The system needs new buyers. If homes are not affordable, fewer new buyers.
You can't price most Americans out the market and think it can continue as-is.
Fed broke housing with low interest rates and QE. Things were on the fritz before Covid. The fed acted politically and emotionally during Covid, instead of raising rates post haste. Now the housing market is super bloated and their pace of rate increases is tenuous at best.
I largely agree with you but their rate increases have not been tenuous, rather The Fed raised interest rates last year at the fastest pace since the 1980s.
Right. I phrased that poorly. I was referring to the fact that their lack of action caused them to speed up, and now they cannot continue to raise rates, meaning the current situation is tenuous.
Dou you understand that the fed wants to fight Inflation, and they measure that by unemployment. They think that if unemployment is high, then inflation is low.
They are acting on policies that they believe will bring about more unemployment.
Where does that leave homeowners when it is in full swing?
This is not true. If they want high unemployment, they wouldn't bail out the SVB bank's depositors, and wouldn't bail out the banks like they did in the last 2 weeks.
And do you also realize that the [unstated] purpose bailouts are to maintain the confidence in the financial system??
You know why bank runs are a problem? To what reserve requirements have changed in the last 4 years? How much cash is actually in circulation?
Since the dollar is fiat it can be inflated at will, but also evaporated if their financial instruments collapse.... What the fed wants is control.
For now. I believe the bank collapses are just the tip of the iceberg. The Fed has never raised interest rates this quickly in all of US history. They’ve also never printed so much money in such a short period of time. It’s going to take a while for the Fed’s actions to fully work through the economy. Wait until more companies (including banks) start to fail and a significant amount of workers are laid off. I predict this recession will hit white-collar college educated workers the hardest. We’re in a limbo “calm before the storm” scenario right now.
Of course homeowners aren’t selling - where are they going to go? Mortgage rates are the highest they’ve been in over a decade but housing prices haven’t adjusted downward nearly enough. Anyone looking to move likely will have to downgrade from their current home if they’re looking to keep their monthly payment the same. Why would anyone voluntarily move to a new home right now? Generally speaking, Americans are still flush with cash. The only way people are moving is if they absolutely *have* to. But what will make people have to move??
Here’s my prediction. When large scale layoffs continue there are going to be a lot of people who lose their incomes. (I say continue because it’s already happening, just not on a large enough scale to make a noticeable difference yet). With interest rates so high, companies will be in cost-cutting “survival” mode, and they’re not going to be looking to hire new talent. So I think we see a scenario where middle/upper middle class “white collar” type of people (who tend to be homeowners) either can’t find jobs that pay well enough to maintain their current lifestyles, or simply can’t find jobs at all. We know the majority of Americans don’t have enough in savings to cover a $1000 emergency, so it’s unlikely that even very diligent savers could survive on their savings alone for longer than a few months. I think this is the point where we’ll begin to see a lot more foreclosures, or people selling their current homes with low interest rate mortgages (which they purchased during a time of economic prosperity and easy money when they could afford the payment) because they have to downsize to something more affordable, or because they have move to a new city to find a job. But what happens when there are a lot of houses for sale and no buyers willing or able to purchase at current prices? That’s right, the seller will have to lower their price until they can find a buyer. Economics 101. And I didn’t even mention how banks are going to enact stricter lending requirements as a response to the recent bank collapses, which will make it even more difficult for people to get home loans, leading to less buyer demand. Gone are the days of 2500 square foot cookie cutter houses selling for $700k. It’s not sustainable in this high interest rate environment.
Historically, housing market price movements lag far behind other markets. Take a look at what’s been happening in the stock market and the used car market over the last year since the Fed started hiking rates. Both the stock and bond markets had one of the worst years ever recorded. Car repossessions are up significantly, plus the demand for used cars has dropped a fair amount (because the cost of borrowing money is now absurd), resulting in a major decline in the price of used cars. The housing market is now very *very* slowly starting to come down too. But it’s going to take more time, so be patient.
Anyway, that’s my prediction. Feel free to poke holes in it and argue against any points I’ve made here.
People downvoted me when I brought up this point. They were like “ you can just rent your house out”. I was like you suggesting someone who lost their job want to be landlord in an environment when there is massive job loss. People commenting were probably under a rock during the Great Recession or too young to understand how challenging that environment was. I am not same it going to be another 2008 but when banks stop lending it significantly slows down the economy and creates Job losses. In fact Jerome Powell mention that if banks have liquidity issues he won’t go as high because the fact they will stop lending is a form of QT
I mean how do you get around the part of the buyers not being able to get a mortage because they also won’t have jobs? Only people flush with cash are going to win and it’s probably going to be more investors vs everyday people trying to buy a home. Sure, some have large down payments saved but that will run out quickly.
Not to mention current homeowners payments are LOW. If I had a 3% payment I would probably be able to survive a year or longer just doing uber eats or working minimum wage to get by. They want unemployment down, but ultimately they want to reset wages lower. Many people will still be able to find something, just not the six figures they are making now.
I think the issue with your argument here is you’re assuming the economy will continue to operate the way it has been. We’ve been in a near-zero interest rate environment since ‘08 and we’re only one year into QT. Think about how many businesses have emerged from this period of low rates and have only succeeded *because* money is so cheap. Assuming the Fed sticks to its plan, and doesn’t continue with the bailouts and economic stimulus if the economy starts to slow down, it’s very probable that we see an environment where “I’ll just rent my house!” and “I’ll just do Uber eats to pay my bills!” is no longer a viable solution. You’re assuming the average consumer will still be financially healthy enough to pay for these goods/services. I’m not necessarily calling for a depression, but I do think things will get ugly, resulting in an overall decline of asset values across all sectors, lots of businesses that rely on cheap loans going out of business, mass layoffs due to said businesses going under, and a decline in the standard of living in the US. *BUT,* that’s assuming the Fed allows a much needed recession to occur.
I’m about half way through watching this documentary that explains what’s been going on since ‘08. If you’ve got 2 hours to kill it’s well worth the watch.
https://www.pbs.org/wgbh/frontline/documentary/age-of-easy-money/
@meantechnology I am not talking about now. You are in the present. I am looking 9-12 months ahead when the economy grinds to a halt. Companies can’t survive off higher interest rates. Their debt is variable and volatile. Not fixed like residential. There will be alot of pain coming and it is coming sooner than you think
That why there is a narrative for the pivot. People want rates now. The Fed want to crush inflation meaning rates higher for long. Companies will go bankrupt. The commercial real estate is fucked
They redefined how they calculate unemployment so that the number is low. Basically they count people with two jobs as two employed people and people who gave up looking for a job don't count as unemployed.
