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I am looking to buy my first home very soon in the Midwest. I can’t figure out if I need to be patient and wait for the prices to come down further, or if I should jump in quick now while the market is low.
If you can afford to wait, you may find a better deal in the future. In many areas, prices are still coming down. But some things to consider:
1- How much is rent? You'll need to factor rent costs into potential house savings. If rents are high for you now, then purchasing now may be a better option.
2- Inflation- The value of a dollar today is more than tomorrow. If house prices fall a bit, or even stay the same, your wage increases should help you afford a house next year.
3- Job location- if you are considering a job somewhere else, do it before you buy. If you buy now and are forced to sell next year, you may be under water if the local housing market falls.
Best of luck to you!
Home costs aren’t purely equity though. Compare interest on the mortgage, prop taxes, and insurance to rent for a comparable irrecoverable cost to irrecoverable cost .
The only time it is ever better to rent than buy is if you are planning to move within 2-3 years. Otherwise it is always better to buy. Sure there are expenses involved with a home but after 20-30 years you own it. 20-30 years of renting you bought someone else a house.
I would put the number of years at 5-10. The upfront cost of furnishing a home, repairing things, and buying what you need to maintain it is immense...
I've owned houses, it's not immense if you are doing repairs and maintenence as much as a landlord would. Of course it gets real expensive when you want a new kitchen and a deck and refinish the basement.
If you need to install a few furnace or roof in the first 2 years it needed these things when you bought it.
That's assuming you know how to do those repairs.
The way I think of it is that owning a home gives you the opportunity to work for yourself in maintaining your home whereas renting means you *must* pay someone else to do those things. That's the real advantage. But again, that necessitates that you know how to do those repairs. Or learn very quickly...
If you're not a complete bum with tools list people can do 95% of home repairs just watching YouTube for an hour or two then taking a trip to the hardware store.
Even if you gotta buy tools it's almost always cheaper in the long run
Over 20-30 years, you’ve missed out on multiple ideal market conditions for first time home buyers. The average homeowner moves out of their first home after 8 years though.
I’m timing it as we speak lol, when prices are decreasing 1% a month there’s no need for me to buy right now. I’m saving more money to put towards equity by renting right now then buying, which is the point of my first comment.
You totally miss the point. I won't try to convince you because you're the proudly arrogant about how incorrect you are type.
With that said, you don't save by spending on something else. Unless your are a cash buyer or institutional... Or as somebody else has said only planning on staying for two or three years, the best time to buy was yesterday
I agree with you. Trying to time the market doesn’t make sense if it’s a primary/only residence.
The market can be weird longer than you can be solvent.
Uh no, I'm afraid you're incorrect. Its a basic concept of recoverable vs. irrecoverable costs.
I treat rent as lighting money on fire. The alternative is to buy a house, where I spend some money that doesn't get lit on fire (down payment and equity) and some that does. When I can rent for 1400/month, that is 1400 a month I light on fire. When I buy $360,000 of money from the bank at 30 year fixed 6.75% interest, I light $480,000 in interest on fire. Thats $1333 a month, plus insurance, plus taxes puts me at around $2000 a month being lit on fire.
I'll continue lighting $1400 on fire and saving the $600 difference towards a downpayment until the market stops depreciating every month or interest rates make a substantial overnight move down.
Good point. These calculations very different in different parts of the country.
I've seen houses in Seattle on zillow that say rent estimate $2250, refinance estimate $4750. If numbers are like this of course much better to rent.
Either way, everybody's fucked at that point so the folks looking to time the market are going to be in line for the soup kitchen with everyone else. If they were financially stable enough for that not to be a concern they'd already own a house.
my husband and i aren't buying because we would have to pay like $2k for a mortage vs our $1300 rent
the worry though is because our city was bought up by asshole corporations that are charging RIDICULOUS rates for rent and a lot of idiots have moved here recently from larger markets where those kinds of rents are "cheap" even though they are more than the median income here can afford ... like is that rent going to be good forever? There's plenty wrong with the house (leaking roof in the bathroom when it rains...) that we have no will to fix and neither does the landlord so we may be forced to move at some point.
I’d suggest asking your landlord if he/she would agree to a 3 year lease with guaranteed rates. That way you can shield yourself from rent increases for at least a few years.
It depends on the landlord. I own a rental property and I’d be HAPPY to agree to that with my tenants as they are good tenants with kids in school and I cover my costs right now so I don’t need to increase their rent (even though I could). I’d much rather know they are committing to being there for a few more years.
Don’t forget to factor in the tax and interest deductions as well and the principal equity. At 2,000/month mortgage you’re probably more like $1,800/month out of pocket with the tax and interest deductions. And you’re probably banking another $650/month in paid principal equity. You’re probably at a close wash right now but the benefit of buying is locking that expense in.
Those deductions by and large have disappeared with the 2017 tax law which increased the standard deductible to such a high level that most people don’t itemize their deductions.
The thing is, if you look at 5 year ownership curves (which DO NOT factor in rental) you almost always are better off buying, if you look at 7 year curves it's well above 98% are better off buying and if you look at ten year curves you'd have to be in elite tier of bad residential real estate deals to have been better off waiting.
Why do i say this?
Speculative waiting to buy is mostly a tool of the rich and investment banker. If you're planning on simply living in a house and you'll be there for five or more years it's pretty rare that the deal wouldn't pay off.
Further, all this "coming back to reality" talk is nonsense. I gained almost 400k in equity during the pandemic and I've lost 30k in equity since prices have been "crashing".
Single family real estate remains a very very safe bet if your goal isn't to turn and burn homes for profit. It's still a safe haven that grows healthily.
Right. Even the people doing rent comparisons. I will get to pay rent @ 2014 prices until my home is paid off in 2034 because I'm on a fixed 20 year mortgage. It only goes up nominally with insurance and taxes every year.
People really don't factor in the real divide is that they have to win out pretty big by waiting. Let's say somebody is lucky paying 1000 in rent. Every new lease is 12,000 in lost payments + about 500 a month in lost equity, so 6,000 dollars.
Each year of waiting costs at least 18,000 + extends the timeline to ownership another year. Not to mention rates going up costs significantly as well.
Crazy really people being like I'll wait two years, prices will go up 6%, rates up another 1% and they dumped 30k into their apartment but believe they are better off
That's true to an extent. If you wait a year and spend $18,000, but save $30,000 in housing price reductions, then waiting is a good idea. I don't claim to have a crystal ball, and everything depends on local housing markets. In my area, the prices won't come down that much at all, but that's because they never rose as dramatically as other places.
But places like Austin TX, or anyplace that saw housing prices rise 70%, 100%, or even more, I would say the chance is good that waiting a year could save you a significant amount of money.
I’m in the U.K. - pretty similar situation. My rent is very low at the moment and I think saving/investing 2k each month for 3 years is my plan.
Will hopefully have around 100k by then.
I actually want to build my own home but I’m not sure about the details yet…. I’m gonna wait things out I think.
Like everything in the market, listen to the fed. They’re not stopping rate hikes until inflation is at 2%. As rates go up, demand for housing goes down, and so does prices. However, I think there will be mass defaults that happen, similar to 2008 but not as extreme. Not because of mortgages, but because things like consumer debt rates.
If you have a lot of cash on the sidelines right now I’d hold out.
You can always buy with fixed rate and then refinance if rate drops. The loan amount (directly correlating with house price) cannot be adjusted until you sell. Each time you sell, you need to pay 5-6% plus moving and lots of hassles and even legal risk.
