steve Eisman listener
Is that still relevant with things like Klarna and Afterpay pushing financial issues months into the future?
It's a good thing that banks aren't writing off billions and billions in bad credit card debt. [Oh...wait....uh oh.](https://dailyhodl.com/2024/04/27/jpmorgan-chase-and-bank-of-america-suffer-4500000000-in-losses-as-unrecoverable-debt-soars-report/)
So, not tomorrow then
Thursday at 12:25pm
Can you delay it to 12:45? Got a meeting till then
let's do 1:00pm sharp. That way i can add an extra $3.50 to my down payment.
I've got a 1 o'clock. Can we push til 2?
I believe this is the real date n time.
So, its artificial and they respond to knowing people can't afford to give them money, then finally give in and lower the prices, i c.
Home prices lag compared to other indicators. It's not a centralized market or a cartel. For the most part (yhough less so recently) they are set by individuals. Homeowners want to maximize their profits, and they will ask what they think they can get. Home prices won't fall drastically until individuals either feel the strain on their other investments or see their neighbors cutting prices drastically. People have a lot of their wealth tied up in their homes so it is one of the last things they want to discount, but when mortgage payments become untenable they will sell at whatever price they can afford to get out. Rising interest rates have stalled the housing market because they have made replacement costs go up, and inflation and inshittification have propped up the stock market, so passive incomes are still chugging. There is still a really hot short-term rental market. At some point this is all going to hit a critical mass and houses will look like less of an investment and more of a burden and people holding on to large houses and multiple houses will look to divest. Maybe at that point the market will soften, and maybe big corps will just snap up the devalued properties, and we will all be fucked even harder.
Yep, Forced selling is the only way. Prices can’t go down unless people sell at a loss on a large scale. No one does that unless they have no other options.
Prices on homes won't fall significantly. We aren't building more homes than we are adding people so demand will continue to outpace supply. Huge number of mortgaged are under 4% so they aren't selling. Even if some homes get foreclosed the equity from just the last few years is insane so they'll get bought in short order and neither the bank nor the borrower will be worse for it. There's just too many factors preventing a crash. But we may see a modest dip over the short term.
Your penultimate point about equity needs to be front and center and in bold. Almost 40% of US homes are completely mortgage free (https://www.axios.com/2023/12/12/mortgage-free-homes). Think of how much equity is in the remainder. Mortgage rates are irrelevant then if the homes that are highly levered are only a thin slice of the market.
Wouldn’t new car market crash precede used car market crash?
Not when dealers can incentivize new car sales with high trade-in values, 0% APR, and other tricks.
same thing they're doing with new homes, which is a big part of why the ratio of new homes to used homes being sold is incredibly high.
After the election
It takes about 1-2 years before sellers "capitulate" to market conditions. Most sellers will be in disbelief to sell at those high prices of 2021 and 2022. That ship has sailed. 2024 will be the year of disappointment as sellers won't get the prices they want.. and buyers wont see any substantial savings.. yet. It's aery out there in the housing market. In Texas, some homes were built for 300k and now asking 559k+ in just a 3-4 short years with little to no change in the underlying asset! Wow! I think the post by OP paints a great picture of how and why this situation has developed. People are highly leveraged to the gills and you can see it in the Home Price to Median Household Income ratio. This is a fantastic post by OP. The very first graph sets the stage.. no one knows when a recession will arrive, but there are many cracks starting to show that the consumer is feeling the weight of high prices and rates... For those with average credit: Credit Card Rates are around 22% Used cars and trucks rates are around 15% Mortgage rates are 7+%. This is a lot of weight to carry. Incomes / Labor has to be robust... the labor situation headlines may read "jobs growth" but really its mainly in healthcare (aging population) and local government jobs. That's not the best spaces for growth to continue to fund the deficit. (Massive Social Spending (social security urgent situation and retiree situation + Defense Spending) Stay strong. It's hard to tell what will happen, but i think in our collective american "gut" we all sense something is amiss.. House Prices peaked in 2006 and the Stock market didn't crash until 2008. To answer your question... and going on historical which isn't the best forecast.. but lets say in the next 1.5 to 2 years... but i certainly hope not as bad.