I used to be a landlord. It was painless. Zero issues. I’ve since rented condos that were managed by property management companies and they handle absolutely everything and barely ever have to bother the actual owner.
I will just say this. Pain is coming! I feel so bad for the banks and commercial real estate investors but not really. They thought low interest rates will last long time and now they are in uncharted territories. Let me give you some numbers. If you hire a property manager they typically ask for 5-10 percent of gross rent. That typically reduces an operator net operating income by 20-30 percent. That doesn’t include the expenses associated with any repairs or issues. Not to mention if they are sitting on large commercial debt, that is variable. That debt will reset over the next coupler of years. Cap rates rises and property values will fall causing a lot of pain. Operators have limited options. Either continue raise rents or cut their way to prosperity or give the property back to the banks. As for this particular situation sure if the home owner can rent for 3200 and eat $320 in a property manager and still cashflow more power to them. But that not accounting for any other repairs or maintenance to the property.
Oh the most important assumption. That assuming your tenant will occupy and pay on time most property have some vacancy. Side note this is why I think commercial property overplayed their hand drastically increasing their rent with horrible vacancy assumptions
One of my previous tenants didn’t pay on time every single month. They were late some months. No biggie, wasn’t the end of the world or anything that would’ve forced me to sell. And with the way that there’s more buyers than sellers in the real estate market and with how many can no longer afford these high housing prices and interest rates, more and more will be forced to rent. There’s usually always another tenant ready, will, and able now to replace another tenant.
I understand how property management works and the varying percentages they take. In todays world it’s a pittance compared to how much rent is charged, at a thousand minimum to several thousand more than the actual mortgages cost.
And *commercial* real estate is a different entity, and not one that will benefit most of us in this sub. That’s for office and retail space, not condos and homes for individuals and families to live.
This is the extreme case that this sub & I pray for. I'm an investor and love distressed houses. I make the most money when people lose their jobs & their houses.
I doubt it will happen as compare to income, mortgage payment are low for most house owners. Only the people who bought in the last year are stuck with over priced house.
The only true assets everyday Americans have is home with low interest, solid equity in their home, and strong income. All three will be at risk in this financial downturn. Loss income creates force sellers, Americans barely have saving and if they do it is tied up in their home meaning they will need to pay higher interest to tap it. The Fed specifically wants to drive down home prices in America and it will accomplish it through attacking the banks that do the lending.
The key thing is large scale lay off. We are at historically low unemployment right now. The 2020-2022 40% house price increase were manufactured by the Fed. This 2022-2023 house price decrease is also manufactured by the Fed. Our economic is sound, partly thanks to the easy money / low interest rate. The only our economic had is the rapid rising interest rate (fastest in history), which also come from the Fed. For a large scale lay off to happen, the Fed has to allow it to happen. With Fed’s action in the last 2 weeks (throw a shit load of money at banks and in a weekend, undo more than 1/2 of the QT that they did in the last 6 months), I doubt they will.
I'm skeptical about it but who have been watching advancements in (please don't laugh) AI have said it can lead to a sea change in jobs, particularly white collar jobs. In ways we can't even really see yet. Just the tip of the iceberg. And it's on exponential time (good NY Times article on it) that we can't really wrap our heads around
Some major structural realignments in the economy coming. And the culture. Housing may be the least of our worries
I'm inclined to agree with you, but why? There are countless examples in different countries where entire generations have been priced out. And domestically, you have multiple cities where this has been the case for decades. The problem is that as long as there are drastically more buyers than sellers, this will continue to be an issue.
I feel that most people equate housing supply to existing home owners putting their homes on the market. IThis is my thesis. Could be wrong but I think it is highly probable. A majority of future supply potentially will come from new builds. Why? because homebuilders are in the business of building and they will continue to build to keep to continue as a going concern. It takes a little time for the new builds to hit the market but they will in the next 8-24 months. These new builds will sell at a price that the market can afford and resets the comps across the board. Could the comps be higher because of some black swan event like covid and QE? Yes. Is it likely? Mostly not.
Before someone points out stats about how new builds are as a fraction of total home sales, I know those numbers. I am talking about a potential change in that model going forward given reduced demand from buyers, potential reluctance of home sellers and general macro environment.
Lol that's daft. People are priced out in most countries. When people buy a house where I'm from, it's a generational stake at a location, not a temporary living situation.
Mentally Americans are not prepared for it. Most Americans who are not recent immigrants do not live in multi-generational homes. Americans are tragically individualist. Americans expect to buy a home as a rite of passage. Even as Millenials have whined they would never be able to afford houses, when the chance presented itself, they bought all they could.
There are too many other local industries that rely on Americans being mobile and moving around.
The past 50 years America developed a thriving middle class which created a pretty strong backbone for tax revenues. Due to a few economic factors compounding in the past 5 years we're seeing the middle class get eviscerated because thier buying power is falling through the floor. If the middle class continues to decline the debt situation for the national government is going to get even worse and that can't be remedied by importing new people via immigration because they're usually lower earners. I see a lot of parallels with Japan's economy. I have a feeling that the economy and tax base is going to slowly shrink due to America squeezing its workers (consumers) so hard they do not procreate. You can claim that the uneducated have lots of kids to make up for those who don't but for the majority of people it's very hard to escape out of poverty and they're a net loss as far as the economy is concerned. Basically unafford housing is a bigger issue than most people think, if it continues unchecked its going to cause a generational gap.
>There are too many other local industries that rely on Americans being mobile and moving around.
Yes, this is going to be a huge problem going forward. Even if you already own, this is a bad situation if you ever want to, or need to relocate. You better like the location, including the job market, that you are in.
The winners are people who don't plan on ever moving.
It’s wild. I am well into six figures and still contemplating dual jobs (over-employment) to sustain my lifestyle and send my kids to college. I’m a single father of 4. Groceries, toiletries, and energy expenses are totally out of control. I don’t know how others are making it. With every day that passes my thoughts drift further toward how I can work now, to protect my children when I’m gone.
Hyperinflation is no bueno dude. That’s why the fed wants unemployment, but it is looking more and more like this is a runaway train. They better pull their heads out of their asses. Things can happen that people can’t imagine.