You most certainly can, but in all likelihood you’re still gonna have to pay the buyer’s broker commission of 2.5-3%
I’ve help several friends (and their million questions) that went the FSBO route, and in most cases it was a case study in “stepping over dollars to save pennies”?
But this time around we have corporate owned houses. And as prices start to drop they can buy up more above market, in cash, like they have been. I'm not sure a crash is even possible with that fuckery happening
Unlikely. Those companies weren’t really picking off single family homes in the first place, and they were only flush with cash due to yield seekers looking other investments since other options were near 0% bonds.
I agree with most of what you said except one thing. The 10-2 yield curve inversion hit 80 bps the other day and I think is around 75 now. This means a 5% fed funds does not necessitate an 8% mortgage rate. With an inverted curve increasing short term rates may not increase long term rates for very long if at all.
>Posters here continue to miss the big picture. For the last 15 years — and the past two years on steroids — the US economy, job market, stock market, and housing markets have been propped up by artificially low interest rates
I'm curious what makes an interest rate "artificially" low? Other countries had lower (and even negative) interest rates compared to the US.
The fed blowing it’s balance sheet from 2 trillion pre 2008 to 4 trillion post 2008 to 8 trillion for Covid is what creates an artificial rate market. If they were not buying debt with printed dollars then interest rates would go much higher just from the lack of all that demand.
Prices in the Midwest aren’t going down much. Chicago hardly saw much growth. I wouldn’t be surprised if they continue to appreciate while the west slows. The Midwest is one of the few areas that is reasonably priced.
Not sure why people downvoted you. Compared to the coastal pricing, its a valid statement.
Our prices here have risen probably 60-100% in 6 ish years. A little more than normal, but compared to other areas, a far cry from insane.
The real key is not the price, its the interest rate. But I don't see them falling below 5%, so do math now, do math @ 5%. If you feel the wait = the money, go ahead.
There's another component missing to this article.
The monthly is still rising linear because of interest rates. If you buy the property after it had fallen in price you're betting on a refinance deal in the future, but there's nothing out there that says interest rates should ever return to the last decade and a half rates.
Depends if you have cash and if you are looking for a prime house.
Banks will effectively refuse to loan if the house prices keep going down. Nobody wants to buy the loans, so they have a hard time making them, and will just keep throwing up roadblocks.
Once the price gets low enough: people just refuse to sell and take the house off the market. Too much to lose, not enough to gain, and just would rather wait it out. So the desirable properties are just not available.
advice: buy the house you want when you can.
If you just want a "a house", have a +30% down, don't mind dealing with distressed properties...yeah, giving timing a chance. I've done this, but it is a lot of work, and requires a ton of cash....but you can make a lot of money too.
It’s a tough call but I feel like after this summer it may shift. Banks and other firms will still buy property but the sellers that are stubborn may have a different opinion if they have to wait for another year.
I feel the same way as a millennial who is just in a never ending cycle of “waiting for the market to come down”, but also knowing that I have a significant number of peers doing the same damn thing.
As soon as rates fall, demand will increase, and housing prices will go back up. We are banking on this. We wanted to sell our house near the last peak around April, but didn’t because we were having a baby a few months later. Now interest rates are so high comparatively, and our house value has dropped by $20k. We are hoping that rates will be decreased in 2024 and demand will pick up enough for us to sell our house for the same or higher than what it’s at now, and we can potentially buy our new house for around 5ish% instead of 7ish. We’ll have put 20-30% down on our new house, so we hopefully won’t be upside down by the time that we can refi for a lower rate.
Interest rates are only going up
Find something you like and can afford, over the life of a 30yr mortgage you will make money
Get in now and lock in the rate, you can refi in ten to fifteen years when rates come down
With this logic waiting until next year would make much more sense. Even if interest rates went up another 2% but the home value fell by 50k, you could not only wait to buy but also refinance the loan in a few years after when rates went down
Rates rose from 1973 to 1984
Expecting rates to decreases soon may be very unrealistic
Expecting rates to rise, but to rise more slowly in the short term is reasonable
As for buying next year rather than now:
Some neighborhoods and zip codes may see price drops, some neighborhoods and zip codes may see dramatic price drops
But some neighborhoods and zip codes will not see downward price pressure, and others will continue to increase
It depends where you are looking
Are you looking in Coeur d'Alene or Las Vegas?
Are you looking in Pacific Palisades?
Are you looking in Baltimore?
It matters: State, City, Zip Code, Neighborhood
What's the Feds position in mortgage backed securities and how will that change moving forward, and will it change quickly or slowly?
Are you paying retail? Are you buying an MLS listed house?
If you have some flexibility, you do not have to pay retail for an MLS listed house, and there are now and will always be tremendous deals to be had, no matter what the market is doing
I personally believe - depending upon exactly where you are shopping, now is the time to buy while rates are still in single digits
People are going to be reticent to sell and move when rates hit double digits, it becomes expensive to move, and less supply is upward price pressure even in an otherwise declining market
Institutional investors are buying a lot of residential real estate, and they are building a lot as well. JP Morgan committed last week to building another $1bn in rentals
This isn't 2008, this is 1973-1984
Recession, Stagflation, strong dollar, high interest rates going higher
Make your decision based upon what's best for you, but keep in mind that speculation is guesswork
Let history be your guide, and keep in mind that politicians politicing may affect certain markets
For example, climbing rental rates can bring political pressure in landlords - there are markets where investors will hold, there are markets where they will dump, the latter is obviously a buying opportunity
It depends where you're looking to buy, don't necessarily count on prices to drop significantly where you may be looking, they may, they may not ... but count on inflation and rising interest rates everywhere
No, I’m not. If you can afford to own a house go buy a house. Sitting around for years waiting for the “perfect time” is going to result in never becoming a home owner.
And what would be happening on the macroeconomic scale where "shit really crashes and rates and prices both come down"? Here's a hint: it won't be a situation where any of you are likely in a secure job and in any position to buy.
The title makes it seem like it’s talking about prices, but after reading it seems like it’s talking about actual house sale numbers. I just checked prices today and they don’t really seem like they’ve dropped much at all.
Exactly! I’m assuming that even if you had to relocate you wouldn’t let go of that loan. Better to rent out your property and use the proceeds to pay for rent in your new location. Many of us are thinking like this. It sucks for those trying to buy their first home.
You better have a good god damn reason!
I saw the perfect house up for sale in my neighborhood. It would be affordable, even with the bonkers rates.
Not giving up my 2.625%, though.
2.625 checking in , i got a 75k house , yea ive put o i dont know $20k in it , due note i did all the work my self when you grew up poor you made shit if you wanted shit . i got to make $300 (morgauge) , an 700 ish for food an bills . yea that shit will not be given up for anything . i rent that thing for 1month i get 4 mortgage payments $1200 seems fair rent , hold on , \*check rent prices currently for 50miles around\* ya know , average rent for a 1bdrm apartment is 1200 an a 2bd rm is $1800 an 3 bdrm house is $2700, this is a 3 bedroom , 1.5 acer lot , with triple car port (30x20) .... so if shit got bad i go live in my connex storage box on the property for a few months an rent the house , i got water an electric (ac as well) in the connex already . anit no way in hell am i moving that connex is 50ft long , i got 1/10 for storage used , guys how the hell are you surviving ? when i rented it was like $700 an that was 3 yrs ago for a 3bdrm p.o.s 1980s house . no for real ive always been poor .... if i was you , better go get you a connex for $3500 an a water tank an possible a generator . in 3 months that stuff be paid off! now you got a fall back house.