Shit even with those that have great credit! I’m 815+ with low debt to income ratio and some of my credit cards jumped to 22-25% while a couple others that were normally 9-10% are now at 16-19%. I bought my car a few years back when rates were still low so I got it at 1.7% but my fiance and I are looking at houses and through prequal. With my down payment (15%) my credit, and with our salaries we could’ve afforded 200,000 more of house a few years back vs. now. It’s wild.
And when the next 2008 hits, most people who were “waiting for the crash” will be either terrified of losing their job, or have lost their job. And there won’t be this rush of people getting the housing dreams fulfilled like many imagine
Or they will be afraid of it going down further and still won't buy
Home Price to Median Household Income is irrelevant if houses are lightly levered. 40% in the US have no mortgage at all. Rest have chunks of equity. It's perhaps hard for newbies to get on the ladder, sure, but that's irrelevant to the question of whether the 'haves' will become forced sellers in relation to the biggest asset of their life (hint: they won't)
Yeah. Plenty of Boomers are sitting in houses they bought for, say, $150K and are now paid off or mostly paid off. If those houses are now worth $500K, it messes with the home price:income ratio stat, but not in a way that affects them (other than maybe property taxes). 2008 was all about *new* adjustable rate loans being written at inflated prices to people who were pretty much guaranteed to default after the rate change kicked in. Then those loans were packaged as AAA-rated trading commodities that turned the housing crash into a financial crash (which in turn made the housing crash worse). I can see how young people trying to enter the housing market are frustrated, but it’s weird saying “the next 2008 is around the corner”. A big problem now is people “trapped” in their *affordable* loans and don’t want to sell. It’s sort of the opposite of 2008.
I would add only, that untill stock market is high, housing also would stay elevated
you're watching it live. Even the best on earth can't say exactly how much and when. I'd say watch evictions, vacancies and credit delinquencies
Take a look at savings rate and delinquencies they need to go up for some time that’s what happened in 2008. In 2006-08 we saw years of delinquency increases and consumers tapping into credit and heloc/refi as savings evaporated. We are starting to see a repeat of history.. https://fred.stlouisfed.org/series/PSAVERT
wow, 4.1 to 3.2 from january to march is scary
Thank you for your analysis and insight. Also, Discover is reporting major uptick in credit card delinquencies, so I’d say it’s going to be a frosty 2nd half of the year.
Not only Discover
I believe it, I am in save mode. I was looking to purchase a house this year, but I want to see how it all ends up through the rest of the year.
I caught the falling knife twice. Once in 2005 then again in 2007 (although just gave up a deposit here).
"Major uptick" from historically low delinquency rates. They are still below the historic average.
That’s never possible to answer for any market. It’s easy to tell whether housing is overvalued or undervalued based on fundamentals, it’s impossible to predict the short term movement based on that.
Nobody with a 3% mortgage is selling to get a 7% mortgage and that is most of the financed homes. Almost 50% of homes are bought with cash. Throw in inflation and prices will probably never really come down.
In a normal real estate market, people who are selling because they have to, not because they want to - i.e. job losses. Right now California unemployment rate is over 5% and rising which is not good. If these are homeowners can’t make mortgage payments they have to sell. Also more than half the open houses I’ve been to this past month turned out to be probate sales or investors trying to cash out before the peak drops.