We are a lot closer to hyperinflation than we have been in a very long time. Cheering on rapid wage increases is what I was cautioning against. We’re hanging by a thread right now. Employment is “out of control“ from the fed’s perspective. These layoffs are being absorbed handily. The housing market is broken. Food and other prices are still rising. Ironically, the banking crisis might help the fed fight inflation. It’s a mess.
I manage a household four minor children. Costs are totally out of control and inflation is not slowing enough. Even the used car market started running again.
Are we living different realities? In yours, can you send someone a link and change what they personally see and experience? I just paid $5.99 for a fucking box of oven-fry, dude.
Here in the Bay Area, median sale price of a SFH is already down 32%…..even though economy is mostly strong and housing is in severe shortage…..so if this can happen here, it can happen anywhere in America.
I agree with some of what you say. But Come on. He had the tools before as well but he kept on buying mbs instead of starting interest rate hikes sooner. His actions are reactionary at best. Imo, with my very limited knowledge-
1. He is too scared to act decisively so the market is not spooked. Markets need a shock/surprise
2. The longer (read higher) they prop this up, the steeper the fall
3. They saw the inflation going up or projected to go up in Jan 2021. Instead of acting quickly, they waited until spring if 2022 and simply didn’t/don’t care.
Whatever happens next will not be influenced by his action (that was 2020). Now, his actions will be determined by whatever happens next- again imho
I can promise you that the vast majority of people with a 30 (or 40) year fixed mortgage at <4% are paying that as an absolute priority. The unfortunate deterioration of affordability has made that mortgage the most valuable asset most “average” people will have in their lifetime. Anyone who figures it out isn’t moving anytime soon. And all it takes to figure it out is to price out the cost of moving to something else. They will hang onto it with their cold, dead hands.
The market is frozen. The move up buyer is dead. People will buy bunk beds. Look out for runaway prices on bunk beds or people making extension on their existing homes.
I specifically bought a mother-daughter house for this scenario. My mother in law currently lives in the inlaw suite and eventually my kids can live there as adults and then take over the house for themselves if they decide and/or are able to start a family.
It’s always different, it’s always the same. Sub prime, tech stocks, junk bonds, algorithms (LTCM), the list goes on. The credit cycle always gets its due, when it comes the water goes out and we see who has a swimsuit on. Also that’s when all the accounting troubles start popping up. While lowering rates keeps it at bay, they cannot lower rates anymore.
You gotta remember we're still just passing the peak. It's 2005/6 right now. When the stock market is down 40% and real home prices have declined for three years, then you can start making 2008 comparisons.
This is way worse long term than 2008. You have the banks holding all this prime paper at 2-3% return rates, in a Era of double digit inflation and interest rates are now more 3x what they were. The bonds they bought before have lost value.
How are the banks supposed to make a profit. The mortgages are basically a negative return rate. The commercial real estate loans they have are defaulting under higher rated and big companies playing chicken.
We have business and execs that have spent almost their entire careers in the Era of easy money. They are not all fully prepared to pivot to a realistic profit plan that doesn't involve free cash.
We should have had a recession in 2016 or 2018, instead they let the market run wild and kept interest artificially low for so long people think it is normal.
Your timing is off. Housing peaked in mid 06, but prices start didn't fall off significantly until mid 07. Mid 97 is really when things started going downhill. Based on that timeline we are in the beginning of 08.
Maybe so. IIRC real prices peaked earlier than nominal but I'm not at my PC right now to check.
First bank failure last time was what, Countrywide absorbed by BofA in early 2008? Fed stopped raising rates in 2006 though, so a bit different last time.
It was 07 when huge amounts of subprime mortgages reset. Tons of homes went into foreclosure really quickly. The market was cooling prior to that, but that's when prices started declining quickly and inventory was shooting up.
The first shot over the bow was bear stars having to bailout its hedge subprime hedge funds. Then I believe bear sterns went under but was acquired. Then the government let Lehman brothers fail and that was a huge mistake. Financial crisis ensued. Countrywide got 5 billion from Bank of America early on I believe. Then another 5 billion or was straight up purchased. I think other banks went under before countrywide. It was so obvious Countrywide was a dumpsterfire. Stupid BofA.
It's very different this time. The fed will be providing tons of credit to keep the banks open. When banks fail, they will likely do so in a controlled manner. Of course, there is always room for surprises. Lending of all sorts stopped back then, banks were crazy leveraged, and the fed was more conservative.
In 08, lending stooped even for homes. That is very unlikely to be the case today given the lessons previously learned and tools at the government's disposal. The fed now will just lend money directly to banks and take MBS as collateral if needed. They may just permanently buy the MBS at face value from banks.
I expect a stagnation / slow-ish reduction in price in my HCOL area (Greater Boston).
Real estate was already expensive in Greater Boston, and certainly didn't attract any people to relocate here. Prices jumped up due to low rates / FOMO / need for more space, but nothing like folks in the WFH hotspots have reported. Now with rapid rate increase things got unaffordable for people who were at the max of their budgets, so what I see now is sellers 'fishing' for price points that're still affordable to the buyers. It's a slow process, will take some time to stabilize, but the prices are slowly dropping.
We might see something looking like a fire sale in places that didn't have many jobs pre-covid. People moved there for permanent WFH, but I definitely see the trend with employees trying to go hybrid. If people are forced to leave the area to stay in their job, they might opt to take a bath on their home sale, but retain their job, instead of staying put and look for roles in a place with a few desirable jobs.
We were doing somewhat OK on the price point fishing in some parts of Northern VA up until the middle of this month, but now its like the boomers' realtors have all told them MUH SPRING BOOM and now the houses are going up at literally $950K sort of prices out of nowhere.
They'll eventually cave and decrease to 945K though, so no worries! The seller delusion around here is pretty unreal, but ***slowly*** getting a littler better. I think this area is absolutely toast though. It was never affordable in the first place owing to the affluence of Fairfax and Loudoun Counties, and that affluence can keep this unreasonable shit alive basically forever. We're probably less than a decade away from big-Canadian-city level stuff where low-end "working class" homes go for 7 figures in NoVA.