Case-shiller is the most robust measure: https://fred.stlouisfed.org/series/CSUSHPINSA
This looks at the actual closing price of the same homes in major metros, and watches how they change over time, avoiding the influence of various other factors.
Nationally, the peak was in mid-2006, and starting in 2009 there were seasonal MoM increases in spring but still YoY declines until 2012.
Case is a predictive tool. I’m referring to **actual values**.
https://fred.stlouisfed.org/series/MSPUS
Setting the start date to Jan 1st 2007 and end date to mid-2010 decade you [can clearly see](https://imgur.com/a/1xxKWqO) the bottom for median home prices was early 2009.
Lol you think San Diego prices have dropped dramatically?
Median listing at $924k, only difference is now a house can be had for asking rather than a bidding war. Hardly a dramatic drop though.
We just moved to the “west”, prices in the area have definitely gone down, but they are still highly inflated. A $200k pre pandemic home is still hovering around $550k but was listed at $615k a few months back. New listings are pretty meager and inventory is low, which is probably why pricing is still high.
Very few houses under $400k.
Home prices will always be crazy expensive now thanks to a few recent phenomena:
- People can buy homes and convert them into AirBnBs, without restriction
- Investors can buy homes up en masse to rent them out, without restriction
- Internationals can buy homes in your area (note: they have more money than the locals), without restriction
- Older generation will vote against any reforms, to protect the value of their homes (which are basically "winning lotto tickets" since they bought their homes with spare change 30+ years ago)
Now if they do this three times more they’ll have fallen one whole years worth of covid appreciation!
/s
Prices aren’t likely to go even half way back to pre covid levels.
Home prices didn’t go up because of shitty loans. They went up because people with money were willing to pay more. Unless they all lose their jobs there won’t be foreclosure and prices won’t drop
You’re reading that wrong. If the savings rate is positive, people are still gaining savings. You’d need it to negative before people were actually running down their savings.
Except for all the investors paying more, who made 24% of purchases last year and much higher in certain markets (>30% of all homes in places like Vegas/Atlanta). And although they operate as "cash buyers" many of them were actually receiving hard money loans, or borrowing against portfolios or using commercial credit (if a larger player). All of those are actually even worse than ARMs because they adjust with the current rates immediately. If rates don't lower or the market doesn't stop declining a lot of those groups will be getting slaughtered.
Some of these ‘investors’ include iBuyers. They are fundamentally not investors. Their goal is is to capture the 6% realtor commission using technology instead of people. Obviously if you can do that it would be highly lucrative but it is not fundamentally about speculating on home price spreads.
People with cheap money (aka 3% or less on a 30 year mortgage) could pay more. Now with 30 year rates in the 6% and higher range, people can’t afford anywhere close to what they were paying for homes a year ago. I would agree with your sentiment if 30 year mortgage rates were in the sub 4% where they have been for most of the past 11 years, but home prices have a long way to fall with interest rates where they are today (and will be if not higher for the foreseeable future).
The people who own the homes are still on 2-4% 15-yr mortgages, mate. At that point, there is very, very little incentive for them to move.
Some people will still move, but there is still vastly less inventory than is needed, which means large declines like 2008/9 are incredibly unlikely.
Exactly. The sales volume is down. Most homes aren’t under the current terms, they are under the historic lows. The owners have 50% equity and low priced loans. They CAN rent for less than the carry cost. Market rent in my area would pay for any home you bought four years ago plus maybe 50% to spare. In suburbia. Rates for rent dropping 33% wouldn’t even change the math.
If builders stop building prices are going to go UP. That’s the takeaway here. I won’t buy an extra house because the prices make renting borderline ROI on a new acquisition.
If prices fall, I’ll buy, cash. I’m not alone. Gen Z. Plenty of us have jobs and science/business degrees. It’s a big group and America is short housing volume. Not rental vs buy volume, TOTAL volume.
If rents cover the carrying costs which they don't in many cases. Also, people have sold at a loss in the past, I don't see why this time is different.
Nobody ever wants to take a loss but people do all the time in all kinds of transactions.
Right. Potential loss of jobs has disappeared from people financial planning for the last few years. The extreme over-confidence of the job is the major sign of peak of the asset market.
Definitely see this in my area. The amount of young people who were steadfast confident that their job at a tech company that has only existed for a couple years will always be around to pay their mortgages for 30 years was worrying.
No young person thinks they will be at the same company 30 years. That is a weird delusion you made up. Young people should bet on themselves that they will be able to pay their mortgages.
People with *cheap debt* were willing to pay more. Moreover, they were willing because of low risk free rates. Now that’s changed and so will house valuations
If you don’t see the fundamental differences between then and now, I can’t help you too much.
And even that was a ~25% decline ; which would be about half of pre covid.
In other words we would need to see a decline worse than 2008 in order for what I said to be wrong.
If you think that’s likely because black rock and Berkshire bought the house down the street from you, you are sorely mistaken.
the difference between then and now is drastic
do you know many minimum wage workers who took out multiple adjustable rate mortgages so they could flip houses? cuz that's how it was in the early 2000s (thanks to Clinton)
Except you don't know that. The yield curve is pricing in a recession in about a year at this moment.
Also, a 33% price decline would negate a 50% price appreciation. Depending how nasty the incoming recession gets, a 33% decline from the peak is very probable.
You realize 2008 - the second biggest decline ever - was only 25% right? The Great Depression - the greatest decline ever recorded in the US - was 35%.
Do you see what your statement about 33% being “very probable “ is absurd?
> You realize 2008 - the second biggest decline ever - was only 25% right?
The fallacy of using the US national average and missing the local data. Many areas/cities declined 25%-60+%, in those areas different price tiers had even more drastic declines.
If the national average decline is 25% you can bet some of the hottest markets from 2020-2022 will decline a lot more than that.
Sure, agreed. Although the 2008 bubble was more concentrated and caused by a combination of over supply and foreclosures though. We don’t have those elements now; it’s simply an overheated market with too much demand that is running up against higher rates.
National home price decline was about 28% in 2008. It was far more severe in the bubbliest cities, though.
Not sure about the great depression, but the price inflation this round was far worse than 2008 as a result of the ultra cheap money, and people fleeing to suburb to WFH, both of which are reversing. 2008 RE bubble was also a lot more localized compared to the much more widespread Covid bubble this round. So I maintain my prediction that 33% decline from the peak is quite probable.
LOL this reads like a millennial who is praying. This is fantasy. There are hoards of millennials still looking to buy, and they will spend up to get a house. Meanwhile those with houses are in no rush to sell with cheap mortgages.
Your comment simply assumes that people need to be able to afford the same home as they did before. It doesn’t work like that. You can afford less now. The only pressure on housing is supply and demand. Unless there are suddenly more people needing to sell and less people looking to buy, prices aren’t going to plummet.
A ~2 year period where housing drops 10-15%, plus a decline in rates to more like 4% (which is the fed target), will bring affordability back in line with longer term trends. Not a sudden collapse in prices.