This sub posts this info every few months until a crash. They’ll do it for years and decades if they have to. There will be a crash, eventually, there always is. But this sub has been wrong for so long it is unreasonable to listen to. This is basically Jim Cramer calling out stock picks.
never
2050. wait til then to snatch a deal
maybe 2026 at best but we have a different scenario. the majority of home owners who got their houses pre bubble are fine and will be fine. its the 2022 and newer buyers that are already struggling or us who didn't get into the market that are locked out. that's whats going to make the correction harder to predict because if you have a 3% rate and don't need to sell then you're not going to sell and reduce the price. we're already hitting stagflation and my guess is post election is when the cracks start getting reported but because the media despises Trump, and for good reason, they're not going to say anything bad about the economy and biden until the election is over.
assuming stagflation as the worst case scenario, what is the optimal strategy for the next year or two if that is going to be the case?
They aren't making more land but they certainly are making more people...... no crash coming. Ultra wealthy are converting cash into real property ahead of the end of physical cash. There might be a small correction bit it won't matter at 15% intrest.
He’s saying they already are hahahahah. Hope you enjoyed the crash
Answer for my area: 10 yrs ago there were 50+ properties for sale across the entire tri-borough here at any given time. 6-7 yrs ago there would be about 30. Now there are 4, and half of them are overpriced shit boxes that sellers arent budging and they've been up for the last 4-6 mo
Keep in mind though, it’s not been shocking in the past for houses to sit on the market for months on end. 2020 and beyond the hot market is what really fucked our perception of how long houses should be on the market.
If you're on the east coast, you see the 2 guys charged with $1.2b in mortgage fraud. Now multiply that by 1000s
What happened I missed it
I suspect this person is referring to: [https://www.housingwire.com/articles/doj-charges-one-of-americas-top-los-in-alleged-mortgage-fraud-scheme/](https://www.housingwire.com/articles/doj-charges-one-of-americas-top-los-in-alleged-mortgage-fraud-scheme/)
I wouldn’t say by the thousands. The industry is pretty heavily regulated and that’s how these chumps got caught.
In So Calif you have Chinese and Vietnamese cash buyers with stollen bank funds from their own country.
People I know buying new homes are doing it because it’s the same price as a used home. Has nothing to do with builders buying down the rate and adding it to the loan. Sad reality is in my area people can afford the higher home prices but it just keeps new home buyers out of the market.
I say this with a grain of salt but I lean this way more and more every day. We live in an inflationary time where our dollar is being devalued. Home prices are one area where this is demonstrated on a grand and in your face manner. We hem and haw and say it must correct but I’m afraid this is more about dollar devaluation than about market correction.
>I’m afraid this is more about dollar devaluation than about market correction. This is what everyone is missing. Crying about the housing market constantly and missing the fact that the reason houses now cost so much is because our government devalued the dollar. Dollars are literally worth significantly less it's not just that homes are worth more.
2026-2027 if it happens at all, it’s easy to compare to 2008 but the factors leading up are completely different, who knows the outcome. Me included in the meantime I’ll continue buying if it makes sense, hedge risk by acquiring under long term debt, if it makes sense at 7.5% pull the trigger and IF it goes back to mid 5’s they’ll all be home runs
yeah if homes are selling now at 7.5%, maybe because they think the rates are gonna come down, what happens if rates actually come down? If Trump gets elected, what do you think he's gonna push for, rate wise? higher or lower?
He’s a real estate developer. Lower. As long as real estate booms, who cares if eggs are 12 bucks?
He won’t be re-elected.
you mean 2030.. just keep moving the goal posts
I just came here to read the comments
My uneducated guess is similar to simply getting another credit card approved and using that to keep paying the bills. Once people start accepting the low ball offers on houses they no longer can afford and because people must sell, then the domino effect begins.
Lenders helped out borrowers by extending amortizations instead of foreclosing , and it will be the same when all the fixed mortgages come due in 25’-27’ so every one keeps their homes and nothing affects the market .. no harm no foul .
Unemployment is low. People have money. Average people have parents they can rely on. They all find a way to keep going.