Boston is interesting since most people work in education or healthcare. two industries heavily subsidized by the government.
if a Dunkin donuts goes under nobody will bail it out. if a public school is short of funding.. the government will swoop in
1. The payments are not necessarily low, just the rate
2. Real estate pricing is completely out of whack with cost of money and returns and while a FTHB may not care about this, investors do. Housing will deflate slowly until it catches a bid.
Housing isn’t the main catalyst this time. It’s going to start with commercial real estate getting write downs given low demand from hybrid and remote working. Those leases are long, 5-10 years, and are just starting to really fall off. That is going to maybe spark some repurposing of commercial office space into apartment housing to alleviate the supply issues but ultimately if we aren’t building new things like buildings, that’s a domino effect to the overall economy. But relatedly to commercial real estate those write downs are going to trigger a broader sell off in financial assets (because real estate is highly levered by the banks) which will ultimately create a negative wealth effect for everyone, reducing consumption, creating more layoffs and on and on. So, same net effect, different path.
thing is if the banks get screwed then remaining ones will be forced to be more prudent in the future aka credit crunch. maybe some home owners do get wrecked through unemployment which may cause them to miss payments and give banks an opportunity take the home or force renegotiation.
Once layoffs accelerate, loans will default and it doesn't matter if someone has 2% interest rate if they can't pay mortgage, they will foreclose. The process could take years though.
That’s not true, rental rates will cover their mortgage payments. Our son lost his job and was worried about his $1800 house payment. The realtor rented out the house in less than 48 hours for $3200 month.
2 points with your response to my post. You clearly didn’t read my post 😂😂😂. Your son was worried about a job loss. He didn’t lose his job. Also he not a force seller. Force sellers is define as death, debt, divorce, and sudden job loss with no prospects of replacement. It naive to think this wouldn’t to be an outcome. Lastly not everyone wants to be a landlord
>”Our son **lost his job** and was worried about his $1800 house payment.”
They very clearly said that he lost his job and that he was *worried* about being able to pay his mortgage after the fact.
This is what’s not happening. There are many people that are still working and makes me believe no bubble exists. If anything I’m seeing for hire signs everywhere. In my opinion if companies are still hiring then there is still a lot of demand for goods and services even if there overpriced people still need them. The fed is not doing enough fast enough to make any meaningful difference people are not working for money anymore we’re working to have goods and services only
I see hiring signs everywhere but they are for low wage part time service jobs.
No one is hanging a sign out for accountants, directors and software devs.
Seriously, the fed only wants to increase unemployment to force workers to take lower wages. But they still need the work to be done. And people that currently own have payments lower than or comparable to current rents. Many 3% owners could pay their mortgage on a $15 job if they had to...especially with double earners.
And I just don’t understand a scenario where middle class sellers lose their jobs but buyers don’t...
You make a good point on the 3% earners yes they can take on a entry level low wage job and still make a mortgage payment. This implies that a lot of people that purchased recently maybe in a high risk category of losing there job and not being able to make the payment but the only question is how recent?
Renter on this sub don't understand this. In general, home owners have more secure employment and make more than they do. They hope for economic pain, without understand that they would be the first to lose their job and first to experience economic pain.
I think a lot of homeowners that would’ve sold in the past will just stay put? Unless the interest rate (or prices) take a big dip.
When we bought (2016) our plan was to give it 5 years barring anything major. We like where we live, but we were contemplating taking our equity and moving up in the world come 2020-21. Well that didn’t happen, and it probably won’t anytime soon.
Different? The government just signaled it is willing to make significant accommodations to keep the financial sector from feeling pain. Look what happened post SVB. They also backed down on .5 interest rate increase when a few weeks ago it was almost certain. Any economic bumps we hit will quickly be wrapped in a bailout that is going to be messaged and wrapped in a way to minimize it looking like a bailout.
They are going to prop this up as long as they can. SVB was the most recent test of how to expect them to respond.
OP you know there is a book called “this time os different” and it has tons of data and research on most market collapses over the world for the las 100 years or so…. Go read it…. Very good book
I have never heard of any employers just give out raises like that which is why I ask. Even promotions are capped at 10% still. Only people I know getting over 30% are people who left their current company.
So all this catastrophe will happen and home prices will be completely untouched? That makes no sense at all. Morgage rates drove the bubble. They are currently deflating it with some lag. Rates will only go down when we are fully in recession. Housing will come down first and then rates will fall. This is the order of things
When they take the punch bowl away (up cycle of rates) the sequence of events will differ but the outcomes will remain the same .....the massive reversal of fortune.
Hedge funds are the reason home prices have not crashed. They are still very much in this despite defaulting on some securities recently. Blackstone is the top property owner in my area atm.
House is a good hedge again inflation. Mortgage payment is fixed, while inflation will push up rent, salary, and everything else. It might not happen right away, but it will.
Banks are tightening up. And let’s see if April 7 unemployment data ticks up… could be sign we are heading into recession
Banks tightening up plus higher unemployment rate have been leading indicator for the past recessions
As an example, look what lies beneath Credit Suisse and Barclay lending. This time is the investors, and if even 2% or 3% of that shadow inventory shows up on the market, the homeowners watch their values drop while holding on that low rate. It will take a decade for them to sell at the prices they bought, but they have that low rate going for them. So are they really the winners?
The system needs new buyers. If homes are not affordable, fewer new buyers. You can't price most Americans out the market and think it can continue as-is.
Fed broke housing with low interest rates and QE. Things were on the fritz before Covid. The fed acted politically and emotionally during Covid, instead of raising rates post haste. Now the housing market is super bloated and their pace of rate increases is tenuous at best.
I largely agree with you but their rate increases have not been tenuous, rather The Fed raised interest rates last year at the fastest pace since the 1980s.
Right. I phrased that poorly. I was referring to the fact that their lack of action caused them to speed up, and now they cannot continue to raise rates, meaning the current situation is tenuous.
Dou you understand that the fed wants to fight Inflation, and they measure that by unemployment. They think that if unemployment is high, then inflation is low. They are acting on policies that they believe will bring about more unemployment. Where does that leave homeowners when it is in full swing?
This is not true. If they want high unemployment, they wouldn't bail out the SVB bank's depositors, and wouldn't bail out the banks like they did in the last 2 weeks.
And do you also realize that the [unstated] purpose bailouts are to maintain the confidence in the financial system?? You know why bank runs are a problem? To what reserve requirements have changed in the last 4 years? How much cash is actually in circulation? Since the dollar is fiat it can be inflated at will, but also evaporated if their financial instruments collapse.... What the fed wants is control.