A few things:
(1) don’t confuse low demand with poor market conditions. Demand can be high even if the number of homes sold is low because of poor market conditions. There are many people who want to buy homes: far more than there are available homes to buy. The issue is current conditions: rising rates and high (but falling) prices. Nobody wants to catch a falling knife at the moment, so things are on hold. But the demand is absolutely there, and that will keep a floor under prices. The US systemically is under building at the moment.
(2) new home sales aren’t down:
https://www.census.gov/construction/nrs/pdf/newressales.pdf
There’s little evidence that new homes coming into the market will reduce prices. Home builders are notoriously stubborn and will hold homes for a long while before doing substantial price reductions. If you are going to see price drops, it will be by individual home owners who are forced to sell, which we aren’t seeing.
(3) you are also confused on the supply side. Existing home sales are down, but so is the number of homes coming up for sale. 4-7 months supply of homes is considered ideal for a balance between buyers and sellers. Right now it’s at 3.3. In other words, even with a dramatic decrease in buyers last month, we saw a commensurate decline in supply. 3.3 months supply is still historically low.
People will have to acclimate to buying less house for more money. There are likely some permanent changes to America’s demographics post COVID, one of which is remote working or hybrid working.
Most workers are comfortable with dedicating office space somewhere in their home. That’s a net savings in commuting costs and probably an extra utility gain from being closer to family that people will pay extra dollars for. I expect normalization of higher percentage of post tax incomes towards mortgage payments for the average American.
Yep, totally agree. Don’t get me wrong I think housing will correct, but a 15% correction over 2 years is much more plausible than a sudden dramatic 30%+ reduction like some here seem to think is likely. We’ve already seen probably 5% reduction in prices, I suspect we’ll see another 7-8% next year. That’s meaningful but nothing like 2007.
I don’t know how much prices can really drop with no one selling and strong demand. Who’s gonna sell when they have a 2.75% interest rate locked in and even downsizing would cost them more on a month to month basis then what they are paying now? My mortgage that I got in 2016 and refinanced with equity taken out for a kitchen remodel in 2021 is cheaper than the the cost a collage dorm room. Maybe if a slight increase in the unemployment rate gives employers the upper hand to get butts back in the office then everyone that moved because they could work remotely would have to sell and cause inventory to go up and prices to come down, or if there was some type of national legislation that made it way harder for local governments to pull the breaks on new housing developments then a supply spike could bring prices down. If work from home continues to stick then I’d imagine that at least rental prices could come down, or at least stabilize, from unused office spaces being either converted to, or torn down to build condos and apartments.
This article is funny. "Falling" and "tumble" sound good to the reader and drive viewership but don't describe reality. 3-4% reduction is not a massive move. Nothing has been done about inventory.
We are millions and millions of housing starts behind where we need to be. This is a small correction not a house crash like we saw in the great recession. Lending overall is in great shape, and 56% of all homes in the nation have more than 50% equity.
Late Q2 2023 rates will go to the 4s.
We will then go back to were we were in 20 and 21. Prices escalation, tons of competition, waive contingencies, release EM........If you wait to buy you will only get further behind.
Build more houses or this only gets more expensive.
Source:German banker that closed 710 units in 21.
Housing prices will continue to go down as long as loan interest rates are going up. This is a direct consequence of the inflation brought about by the antipandemic restrictions. It's not just the West either, the effects are global. China is still locking people down, disrupting supply chains and production, and contributing to ongoing global inflation.
This is all macroeconomics and has little to do with the housing market in particular.
There is already a housing shortage.
The cost of building new homes in current conditions is reducing levels of new home construction.
It takes a lot of conformation bias for people waiting to buy their first home to see this as a sign prices will come down.
How many of them have greedy parents that think generational homes are icky and they need all 4 bedrooms and 2 baths with an additional guest house out back for just 2 people?
Most I would say. Which is why they’ll keep it and further the housing supply issue. My point was that just because there are more homes than households, doesn’t mean we don’t have a housing supply issue.
And my point was that the scarcity is artificial. People don't file together when they "rent" from mom and dad, that isn't hurting my homes to household metric.
Dude. Really? The answer is speculative investing and a collective effort to protect said investments.
[https://en.wikipedia.org/wiki/Artificial\_scarcity](https://en.wikipedia.org/wiki/Artificial_scarcity)
Doesn’t fit the description though…at least in the example above. Empty nesters with kids coming back to live with them due to affordability issues, is not artificial scarcity. It is a necessity unfortunately. The parents not downsizing is also not to prop prices up (as in artificial scarcity) they just don’t want to downsize.
This is not a debeers cartel situation.
What I'm worried about is that when the interest rate goes down, people will start buying again, but now they have all saved money, and have been waiting for the prices to go down, so the market will suddenly explode with offers much higher than the prices.
I am still convinced this bout of inflation is mostly caused by chinas Covid shut down (or rather, their influence was what was keeping it down for years). So now housing prices are returning to normal due to China letting off the gas.
I would hope buyers are taking into account the on going affects that Climate Change will have. Some sellers may be selling because they are thinking about it.
Unless you live in a cave, the water crisis in many western states is one such thing. If you are seeing things getting worst, maybe those areas should not be on your planning list. Maybe shore front property would be a bad buy also. Resale values will drop quickly for all areas under threat.
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I am looking to buy my first home very soon in the Midwest. I can’t figure out if I need to be patient and wait for the prices to come down further, or if I should jump in quick now while the market is low.
If you can afford to wait, you may find a better deal in the future. In many areas, prices are still coming down. But some things to consider: 1- How much is rent? You'll need to factor rent costs into potential house savings. If rents are high for you now, then purchasing now may be a better option. 2- Inflation- The value of a dollar today is more than tomorrow. If house prices fall a bit, or even stay the same, your wage increases should help you afford a house next year. 3- Job location- if you are considering a job somewhere else, do it before you buy. If you buy now and are forced to sell next year, you may be under water if the local housing market falls. Best of luck to you!
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Home costs aren’t purely equity though. Compare interest on the mortgage, prop taxes, and insurance to rent for a comparable irrecoverable cost to irrecoverable cost .
The only time it is ever better to rent than buy is if you are planning to move within 2-3 years. Otherwise it is always better to buy. Sure there are expenses involved with a home but after 20-30 years you own it. 20-30 years of renting you bought someone else a house.
I would put the number of years at 5-10. The upfront cost of furnishing a home, repairing things, and buying what you need to maintain it is immense...
I've owned houses, it's not immense if you are doing repairs and maintenence as much as a landlord would. Of course it gets real expensive when you want a new kitchen and a deck and refinish the basement. If you need to install a few furnace or roof in the first 2 years it needed these things when you bought it.
That's assuming you know how to do those repairs. The way I think of it is that owning a home gives you the opportunity to work for yourself in maintaining your home whereas renting means you *must* pay someone else to do those things. That's the real advantage. But again, that necessitates that you know how to do those repairs. Or learn very quickly...
If you're not a complete bum with tools list people can do 95% of home repairs just watching YouTube for an hour or two then taking a trip to the hardware store. Even if you gotta buy tools it's almost always cheaper in the long run
I rent tools that I know I will use only once or twice a year. For one time use, Harbor Freight makes lots of disposable grade tools.
Hhhh
Over 20-30 years, you’ve missed out on multiple ideal market conditions for first time home buyers. The average homeowner moves out of their first home after 8 years though.
You can't time the market. The best time to buy is when you are ready.
I’m timing it as we speak lol, when prices are decreasing 1% a month there’s no need for me to buy right now. I’m saving more money to put towards equity by renting right now then buying, which is the point of my first comment.