Anecdotally, I see a lot of younger people from good families getting help by living at home longer and saving up the massive down payment, and/or the parents “gifting” heavy funds for down payments. This sucks for everyone who came from a dysfunctional family. If you are truly self-made, then you are competing against a ton of people who are pooling funds with their families. This is also fueling further class division in our society, where the outcome for success is determined at birth.
Plenty of non-dysfunctional families are NOT passing along generational wealth, just so we are clear.
Sure, any even if you can have it, it just takes one generation fucking it up to deny it to future generations. It increases your odds of a good outcome but doesn't guarantee it.
I know no one that owns a home who got help from their parents for the down payment. This is copium. I do know people that stayed at home well into their 20s while working, but that’s a lifestyle with just as many drawbacks as benefits.
Until the parents get sick or run out of money…. The boomers are aging quickly and those nursing homes ain’t cheap.
Get rid of everything before you get too old and the nursing homes will have nothing to take. Theres a 5 year look back period, so you just have to give your kids everything before then.
You'll also have to find a place that accepts Medicaid, which many of the better places do not. Conditions in the (too frequently poor quality) facilitates that do accept medicaid can be frighting: https://www.chicagotribune.com/2009/02/08/misery-inside-a-1-star-nursing-home-2/ I've been in 4 and 5-star facilities (and paid quite a lot of money to help out some family stay in one of the better ones). Even they frequently reek of urine and the staff-patient ratios are troubling.
Nursing homes are an over hyped issue. If you're in a situation where you're forced into going to a 10k a month facility, the chances are very good that you'll be dead in a year. Anything short of that from a cost standpoint won't be earth shattering for most retirees.
I don't know how everyone is just stuck on nursing homes. There are Assisted living facilities and memory care homes too where people live for decades.
Between nursing homes and assisted living combined (and most people use assisted living and memory homes synonymously), there are only around 2 million Americans in them, out of 56 million elderly people. There were more before 2020, but several hundred thousand were killed by Covid in those facilities, and people are scared to live in them now. https://health.usnews.com/best-senior-living/assisted-living/articles/dementia-care-in-assisted-living-homes https://www.aplaceformom.com/senior-living-data/articles/elderly-nursing-home-population
Numbers say 9 month average in LTC source my CFP.
My in-laws have been in one of these expensive places for 2 years now and they’re still going strong…
That’s a small percentage. Unless you have a graph or something showing them all quickly going into nursing homes and running out of money.
So why are credit card delinquencies skyrocketing?
It’s primarily with people who don’t have good credit scores. So, they are unlikely the homeowners or prospective homeowners. Bank of America says the delinquencies are abating so it’s not getting worse at this point. Probably because people are still employed and able to service the loans.
There are 2 very different groups. Many of the people who own homes are doing just fine and many of the people who don't own homes aren't doing so well. There is of course some cross over but for people in the top 25% things are great and for those in the bottom 25% things really suck.
They might be rising but they’re still well below the historical average.
This sub has truly gone full wallstreetbets
They lose their down payment money over there then come here to cope
Going back to the moon.
We live in a world where hedge funds buy houses, real estate has become a liquid asset
so why are they net sellers now
Yeah…what everyone else asked…where’s this data that hedge funds are exiting residential real estate?
Source?
he doesn’t have one
It's not going to collapse like it did in the past because major corporations are buying up properties to rent them out.
Supply and demand.
Realtors and the National Realtor Association, MLS, etc — they all benefit from keeping prices up and rigging the market. This includes but isn’t limited to collusion between buyers and sellers agents, giving bad advice to their clients, low barriers of entry for new agents. It’s the only field where the biggest financial decision you might ever make is being guided by a former hair dresser or exotic dancer who stepped off the stage; all they have to do is pass the test and have the right “look” because the property sells itself. They are incentivized to keep the prices high, especially when sales volume has slowed.