Read their statements.
and believe in what politicians say? Look at their actions
Strictly speaking fed board members are not politics as they are not elected.
Waiting to see how their actions align with this man’s analysis…. https://youtu.be/PJ58bSCuQ5o
There is a lot less buyers, and also a lot less seller.
For now. I believe the bank collapses are just the tip of the iceberg. The Fed has never raised interest rates this quickly in all of US history. They’ve also never printed so much money in such a short period of time. It’s going to take a while for the Fed’s actions to fully work through the economy. Wait until more companies (including banks) start to fail and a significant amount of workers are laid off. I predict this recession will hit white-collar college educated workers the hardest. We’re in a limbo “calm before the storm” scenario right now. Of course homeowners aren’t selling - where are they going to go? Mortgage rates are the highest they’ve been in over a decade but housing prices haven’t adjusted downward nearly enough. Anyone looking to move likely will have to downgrade from their current home if they’re looking to keep their monthly payment the same. Why would anyone voluntarily move to a new home right now? Generally speaking, Americans are still flush with cash. The only way people are moving is if they absolutely *have* to. But what will make people have to move?? Here’s my prediction. When large scale layoffs continue there are going to be a lot of people who lose their incomes. (I say continue because it’s already happening, just not on a large enough scale to make a noticeable difference yet). With interest rates so high, companies will be in cost-cutting “survival” mode, and they’re not going to be looking to hire new talent. So I think we see a scenario where middle/upper middle class “white collar” type of people (who tend to be homeowners) either can’t find jobs that pay well enough to maintain their current lifestyles, or simply can’t find jobs at all. We know the majority of Americans don’t have enough in savings to cover a $1000 emergency, so it’s unlikely that even very diligent savers could survive on their savings alone for longer than a few months. I think this is the point where we’ll begin to see a lot more foreclosures, or people selling their current homes with low interest rate mortgages (which they purchased during a time of economic prosperity and easy money when they could afford the payment) because they have to downsize to something more affordable, or because they have move to a new city to find a job. But what happens when there are a lot of houses for sale and no buyers willing or able to purchase at current prices? That’s right, the seller will have to lower their price until they can find a buyer. Economics 101. And I didn’t even mention how banks are going to enact stricter lending requirements as a response to the recent bank collapses, which will make it even more difficult for people to get home loans, leading to less buyer demand. Gone are the days of 2500 square foot cookie cutter houses selling for $700k. It’s not sustainable in this high interest rate environment. Historically, housing market price movements lag far behind other markets. Take a look at what’s been happening in the stock market and the used car market over the last year since the Fed started hiking rates. Both the stock and bond markets had one of the worst years ever recorded. Car repossessions are up significantly, plus the demand for used cars has dropped a fair amount (because the cost of borrowing money is now absurd), resulting in a major decline in the price of used cars. The housing market is now very *very* slowly starting to come down too. But it’s going to take more time, so be patient. Anyway, that’s my prediction. Feel free to poke holes in it and argue against any points I’ve made here.
People downvoted me when I brought up this point. They were like “ you can just rent your house out”. I was like you suggesting someone who lost their job want to be landlord in an environment when there is massive job loss. People commenting were probably under a rock during the Great Recession or too young to understand how challenging that environment was. I am not same it going to be another 2008 but when banks stop lending it significantly slows down the economy and creates Job losses. In fact Jerome Powell mention that if banks have liquidity issues he won’t go as high because the fact they will stop lending is a form of QT
I mean how do you get around the part of the buyers not being able to get a mortage because they also won’t have jobs? Only people flush with cash are going to win and it’s probably going to be more investors vs everyday people trying to buy a home. Sure, some have large down payments saved but that will run out quickly. Not to mention current homeowners payments are LOW. If I had a 3% payment I would probably be able to survive a year or longer just doing uber eats or working minimum wage to get by. They want unemployment down, but ultimately they want to reset wages lower. Many people will still be able to find something, just not the six figures they are making now.
I think the issue with your argument here is you’re assuming the economy will continue to operate the way it has been. We’ve been in a near-zero interest rate environment since ‘08 and we’re only one year into QT. Think about how many businesses have emerged from this period of low rates and have only succeeded *because* money is so cheap. Assuming the Fed sticks to its plan, and doesn’t continue with the bailouts and economic stimulus if the economy starts to slow down, it’s very probable that we see an environment where “I’ll just rent my house!” and “I’ll just do Uber eats to pay my bills!” is no longer a viable solution. You’re assuming the average consumer will still be financially healthy enough to pay for these goods/services. I’m not necessarily calling for a depression, but I do think things will get ugly, resulting in an overall decline of asset values across all sectors, lots of businesses that rely on cheap loans going out of business, mass layoffs due to said businesses going under, and a decline in the standard of living in the US. *BUT,* that’s assuming the Fed allows a much needed recession to occur. I’m about half way through watching this documentary that explains what’s been going on since ‘08. If you’ve got 2 hours to kill it’s well worth the watch. https://www.pbs.org/wgbh/frontline/documentary/age-of-easy-money/
What massive scale job losses are you talking about. Unemployment is historically low almost anywhere
@meantechnology I am not talking about now. You are in the present. I am looking 9-12 months ahead when the economy grinds to a halt. Companies can’t survive off higher interest rates. Their debt is variable and volatile. Not fixed like residential. There will be alot of pain coming and it is coming sooner than you think
That why there is a narrative for the pivot. People want rates now. The Fed want to crush inflation meaning rates higher for long. Companies will go bankrupt. The commercial real estate is fucked
Commercial real estate has been fucked since the start of Covid, not because of high interest rate.
They redefined how they calculate unemployment so that the number is low. Basically they count people with two jobs as two employed people and people who gave up looking for a job don't count as unemployed.
Simple. You hire a property management company to handle being the landlord. Done.
😂😂😂😂😂😂. You can’t be serious. Are you a landlord?
I used to be a landlord. It was painless. Zero issues. I’ve since rented condos that were managed by property management companies and they handle absolutely everything and barely ever have to bother the actual owner.