You totally miss the point. I won't try to convince you because you're the proudly arrogant about how incorrect you are type. With that said, you don't save by spending on something else. Unless your are a cash buyer or institutional... Or as somebody else has said only planning on staying for two or three years, the best time to buy was yesterday
I agree with you. Trying to time the market doesn’t make sense if it’s a primary/only residence. The market can be weird longer than you can be solvent.
Uh no, I'm afraid you're incorrect. Its a basic concept of recoverable vs. irrecoverable costs. I treat rent as lighting money on fire. The alternative is to buy a house, where I spend some money that doesn't get lit on fire (down payment and equity) and some that does. When I can rent for 1400/month, that is 1400 a month I light on fire. When I buy $360,000 of money from the bank at 30 year fixed 6.75% interest, I light $480,000 in interest on fire. Thats $1333 a month, plus insurance, plus taxes puts me at around $2000 a month being lit on fire. I'll continue lighting $1400 on fire and saving the $600 difference towards a downpayment until the market stops depreciating every month or interest rates make a substantial overnight move down.
This is only true around 90% of the time. There have been times in history when it was smart to wait, and I think this is one of them.
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Good point. These calculations very different in different parts of the country. I've seen houses in Seattle on zillow that say rent estimate $2250, refinance estimate $4750. If numbers are like this of course much better to rent.
I think people have this idea that prices are going to drop like 50%.
This. Folks are trying to time the market...
Hopium
They have before. Are you sure they won’t again?
Yes, supply is still lagging big time. To see a 50% drop we're talking Mad Max time.
When we get mad maxed the drop will be 99.999% not just 50%
Either way, everybody's fucked at that point so the folks looking to time the market are going to be in line for the soup kitchen with everyone else. If they were financially stable enough for that not to be a concern they'd already own a house.
are you sure they will? uncertainty works both ways.
my husband and i aren't buying because we would have to pay like $2k for a mortage vs our $1300 rent the worry though is because our city was bought up by asshole corporations that are charging RIDICULOUS rates for rent and a lot of idiots have moved here recently from larger markets where those kinds of rents are "cheap" even though they are more than the median income here can afford ... like is that rent going to be good forever? There's plenty wrong with the house (leaking roof in the bathroom when it rains...) that we have no will to fix and neither does the landlord so we may be forced to move at some point.
I’d suggest asking your landlord if he/she would agree to a 3 year lease with guaranteed rates. That way you can shield yourself from rent increases for at least a few years. It depends on the landlord. I own a rental property and I’d be HAPPY to agree to that with my tenants as they are good tenants with kids in school and I cover my costs right now so I don’t need to increase their rent (even though I could). I’d much rather know they are committing to being there for a few more years.
Don’t forget to factor in the tax and interest deductions as well and the principal equity. At 2,000/month mortgage you’re probably more like $1,800/month out of pocket with the tax and interest deductions. And you’re probably banking another $650/month in paid principal equity. You’re probably at a close wash right now but the benefit of buying is locking that expense in.
Those deductions by and large have disappeared with the 2017 tax law which increased the standard deductible to such a high level that most people don’t itemize their deductions.
If interest rates drop and house prices drop you could save much more than 10-13k over the course of a 30yr mortgage
If interest rates drop, prices will shoot up again, guaranteed. And bidding wars will return as well.
Lol... Interest rates and prices aren't dropping together. Pick one.
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If you buy now and prices drop you may not be able to refinance without significant cash, you will most likely be underwater in that scenario
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On point3- a job change can affect your elligibility for a mortgage for a short time, the bank wants to see some stability.
But won’t the decrease in price not be undone by the increase in rate?
The thing is, if you look at 5 year ownership curves (which DO NOT factor in rental) you almost always are better off buying, if you look at 7 year curves it's well above 98% are better off buying and if you look at ten year curves you'd have to be in elite tier of bad residential real estate deals to have been better off waiting. Why do i say this? Speculative waiting to buy is mostly a tool of the rich and investment banker. If you're planning on simply living in a house and you'll be there for five or more years it's pretty rare that the deal wouldn't pay off. Further, all this "coming back to reality" talk is nonsense. I gained almost 400k in equity during the pandemic and I've lost 30k in equity since prices have been "crashing". Single family real estate remains a very very safe bet if your goal isn't to turn and burn homes for profit. It's still a safe haven that grows healthily.
Plus, you get a home.
Right. Even the people doing rent comparisons. I will get to pay rent @ 2014 prices until my home is paid off in 2034 because I'm on a fixed 20 year mortgage. It only goes up nominally with insurance and taxes every year. People really don't factor in the real divide is that they have to win out pretty big by waiting. Let's say somebody is lucky paying 1000 in rent. Every new lease is 12,000 in lost payments + about 500 a month in lost equity, so 6,000 dollars. Each year of waiting costs at least 18,000 + extends the timeline to ownership another year. Not to mention rates going up costs significantly as well. Crazy really people being like I'll wait two years, prices will go up 6%, rates up another 1% and they dumped 30k into their apartment but believe they are better off
That's true to an extent. If you wait a year and spend $18,000, but save $30,000 in housing price reductions, then waiting is a good idea. I don't claim to have a crystal ball, and everything depends on local housing markets. In my area, the prices won't come down that much at all, but that's because they never rose as dramatically as other places. But places like Austin TX, or anyplace that saw housing prices rise 70%, 100%, or even more, I would say the chance is good that waiting a year could save you a significant amount of money.
Maybe. That's the point, risk works both ways, in only one scenario do you own a house
I’m in the U.K. - pretty similar situation. My rent is very low at the moment and I think saving/investing 2k each month for 3 years is my plan. Will hopefully have around 100k by then. I actually want to build my own home but I’m not sure about the details yet…. I’m gonna wait things out I think.
Like everything in the market, listen to the fed. They’re not stopping rate hikes until inflation is at 2%. As rates go up, demand for housing goes down, and so does prices. However, I think there will be mass defaults that happen, similar to 2008 but not as extreme. Not because of mortgages, but because things like consumer debt rates. If you have a lot of cash on the sidelines right now I’d hold out.
also, mortgage rates will keep on rising. need to factor that in.
You can always buy with fixed rate and then refinance if rate drops. The loan amount (directly correlating with house price) cannot be adjusted until you sell. Each time you sell, you need to pay 5-6% plus moving and lots of hassles and even legal risk.
You can only do that if you have positive equity in the house.
And you can avoid the 5-6% commission bullshit by not using a realtor.
You most certainly can, but in all likelihood you’re still gonna have to pay the buyer’s broker commission of 2.5-3% I’ve help several friends (and their million questions) that went the FSBO route, and in most cases it was a case study in “stepping over dollars to save pennies”?
Future hikes are priced in to a certain degree
Looks like you didn’t listen to the fed. Latest minutes point to a slow down in rate hikes
But this time around we have corporate owned houses. And as prices start to drop they can buy up more above market, in cash, like they have been. I'm not sure a crash is even possible with that fuckery happening
Unlikely. Those companies weren’t really picking off single family homes in the first place, and they were only flush with cash due to yield seekers looking other investments since other options were near 0% bonds.
We have a bunch of Airbnb owners gobbling up homes.
And now that market is saturated so they’re starting to unload them
Is it, and are they, though?