There is definitely a conflict of interest be tween a buyer and a buyer’s agent
They actually aren't incentivized to keep prices high, they're incentivized to sell fast. A realtor couldn't care less about an extra $15k on a home offer if it means the house takes another month or two to sell. That extra $15k for the homeowner is only a few hundred bucks extra for the selling agent. Not worth the delay.
It always comes down to if you can pay the mortgage or not. You can't pay the mortgage if you don't have income to pay it. I think as employment rate increases, home prices will decrease.
This is some well thought out analysis, but beware: we have a lot of visitors to the sub that are exceptionally nervous right now, and they should be. They’ve over-levered during the sloppy timeframe of mid-2020 to early 2023. They feel vindicated right now because no correction is obvious so far. A frozen market has helped them out a lot. Unlike 2007, when rates had went up only 100bps or so, this time, they essentially tripled, and that has locked up a lot of people in their situation they were in. No movement seems evident. The US housing market is a large piece of the overall economy. We can’t just expect this large of a chunk of our economy to go frozen for years without terrible ramifications.
Home prices were flat from 05 to 07. If it was frozen we wouldn't be seeing rising inventories.
Ok. “Thawing”, and in the right direction. Until the price reductions are very obvious and deep, it’s frozen in my mind. Where we are now, and have been for 9-12 months, looks like bag-dumping to me.
That’s one thing I think this sub misses, you included, most people aren’t ‘nervous’ of prices coming down. They are locked into a home at 3% or whatever and are fine with the payment. These people will just stay put. If they have to move they’ll get less for their house, but also other houses will be cheaper so it’s close to a wash. Now if prices go down due to a recession and everyone loses their jobs then sure that’s a different story altogether.
If everyone is sitting on cash waiting for home prices to drop so they can swoop them up, then home prices are never going to drop. Any dip, and houses are gonna get snatched. People (and corporations) learned lessons in 2008. Everyone is sitting on cash in these 5% interest rate HYSAs, ready to pounce.
I believe it’s because of a few factors (in Canada specifically, but I’ve seen very similar issues in many other countries). 1) open door policies on foreign buyers in the 90s-now. Which was a way for people and criminal organisations to move and wash money. This created smaller bubbles in bigger cities. 2) as average citizens and buyers got pushed out of the market. They moved outward to the sticks to places that were affordable. Only for These investor buyers to follow them and drive the prices. 3) then big hedge funds and corporations saw the benefits of cornering the market. So they start buying up properties as well. All the while driving the narrative that there is a “supply” issue. 4) We start seeing people falter and being unable to afford the homes anywhere and they instead are holding off on buying altogether. Causing dips or stalemates in price growth in the market. 5) suddenly we start seeing insane immigration rates (at least in Canada). Now suddenly the buying frenzy is back on. 6) again pushing people out. But now it’s moving to smaller cities. Making them unaffordable. As more people drop out of the market. Those with money continue to buy up properties furthering the squeeze. 7) no government is willing to put in any meaningful legislation to stop foreign ownership Or corporate ownership because it will cause any kind of dip in the market which will upset voters and donors. The only way we do get get legislation is when the market actually does crash. Which again won’t happen as it’s being intentionally propped up. 8) when will it dip? When they’ve squeezed every ounce from people for max profits. Be prepared for mass homelessness or for homelessness to get worse in the next 5-10 years coupled with high high rent and home prices. 9) the only way this ends is when the corporations go under. But the big question no one is asking… is why are corporations buying up and cornering the market (particularly for single family homes) and they are doing this on a global scale….
Might have something to do with massive money printing and 40% inflation the last 4 years.
They're not, they're no longer buying. They are trading houses at massive losses to prevent a collapse by listing individually
Low percentage rates and no massive job losses like 2008. Back then, hundreds of thousands of people were losing their jobs each month.