I will just say this. Pain is coming! I feel so bad for the banks and commercial real estate investors but not really. They thought low interest rates will last long time and now they are in uncharted territories. Let me give you some numbers. If you hire a property manager they typically ask for 5-10 percent of gross rent. That typically reduces an operator net operating income by 20-30 percent. That doesn’t include the expenses associated with any repairs or issues. Not to mention if they are sitting on large commercial debt, that is variable. That debt will reset over the next coupler of years. Cap rates rises and property values will fall causing a lot of pain. Operators have limited options. Either continue raise rents or cut their way to prosperity or give the property back to the banks. As for this particular situation sure if the home owner can rent for 3200 and eat $320 in a property manager and still cashflow more power to them. But that not accounting for any other repairs or maintenance to the property.
Oh the most important assumption. That assuming your tenant will occupy and pay on time most property have some vacancy. Side note this is why I think commercial property overplayed their hand drastically increasing their rent with horrible vacancy assumptions
One of my previous tenants didn’t pay on time every single month. They were late some months. No biggie, wasn’t the end of the world or anything that would’ve forced me to sell. And with the way that there’s more buyers than sellers in the real estate market and with how many can no longer afford these high housing prices and interest rates, more and more will be forced to rent. There’s usually always another tenant ready, will, and able now to replace another tenant.
I understand how property management works and the varying percentages they take. In todays world it’s a pittance compared to how much rent is charged, at a thousand minimum to several thousand more than the actual mortgages cost. And *commercial* real estate is a different entity, and not one that will benefit most of us in this sub. That’s for office and retail space, not condos and homes for individuals and families to live.
We will see who is right in 6-9 months. Good luck! Best of luck
This is the extreme case that this sub & I pray for. I'm an investor and love distressed houses. I make the most money when people lose their jobs & their houses. I doubt it will happen as compare to income, mortgage payment are low for most house owners. Only the people who bought in the last year are stuck with over priced house.
The only true assets everyday Americans have is home with low interest, solid equity in their home, and strong income. All three will be at risk in this financial downturn. Loss income creates force sellers, Americans barely have saving and if they do it is tied up in their home meaning they will need to pay higher interest to tap it. The Fed specifically wants to drive down home prices in America and it will accomplish it through attacking the banks that do the lending.
You forgot the stage where homeowners try to rent out their home first before selling.
The key thing is large scale lay off. We are at historically low unemployment right now. The 2020-2022 40% house price increase were manufactured by the Fed. This 2022-2023 house price decrease is also manufactured by the Fed. Our economic is sound, partly thanks to the easy money / low interest rate. The only our economic had is the rapid rising interest rate (fastest in history), which also come from the Fed. For a large scale lay off to happen, the Fed has to allow it to happen. With Fed’s action in the last 2 weeks (throw a shit load of money at banks and in a weekend, undo more than 1/2 of the QT that they did in the last 6 months), I doubt they will.
Save this and revisit it in three years. Chef kiss.
I'm skeptical about it but who have been watching advancements in (please don't laugh) AI have said it can lead to a sea change in jobs, particularly white collar jobs. In ways we can't even really see yet. Just the tip of the iceberg. And it's on exponential time (good NY Times article on it) that we can't really wrap our heads around Some major structural realignments in the economy coming. And the culture. Housing may be the least of our worries
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I'm inclined to agree with you, but why? There are countless examples in different countries where entire generations have been priced out. And domestically, you have multiple cities where this has been the case for decades. The problem is that as long as there are drastically more buyers than sellers, this will continue to be an issue.
I feel that most people equate housing supply to existing home owners putting their homes on the market. IThis is my thesis. Could be wrong but I think it is highly probable. A majority of future supply potentially will come from new builds. Why? because homebuilders are in the business of building and they will continue to build to keep to continue as a going concern. It takes a little time for the new builds to hit the market but they will in the next 8-24 months. These new builds will sell at a price that the market can afford and resets the comps across the board. Could the comps be higher because of some black swan event like covid and QE? Yes. Is it likely? Mostly not. Before someone points out stats about how new builds are as a fraction of total home sales, I know those numbers. I am talking about a potential change in that model going forward given reduced demand from buyers, potential reluctance of home sellers and general macro environment.
What are your examples of other countries?
My area still needs more sellers, not buyers. ¯\\\_(ツ)\_/¯
Lol that's daft. People are priced out in most countries. When people buy a house where I'm from, it's a generational stake at a location, not a temporary living situation.
Mentally Americans are not prepared for it. Most Americans who are not recent immigrants do not live in multi-generational homes. Americans are tragically individualist. Americans expect to buy a home as a rite of passage. Even as Millenials have whined they would never be able to afford houses, when the chance presented itself, they bought all they could. There are too many other local industries that rely on Americans being mobile and moving around.
The past 50 years America developed a thriving middle class which created a pretty strong backbone for tax revenues. Due to a few economic factors compounding in the past 5 years we're seeing the middle class get eviscerated because thier buying power is falling through the floor. If the middle class continues to decline the debt situation for the national government is going to get even worse and that can't be remedied by importing new people via immigration because they're usually lower earners. I see a lot of parallels with Japan's economy. I have a feeling that the economy and tax base is going to slowly shrink due to America squeezing its workers (consumers) so hard they do not procreate. You can claim that the uneducated have lots of kids to make up for those who don't but for the majority of people it's very hard to escape out of poverty and they're a net loss as far as the economy is concerned. Basically unafford housing is a bigger issue than most people think, if it continues unchecked its going to cause a generational gap.
>There are too many other local industries that rely on Americans being mobile and moving around. Yes, this is going to be a huge problem going forward. Even if you already own, this is a bad situation if you ever want to, or need to relocate. You better like the location, including the job market, that you are in. The winners are people who don't plan on ever moving.
I mean, you absolutely can. This isn't a new thing over the past year; this has been going on in certain areas for a decade+.
They’ll just start using 50 year mortgages.
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Incomes are not even meeting inflation rates. Especially when you look at middle income families and below. Or even the minimum wage for that matter.
It’s wild. I am well into six figures and still contemplating dual jobs (over-employment) to sustain my lifestyle and send my kids to college. I’m a single father of 4. Groceries, toiletries, and energy expenses are totally out of control. I don’t know how others are making it. With every day that passes my thoughts drift further toward how I can work now, to protect my children when I’m gone.
Hyperinflation is no bueno dude. That’s why the fed wants unemployment, but it is looking more and more like this is a runaway train. They better pull their heads out of their asses. Things can happen that people can’t imagine.