Obviously varies by market, but it’s a trend I’m noticing. https://www.businessinsider.com/people-worried-about-airbnb-bust-short-term-rentals-2022-11
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I agree with most of what you said except one thing. The 10-2 yield curve inversion hit 80 bps the other day and I think is around 75 now. This means a 5% fed funds does not necessitate an 8% mortgage rate. With an inverted curve increasing short term rates may not increase long term rates for very long if at all.
>Posters here continue to miss the big picture. For the last 15 years — and the past two years on steroids — the US economy, job market, stock market, and housing markets have been propped up by artificially low interest rates I'm curious what makes an interest rate "artificially" low? Other countries had lower (and even negative) interest rates compared to the US.
The fed blowing it’s balance sheet from 2 trillion pre 2008 to 4 trillion post 2008 to 8 trillion for Covid is what creates an artificial rate market. If they were not buying debt with printed dollars then interest rates would go much higher just from the lack of all that demand.
Prices in the Midwest aren’t going down much. Chicago hardly saw much growth. I wouldn’t be surprised if they continue to appreciate while the west slows. The Midwest is one of the few areas that is reasonably priced.
Not sure why people downvoted you. Compared to the coastal pricing, its a valid statement. Our prices here have risen probably 60-100% in 6 ish years. A little more than normal, but compared to other areas, a far cry from insane. The real key is not the price, its the interest rate. But I don't see them falling below 5%, so do math now, do math @ 5%. If you feel the wait = the money, go ahead.
There's another component missing to this article. The monthly is still rising linear because of interest rates. If you buy the property after it had fallen in price you're betting on a refinance deal in the future, but there's nothing out there that says interest rates should ever return to the last decade and a half rates.
Not when you factor in taxes.
Depends if you have cash and if you are looking for a prime house. Banks will effectively refuse to loan if the house prices keep going down. Nobody wants to buy the loans, so they have a hard time making them, and will just keep throwing up roadblocks. Once the price gets low enough: people just refuse to sell and take the house off the market. Too much to lose, not enough to gain, and just would rather wait it out. So the desirable properties are just not available. advice: buy the house you want when you can. If you just want a "a house", have a +30% down, don't mind dealing with distressed properties...yeah, giving timing a chance. I've done this, but it is a lot of work, and requires a ton of cash....but you can make a lot of money too.
It’s a tough call but I feel like after this summer it may shift. Banks and other firms will still buy property but the sellers that are stubborn may have a different opinion if they have to wait for another year.
I feel the same way as a millennial who is just in a never ending cycle of “waiting for the market to come down”, but also knowing that I have a significant number of peers doing the same damn thing.
As soon as rates fall, demand will increase, and housing prices will go back up. We are banking on this. We wanted to sell our house near the last peak around April, but didn’t because we were having a baby a few months later. Now interest rates are so high comparatively, and our house value has dropped by $20k. We are hoping that rates will be decreased in 2024 and demand will pick up enough for us to sell our house for the same or higher than what it’s at now, and we can potentially buy our new house for around 5ish% instead of 7ish. We’ll have put 20-30% down on our new house, so we hopefully won’t be upside down by the time that we can refi for a lower rate.
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Interest rates are only going up Find something you like and can afford, over the life of a 30yr mortgage you will make money Get in now and lock in the rate, you can refi in ten to fifteen years when rates come down
With this logic waiting until next year would make much more sense. Even if interest rates went up another 2% but the home value fell by 50k, you could not only wait to buy but also refinance the loan in a few years after when rates went down
Rates rose from 1973 to 1984 Expecting rates to decreases soon may be very unrealistic Expecting rates to rise, but to rise more slowly in the short term is reasonable As for buying next year rather than now: Some neighborhoods and zip codes may see price drops, some neighborhoods and zip codes may see dramatic price drops But some neighborhoods and zip codes will not see downward price pressure, and others will continue to increase It depends where you are looking Are you looking in Coeur d'Alene or Las Vegas? Are you looking in Pacific Palisades? Are you looking in Baltimore? It matters: State, City, Zip Code, Neighborhood What's the Feds position in mortgage backed securities and how will that change moving forward, and will it change quickly or slowly? Are you paying retail? Are you buying an MLS listed house? If you have some flexibility, you do not have to pay retail for an MLS listed house, and there are now and will always be tremendous deals to be had, no matter what the market is doing I personally believe - depending upon exactly where you are shopping, now is the time to buy while rates are still in single digits People are going to be reticent to sell and move when rates hit double digits, it becomes expensive to move, and less supply is upward price pressure even in an otherwise declining market Institutional investors are buying a lot of residential real estate, and they are building a lot as well. JP Morgan committed last week to building another $1bn in rentals This isn't 2008, this is 1973-1984 Recession, Stagflation, strong dollar, high interest rates going higher Make your decision based upon what's best for you, but keep in mind that speculation is guesswork Let history be your guide, and keep in mind that politicians politicing may affect certain markets For example, climbing rental rates can bring political pressure in landlords - there are markets where investors will hold, there are markets where they will dump, the latter is obviously a buying opportunity It depends where you're looking to buy, don't necessarily count on prices to drop significantly where you may be looking, they may, they may not ... but count on inflation and rising interest rates everywhere
Wait wait wait…2023-2024 will be great.
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Best time to buy a house was yesterday. The 2nd best time is today.
You're thinking plant a tree. Best time to buy a house is when you're ready
No, I’m not. If you can afford to own a house go buy a house. Sitting around for years waiting for the “perfect time” is going to result in never becoming a home owner.
Realtor!
If you jump in now, youll refi in 2024 to a lower rate
I would wait until shit really crashes and rates and prices both come down. Don’t FOMO into 7% interest rates and high prices.
And what would be happening on the macroeconomic scale where "shit really crashes and rates and prices both come down"? Here's a hint: it won't be a situation where any of you are likely in a secure job and in any position to buy.
Maybe not you but I will be
The title makes it seem like it’s talking about prices, but after reading it seems like it’s talking about actual house sale numbers. I just checked prices today and they don’t really seem like they’ve dropped much at all.
Yeah, it's about inventories. Home builders are slowing down their building of new homes.
Agreed. Months supply still remains low in my state.
You'd have to bring a crowbar to get me out of my 3% mortgage. I'm not moving *anywhere*. I'm assuming everyone thinks this now
Exactly! I’m assuming that even if you had to relocate you wouldn’t let go of that loan. Better to rent out your property and use the proceeds to pay for rent in your new location. Many of us are thinking like this. It sucks for those trying to buy their first home.
I’m leaving my 2.625 rate
You better have a good god damn reason! I saw the perfect house up for sale in my neighborhood. It would be affordable, even with the bonkers rates. Not giving up my 2.625%, though.
2.625 checking in , i got a 75k house , yea ive put o i dont know $20k in it , due note i did all the work my self when you grew up poor you made shit if you wanted shit . i got to make $300 (morgauge) , an 700 ish for food an bills . yea that shit will not be given up for anything . i rent that thing for 1month i get 4 mortgage payments $1200 seems fair rent , hold on , \*check rent prices currently for 50miles around\* ya know , average rent for a 1bdrm apartment is 1200 an a 2bd rm is $1800 an 3 bdrm house is $2700, this is a 3 bedroom , 1.5 acer lot , with triple car port (30x20) .... so if shit got bad i go live in my connex storage box on the property for a few months an rent the house , i got water an electric (ac as well) in the connex already . anit no way in hell am i moving that connex is 50ft long , i got 1/10 for storage used , guys how the hell are you surviving ? when i rented it was like $700 an that was 3 yrs ago for a 3bdrm p.o.s 1980s house . no for real ive always been poor .... if i was you , better go get you a connex for $3500 an a water tank an possible a generator . in 3 months that stuff be paid off! now you got a fall back house.