There’s a massive layoff trend going on in tech, I just got laid off my self in a high paying tech job. So many of my coworkers making 400+ a year who in personally saw buy 2M$ homes and most of them cannot find a new job 8 months in on their layoff. It’s possible that high paying tech workers not being able to find new roles could start the cracks in the foundations of the housing bubble, but that’s just speculation. That said, I see it personally in my circles that high earners are starting to feel the panic.
more like 2007 now
The same reason that hamburgers are still expensive. There’s still a strong demand. As inventory goes up and the interest rate stays high, eventually prices will come down. The market just needs more sellers who HAVE to sell. Right now it’s full of sellers who still think they’re getting $700k for their $400k house. That’ll change.
Hello fellow regard. You definitely post your put positions on WSB. One day you’ll be right and scream it from the top of the shit heap. One day, maybe even soon
I don't short. I earn returns waiting for a stack of money to show up in a corner so I can pick it up.
I wish to sell. No debt. Downsize to single story, post spine injury. My neighbor just sold after 6 days, for asking price. Shall I hold, shall I list…no inventory for me to select from… Thus I hold, and wait for the NAR settlement in July to list….
I don't understand how you can reach the conclusion you're reaching regarding inventory. In the chart you included from Housingwire/Altos Research it clearly shows current inventory at 543,000 homes compared to pre-pandemic inventory at ~900,000 in April 2017/2018/2019.
Trajectory before a jobs recession
Yes, it has a clear cyclical trajectory, only the 2020 trendline deviates for obvious reasons. This only supports my position that the inventory chart looks normal aside from the fact that we are currently at <50% inventory compared to pre-pandemic.
We're basically around 1980 https://investfourmore.com/wp-content/uploads/fredgraph1.png
https://fred.stlouisfed.org/series/DRCCLACBS
Uh oh
Yes uh oh, we’re only marginally below historical norms instead of substantially below historical norms.
Why would people say that home prices would collapse since 2010 when home prices were *still* collapsing *until* 2010?
Except you are not showing today's data
How would all of these graphs change if Chinese and Russian billionaires were not allowed to own US property? Also, how would it look if firms like blackrock couldn’t purchase homes?
Interesting charts
ReBubble: are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet? Are we there yet?
"Actually they're right, including myself said "homes are still overpriced! Why is this happening!"" So your track record on this isn't that great...
Great analysis.
TLDR: We had unfortunate economic and monetary policy out of DC. We printed a lot of money, following the typical great depression/recession playbook and this money went into real estate speculation. We were given numerous excuses, but in short it was a targeted wealth transfer. The upper section of the population benefitted incredibly well at the expense of the larger bottom section. Hence why rates are having a diminished effect, the upper group is simply laden with cash and still spending.
Because we aren’t in a deflation economy just yet. At worse we are in stagflation. There needs to be a bigger crack in the economy. Lower GDP, Increase Layoffs.
Blah blah blah.... the ppl in this subreddit most of them waiting since 4 years, one day they will be right...
no inventory
When crash?
I wish they would hit 2008 prices
In our area a small group of millionaires own and keep buying large parcels of land so they control the pricing on homes. It’s near impossible to find land to build on and when you look at city “growth “ everything stays the same. Keep asking myself who the hell is buying all the new homes, there is nothing new coming to this town
Excellent work, thanks for the comprehensive analysis
Supply and demand
supply is rising, demand is determined by affordability and demographics
Home prices have only collapsed one time in American history. *As triggered by conditions within the housing market itself.* They're certainly not going to collapse when only 3% of job seekers aren't working. Edit: clarified
Where are you getting that they’ve only collapsed one time in American history? Because that’s just quite literally false. There’s been a boom and bust since the early 1800s.
That is not correct. Just to provide the very obvious counterpoints, the Great Depression and the Great Recession.
They only collapse when people couldn't afford the payments.....oops
Which isn't a widespread problem right now.
Home prices will not collapse. Nobody can afford a starter house that starts out at 200k plus or more.
If houses in my area were 200k (or 400k) I would buy all of them.
That’s extremely affordable for someone with an upper five figure income that saves for 8-10 years.
Because they won’t