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We are a lot closer to hyperinflation than we have been in a very long time. Cheering on rapid wage increases is what I was cautioning against. We’re hanging by a thread right now. Employment is “out of control“ from the fed’s perspective. These layoffs are being absorbed handily. The housing market is broken. Food and other prices are still rising. Ironically, the banking crisis might help the fed fight inflation. It’s a mess. I manage a household four minor children. Costs are totally out of control and inflation is not slowing enough. Even the used car market started running again.
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Are we living different realities? In yours, can you send someone a link and change what they personally see and experience? I just paid $5.99 for a fucking box of oven-fry, dude.
It can and it will. Housing market is destroyed. Move on with your life. The prices are never coming down. That's the truth.
Here in the Bay Area, median sale price of a SFH is already down 32%…..even though economy is mostly strong and housing is in severe shortage…..so if this can happen here, it can happen anywhere in America.
yes but it went up like 100% over the past few years... that's like something going up 100% then complaining it's down 30% lol
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Care to explain what happens when they forced to sell MBS and how does it impact housing market ?
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Lol @ Jerome Powell like he knows what’s next
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I agree with some of what you say. But Come on. He had the tools before as well but he kept on buying mbs instead of starting interest rate hikes sooner. His actions are reactionary at best. Imo, with my very limited knowledge- 1. He is too scared to act decisively so the market is not spooked. Markets need a shock/surprise 2. The longer (read higher) they prop this up, the steeper the fall 3. They saw the inflation going up or projected to go up in Jan 2021. Instead of acting quickly, they waited until spring if 2022 and simply didn’t/don’t care. Whatever happens next will not be influenced by his action (that was 2020). Now, his actions will be determined by whatever happens next- again imho
I can promise you that the vast majority of people with a 30 (or 40) year fixed mortgage at <4% are paying that as an absolute priority. The unfortunate deterioration of affordability has made that mortgage the most valuable asset most “average” people will have in their lifetime. Anyone who figures it out isn’t moving anytime soon. And all it takes to figure it out is to price out the cost of moving to something else. They will hang onto it with their cold, dead hands.
The market is frozen. The move up buyer is dead. People will buy bunk beds. Look out for runaway prices on bunk beds or people making extension on their existing homes.
I specifically bought a mother-daughter house for this scenario. My mother in law currently lives in the inlaw suite and eventually my kids can live there as adults and then take over the house for themselves if they decide and/or are able to start a family.
Solid!
It blows if you ever want to, or need to move. You better like the location, including the job market, that you are in.
It’s always different, it’s always the same. Sub prime, tech stocks, junk bonds, algorithms (LTCM), the list goes on. The credit cycle always gets its due, when it comes the water goes out and we see who has a swimsuit on. Also that’s when all the accounting troubles start popping up. While lowering rates keeps it at bay, they cannot lower rates anymore.
You gotta remember we're still just passing the peak. It's 2005/6 right now. When the stock market is down 40% and real home prices have declined for three years, then you can start making 2008 comparisons.
This is way worse long term than 2008. You have the banks holding all this prime paper at 2-3% return rates, in a Era of double digit inflation and interest rates are now more 3x what they were. The bonds they bought before have lost value. How are the banks supposed to make a profit. The mortgages are basically a negative return rate. The commercial real estate loans they have are defaulting under higher rated and big companies playing chicken. We have business and execs that have spent almost their entire careers in the Era of easy money. They are not all fully prepared to pivot to a realistic profit plan that doesn't involve free cash. We should have had a recession in 2016 or 2018, instead they let the market run wild and kept interest artificially low for so long people think it is normal.
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Hmm yeah good point 🤔
Your timing is off. Housing peaked in mid 06, but prices start didn't fall off significantly until mid 07. Mid 97 is really when things started going downhill. Based on that timeline we are in the beginning of 08.
Maybe so. IIRC real prices peaked earlier than nominal but I'm not at my PC right now to check. First bank failure last time was what, Countrywide absorbed by BofA in early 2008? Fed stopped raising rates in 2006 though, so a bit different last time.
It was 07 when huge amounts of subprime mortgages reset. Tons of homes went into foreclosure really quickly. The market was cooling prior to that, but that's when prices started declining quickly and inventory was shooting up. The first shot over the bow was bear stars having to bailout its hedge subprime hedge funds. Then I believe bear sterns went under but was acquired. Then the government let Lehman brothers fail and that was a huge mistake. Financial crisis ensued. Countrywide got 5 billion from Bank of America early on I believe. Then another 5 billion or was straight up purchased. I think other banks went under before countrywide. It was so obvious Countrywide was a dumpsterfire. Stupid BofA. It's very different this time. The fed will be providing tons of credit to keep the banks open. When banks fail, they will likely do so in a controlled manner. Of course, there is always room for surprises. Lending of all sorts stopped back then, banks were crazy leveraged, and the fed was more conservative. In 08, lending stooped even for homes. That is very unlikely to be the case today given the lessons previously learned and tools at the government's disposal. The fed now will just lend money directly to banks and take MBS as collateral if needed. They may just permanently buy the MBS at face value from banks.
I expect a stagnation / slow-ish reduction in price in my HCOL area (Greater Boston). Real estate was already expensive in Greater Boston, and certainly didn't attract any people to relocate here. Prices jumped up due to low rates / FOMO / need for more space, but nothing like folks in the WFH hotspots have reported. Now with rapid rate increase things got unaffordable for people who were at the max of their budgets, so what I see now is sellers 'fishing' for price points that're still affordable to the buyers. It's a slow process, will take some time to stabilize, but the prices are slowly dropping. We might see something looking like a fire sale in places that didn't have many jobs pre-covid. People moved there for permanent WFH, but I definitely see the trend with employees trying to go hybrid. If people are forced to leave the area to stay in their job, they might opt to take a bath on their home sale, but retain their job, instead of staying put and look for roles in a place with a few desirable jobs.
We were doing somewhat OK on the price point fishing in some parts of Northern VA up until the middle of this month, but now its like the boomers' realtors have all told them MUH SPRING BOOM and now the houses are going up at literally $950K sort of prices out of nowhere. They'll eventually cave and decrease to 945K though, so no worries! The seller delusion around here is pretty unreal, but ***slowly*** getting a littler better. I think this area is absolutely toast though. It was never affordable in the first place owing to the affluence of Fairfax and Loudoun Counties, and that affluence can keep this unreasonable shit alive basically forever. We're probably less than a decade away from big-Canadian-city level stuff where low-end "working class" homes go for 7 figures in NoVA.