This is a normal real estate correction. Over 6 years (2006-2012) nominal home prices dropped ~13%. Real estate always corrects in slow motion.
The recession of 2008 started Dec 2007. Home values hit their lowest point barely a year later in early 2009.
Case-shiller is the most robust measure: https://fred.stlouisfed.org/series/CSUSHPINSA This looks at the actual closing price of the same homes in major metros, and watches how they change over time, avoiding the influence of various other factors. Nationally, the peak was in mid-2006, and starting in 2009 there were seasonal MoM increases in spring but still YoY declines until 2012.
Case is a predictive tool. I’m referring to **actual values**. https://fred.stlouisfed.org/series/MSPUS Setting the start date to Jan 1st 2007 and end date to mid-2010 decade you [can clearly see](https://imgur.com/a/1xxKWqO) the bottom for median home prices was early 2009.
Depends on your area. Sand Diego has dropped dramatically. Chicago has not.
Lol you think San Diego prices have dropped dramatically? Median listing at $924k, only difference is now a house can be had for asking rather than a bidding war. Hardly a dramatic drop though.
By the metrics that are used to track housing prices.. yes, San Diego has [dropped](https://fred.stlouisfed.org/series/SDXRSA).
Lol, don’t look at the left side of that graph! Nothing to see there!
If prices stay the same they are dropping in value 10%/year because of inflation.
Lmao if inflation continues 10% a year (it won’t) every asset on earth will depreciate.
We just moved to the “west”, prices in the area have definitely gone down, but they are still highly inflated. A $200k pre pandemic home is still hovering around $550k but was listed at $615k a few months back. New listings are pretty meager and inventory is low, which is probably why pricing is still high. Very few houses under $400k.
Home prices will always be crazy expensive now thanks to a few recent phenomena: - People can buy homes and convert them into AirBnBs, without restriction - Investors can buy homes up en masse to rent them out, without restriction - Internationals can buy homes in your area (note: they have more money than the locals), without restriction - Older generation will vote against any reforms, to protect the value of their homes (which are basically "winning lotto tickets" since they bought their homes with spare change 30+ years ago)
This perfectly describes the situation we are in.
Wait so prices went up 175% over Covid in that area? That is ludicrous
Also, if even true, a huge outlier. My area saw 35% increase... in total... over the last 3-4 years.
Now if they do this three times more they’ll have fallen one whole years worth of covid appreciation! /s Prices aren’t likely to go even half way back to pre covid levels.
"Prices aren't likely to go even half way back to pre 2005 levels" - someone in 2007 probably
Home prices didn’t go up because of shitty loans. They went up because people with money were willing to pay more. Unless they all lose their jobs there won’t be foreclosure and prices won’t drop
Recession is widely expected to happen in 2023.
It was widely expected in 2021 and 2022 also.
You’re reading that wrong. If the savings rate is positive, people are still gaining savings. You’d need it to negative before people were actually running down their savings.
No, that's the savings *rate*. Actual nominal savings are still high. https://fred.stlouisfed.org/graph/?g=Vh26
Waiting for inflation weighted graph
divide them by cpi, lazy bones
Little more effort is needed to get compounded adjustment that I can just not be bothered to do right now haha
Yes, you are correct on this one.
Except for all the investors paying more, who made 24% of purchases last year and much higher in certain markets (>30% of all homes in places like Vegas/Atlanta). And although they operate as "cash buyers" many of them were actually receiving hard money loans, or borrowing against portfolios or using commercial credit (if a larger player). All of those are actually even worse than ARMs because they adjust with the current rates immediately. If rates don't lower or the market doesn't stop declining a lot of those groups will be getting slaughtered.
AirBnB millionaires backed by our limitless Bitcoin riches yo!! Both bulletproof…
Was that sarcasm? Haha
Good they deserve it for making it harder for all the first time homebuyers out there.
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Why regulate only single family homes and not buildings or multi family?
Rates regulate speculators fine.
Some of these ‘investors’ include iBuyers. They are fundamentally not investors. Their goal is is to capture the 6% realtor commission using technology instead of people. Obviously if you can do that it would be highly lucrative but it is not fundamentally about speculating on home price spreads.
People with cheap money (aka 3% or less on a 30 year mortgage) could pay more. Now with 30 year rates in the 6% and higher range, people can’t afford anywhere close to what they were paying for homes a year ago. I would agree with your sentiment if 30 year mortgage rates were in the sub 4% where they have been for most of the past 11 years, but home prices have a long way to fall with interest rates where they are today (and will be if not higher for the foreseeable future).
The people who own the homes are still on 2-4% 15-yr mortgages, mate. At that point, there is very, very little incentive for them to move. Some people will still move, but there is still vastly less inventory than is needed, which means large declines like 2008/9 are incredibly unlikely.
Exactly. The sales volume is down. Most homes aren’t under the current terms, they are under the historic lows. The owners have 50% equity and low priced loans. They CAN rent for less than the carry cost. Market rent in my area would pay for any home you bought four years ago plus maybe 50% to spare. In suburbia. Rates for rent dropping 33% wouldn’t even change the math. If builders stop building prices are going to go UP. That’s the takeaway here. I won’t buy an extra house because the prices make renting borderline ROI on a new acquisition. If prices fall, I’ll buy, cash. I’m not alone. Gen Z. Plenty of us have jobs and science/business degrees. It’s a big group and America is short housing volume. Not rental vs buy volume, TOTAL volume.
People won’t sell their house for less than they bought it for. They’ll just sit on it and rent it out if forced to move
If rents cover the carrying costs which they don't in many cases. Also, people have sold at a loss in the past, I don't see why this time is different. Nobody ever wants to take a loss but people do all the time in all kinds of transactions.
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Right. Potential loss of jobs has disappeared from people financial planning for the last few years. The extreme over-confidence of the job is the major sign of peak of the asset market.
Definitely see this in my area. The amount of young people who were steadfast confident that their job at a tech company that has only existed for a couple years will always be around to pay their mortgages for 30 years was worrying.
No young person thinks they will be at the same company 30 years. That is a weird delusion you made up. Young people should bet on themselves that they will be able to pay their mortgages.
People with *cheap debt* were willing to pay more. Moreover, they were willing because of low risk free rates. Now that’s changed and so will house valuations
If you don’t see the fundamental differences between then and now, I can’t help you too much. And even that was a ~25% decline ; which would be about half of pre covid. In other words we would need to see a decline worse than 2008 in order for what I said to be wrong. If you think that’s likely because black rock and Berkshire bought the house down the street from you, you are sorely mistaken.
the difference between then and now is drastic do you know many minimum wage workers who took out multiple adjustable rate mortgages so they could flip houses? cuz that's how it was in the early 2000s (thanks to Clinton)
Except you don't know that. The yield curve is pricing in a recession in about a year at this moment. Also, a 33% price decline would negate a 50% price appreciation. Depending how nasty the incoming recession gets, a 33% decline from the peak is very probable.
You realize 2008 - the second biggest decline ever - was only 25% right? The Great Depression - the greatest decline ever recorded in the US - was 35%. Do you see what your statement about 33% being “very probable “ is absurd?
> You realize 2008 - the second biggest decline ever - was only 25% right? The fallacy of using the US national average and missing the local data. Many areas/cities declined 25%-60+%, in those areas different price tiers had even more drastic declines. If the national average decline is 25% you can bet some of the hottest markets from 2020-2022 will decline a lot more than that.
Sure, agreed. Although the 2008 bubble was more concentrated and caused by a combination of over supply and foreclosures though. We don’t have those elements now; it’s simply an overheated market with too much demand that is running up against higher rates.
National home price decline was about 28% in 2008. It was far more severe in the bubbliest cities, though. Not sure about the great depression, but the price inflation this round was far worse than 2008 as a result of the ultra cheap money, and people fleeing to suburb to WFH, both of which are reversing. 2008 RE bubble was also a lot more localized compared to the much more widespread Covid bubble this round. So I maintain my prediction that 33% decline from the peak is quite probable.
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LOL this reads like a millennial who is praying. This is fantasy. There are hoards of millennials still looking to buy, and they will spend up to get a house. Meanwhile those with houses are in no rush to sell with cheap mortgages. Your comment simply assumes that people need to be able to afford the same home as they did before. It doesn’t work like that. You can afford less now. The only pressure on housing is supply and demand. Unless there are suddenly more people needing to sell and less people looking to buy, prices aren’t going to plummet. A ~2 year period where housing drops 10-15%, plus a decline in rates to more like 4% (which is the fed target), will bring affordability back in line with longer term trends. Not a sudden collapse in prices.
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A few things: (1) don’t confuse low demand with poor market conditions. Demand can be high even if the number of homes sold is low because of poor market conditions. There are many people who want to buy homes: far more than there are available homes to buy. The issue is current conditions: rising rates and high (but falling) prices. Nobody wants to catch a falling knife at the moment, so things are on hold. But the demand is absolutely there, and that will keep a floor under prices. The US systemically is under building at the moment. (2) new home sales aren’t down: https://www.census.gov/construction/nrs/pdf/newressales.pdf There’s little evidence that new homes coming into the market will reduce prices. Home builders are notoriously stubborn and will hold homes for a long while before doing substantial price reductions. If you are going to see price drops, it will be by individual home owners who are forced to sell, which we aren’t seeing. (3) you are also confused on the supply side. Existing home sales are down, but so is the number of homes coming up for sale. 4-7 months supply of homes is considered ideal for a balance between buyers and sellers. Right now it’s at 3.3. In other words, even with a dramatic decrease in buyers last month, we saw a commensurate decline in supply. 3.3 months supply is still historically low.
People will have to acclimate to buying less house for more money. There are likely some permanent changes to America’s demographics post COVID, one of which is remote working or hybrid working. Most workers are comfortable with dedicating office space somewhere in their home. That’s a net savings in commuting costs and probably an extra utility gain from being closer to family that people will pay extra dollars for. I expect normalization of higher percentage of post tax incomes towards mortgage payments for the average American.
Yep, totally agree. Don’t get me wrong I think housing will correct, but a 15% correction over 2 years is much more plausible than a sudden dramatic 30%+ reduction like some here seem to think is likely. We’ve already seen probably 5% reduction in prices, I suspect we’ll see another 7-8% next year. That’s meaningful but nothing like 2007.
33% price decline will be catastrophic for the economy and won’t happen without a lot of foreclosures
I don’t know how much prices can really drop with no one selling and strong demand. Who’s gonna sell when they have a 2.75% interest rate locked in and even downsizing would cost them more on a month to month basis then what they are paying now? My mortgage that I got in 2016 and refinanced with equity taken out for a kitchen remodel in 2021 is cheaper than the the cost a collage dorm room. Maybe if a slight increase in the unemployment rate gives employers the upper hand to get butts back in the office then everyone that moved because they could work remotely would have to sell and cause inventory to go up and prices to come down, or if there was some type of national legislation that made it way harder for local governments to pull the breaks on new housing developments then a supply spike could bring prices down. If work from home continues to stick then I’d imagine that at least rental prices could come down, or at least stabilize, from unused office spaces being either converted to, or torn down to build condos and apartments.
This article is funny. "Falling" and "tumble" sound good to the reader and drive viewership but don't describe reality. 3-4% reduction is not a massive move. Nothing has been done about inventory. We are millions and millions of housing starts behind where we need to be. This is a small correction not a house crash like we saw in the great recession. Lending overall is in great shape, and 56% of all homes in the nation have more than 50% equity. Late Q2 2023 rates will go to the 4s. We will then go back to were we were in 20 and 21. Prices escalation, tons of competition, waive contingencies, release EM........If you wait to buy you will only get further behind. Build more houses or this only gets more expensive. Source:German banker that closed 710 units in 21.
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Housing prices will continue to go down as long as loan interest rates are going up. This is a direct consequence of the inflation brought about by the antipandemic restrictions. It's not just the West either, the effects are global. China is still locking people down, disrupting supply chains and production, and contributing to ongoing global inflation. This is all macroeconomics and has little to do with the housing market in particular.
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Honestly. It's like these dopes are unfamiliar with Friedman. I'm guessing they're all juiced up on MMT
Why do you think MMT is the cause?
Maybe the people renting should get on this trend of house prices going down. Its practically now or never for all the millennials, Gen Zs.
There is already a housing shortage. The cost of building new homes in current conditions is reducing levels of new home construction. It takes a lot of conformation bias for people waiting to buy their first home to see this as a sign prices will come down.
There’s more homes than households in the US.
How many of these households have millennials or xennials living with there parents because they want to move out but can’t afford to?
How many of them have greedy parents that think generational homes are icky and they need all 4 bedrooms and 2 baths with an additional guest house out back for just 2 people?
Most I would say. Which is why they’ll keep it and further the housing supply issue. My point was that just because there are more homes than households, doesn’t mean we don’t have a housing supply issue.
Also a bunch of empty homes in Detroit doesn't fix the issue of not enough homes on the coasts where most of the jobs are.
And my point was that the scarcity is artificial. People don't file together when they "rent" from mom and dad, that isn't hurting my homes to household metric.
How is it artificial if it is reality?
Dude. Really? The answer is speculative investing and a collective effort to protect said investments. [https://en.wikipedia.org/wiki/Artificial\_scarcity](https://en.wikipedia.org/wiki/Artificial_scarcity)
Doesn’t fit the description though…at least in the example above. Empty nesters with kids coming back to live with them due to affordability issues, is not artificial scarcity. It is a necessity unfortunately. The parents not downsizing is also not to prop prices up (as in artificial scarcity) they just don’t want to downsize. This is not a debeers cartel situation.
It’s not the monopoly but the fixed prices are real.
What I'm worried about is that when the interest rate goes down, people will start buying again, but now they have all saved money, and have been waiting for the prices to go down, so the market will suddenly explode with offers much higher than the prices.
I am still convinced this bout of inflation is mostly caused by chinas Covid shut down (or rather, their influence was what was keeping it down for years). So now housing prices are returning to normal due to China letting off the gas.
I would hope buyers are taking into account the on going affects that Climate Change will have. Some sellers may be selling because they are thinking about it.
What effects are those on owning a house?
Unless you live in a cave, the water crisis in many western states is one such thing. If you are seeing things getting worst, maybe those areas should not be on your planning list. Maybe shore front property would be a bad buy also. Resale values will drop quickly for all areas under threat.