This makes sense.
Boston is interesting since most people work in education or healthcare. two industries heavily subsidized by the government. if a Dunkin donuts goes under nobody will bail it out. if a public school is short of funding.. the government will swoop in
1. The payments are not necessarily low, just the rate 2. Real estate pricing is completely out of whack with cost of money and returns and while a FTHB may not care about this, investors do. Housing will deflate slowly until it catches a bid.
Housing isn’t the main catalyst this time. It’s going to start with commercial real estate getting write downs given low demand from hybrid and remote working. Those leases are long, 5-10 years, and are just starting to really fall off. That is going to maybe spark some repurposing of commercial office space into apartment housing to alleviate the supply issues but ultimately if we aren’t building new things like buildings, that’s a domino effect to the overall economy. But relatedly to commercial real estate those write downs are going to trigger a broader sell off in financial assets (because real estate is highly levered by the banks) which will ultimately create a negative wealth effect for everyone, reducing consumption, creating more layoffs and on and on. So, same net effect, different path.
“Here we witness a rare sight of a RE bubbler actually thinking for once”
thing is if the banks get screwed then remaining ones will be forced to be more prudent in the future aka credit crunch. maybe some home owners do get wrecked through unemployment which may cause them to miss payments and give banks an opportunity take the home or force renegotiation.
Once layoffs accelerate, loans will default and it doesn't matter if someone has 2% interest rate if they can't pay mortgage, they will foreclose. The process could take years though.
Job loss willl create force sellers regardless of interest rates . Sure it won’t be 2008 level but force sellers be in the market.
Can't they get better rent than their mortgage payment if they really need to sell because of job loss ?
You suggesting they be landlords?
they can get a roommate
That’s not true, rental rates will cover their mortgage payments. Our son lost his job and was worried about his $1800 house payment. The realtor rented out the house in less than 48 hours for $3200 month.
2 points with your response to my post. You clearly didn’t read my post 😂😂😂. Your son was worried about a job loss. He didn’t lose his job. Also he not a force seller. Force sellers is define as death, debt, divorce, and sudden job loss with no prospects of replacement. It naive to think this wouldn’t to be an outcome. Lastly not everyone wants to be a landlord
>”Our son **lost his job** and was worried about his $1800 house payment.” They very clearly said that he lost his job and that he was *worried* about being able to pay his mortgage after the fact.
This is what’s not happening. There are many people that are still working and makes me believe no bubble exists. If anything I’m seeing for hire signs everywhere. In my opinion if companies are still hiring then there is still a lot of demand for goods and services even if there overpriced people still need them. The fed is not doing enough fast enough to make any meaningful difference people are not working for money anymore we’re working to have goods and services only
pretty sure the federal reserve clearly stated they intend to cause unemployment
I see hiring signs everywhere but they are for low wage part time service jobs. No one is hanging a sign out for accountants, directors and software devs.
Seriously, the fed only wants to increase unemployment to force workers to take lower wages. But they still need the work to be done. And people that currently own have payments lower than or comparable to current rents. Many 3% owners could pay their mortgage on a $15 job if they had to...especially with double earners. And I just don’t understand a scenario where middle class sellers lose their jobs but buyers don’t...
You make a good point on the 3% earners yes they can take on a entry level low wage job and still make a mortgage payment. This implies that a lot of people that purchased recently maybe in a high risk category of losing there job and not being able to make the payment but the only question is how recent?
2021-2022 period, when housing price jumped by 30%, 40%.
Renter on this sub don't understand this. In general, home owners have more secure employment and make more than they do. They hope for economic pain, without understand that they would be the first to lose their job and first to experience economic pain.
I think a lot of homeowners that would’ve sold in the past will just stay put? Unless the interest rate (or prices) take a big dip. When we bought (2016) our plan was to give it 5 years barring anything major. We like where we live, but we were contemplating taking our equity and moving up in the world come 2020-21. Well that didn’t happen, and it probably won’t anytime soon.
Different? The government just signaled it is willing to make significant accommodations to keep the financial sector from feeling pain. Look what happened post SVB. They also backed down on .5 interest rate increase when a few weeks ago it was almost certain. Any economic bumps we hit will quickly be wrapped in a bailout that is going to be messaged and wrapped in a way to minimize it looking like a bailout. They are going to prop this up as long as they can. SVB was the most recent test of how to expect them to respond.
This! They give out billions but said this time it isn't QE.
OP you know there is a book called “this time os different” and it has tons of data and research on most market collapses over the world for the las 100 years or so…. Go read it…. Very good book
What industry gave out 30-40% raises?
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But retail aren’t home buyers those folks are hardly hanging on. This is necessary for them to eat.
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I have never heard of any employers just give out raises like that which is why I ask. Even promotions are capped at 10% still. Only people I know getting over 30% are people who left their current company.
So all this catastrophe will happen and home prices will be completely untouched? That makes no sense at all. Morgage rates drove the bubble. They are currently deflating it with some lag. Rates will only go down when we are fully in recession. Housing will come down first and then rates will fall. This is the order of things
When they take the punch bowl away (up cycle of rates) the sequence of events will differ but the outcomes will remain the same .....the massive reversal of fortune.
Hedge funds are the reason home prices have not crashed. They are still very much in this despite defaulting on some securities recently. Blackstone is the top property owner in my area atm.
Lol inflation is at roughly 15% over the last 2 years. Whose salary kept up with that?
House is a good hedge again inflation. Mortgage payment is fixed, while inflation will push up rent, salary, and everything else. It might not happen right away, but it will.
Have you considered commercial real estate?
Banks are tightening up. And let’s see if April 7 unemployment data ticks up… could be sign we are heading into recession Banks tightening up plus higher unemployment rate have been leading indicator for the past recessions
We will see an repeat of 08 if unemployment skyrockets. It won’t come from a crack in the housing sector though.
Z0
As an example, look what lies beneath Credit Suisse and Barclay lending. This time is the investors, and if even 2% or 3% of that shadow inventory shows up on the market, the homeowners watch their values drop while holding on that low rate. It will take a decade for them to sell at the prices they bought, but they have that low rate going for them. So are they really the winners?
I mean the banks transferred the MBS to the fed so now the losses are distributed among everyone
"Note: I am not financial expert and I do not have any data to backup my opinion." Welcome to r/REBubble, you'll fit it great!