13 ms·

It's time to worry about the housing market again

59 points by dmitriy_ko 8y ago

pmorici 8y ago
The Redfin CEO warned about weakness in the housing market back in August while discussing Redfin's earnings. https://www.marketwatch.com/story/housing-market-has-hit-a-significant-slowdown-in-recent-weeks-redfin-ceo-says-2018-08-09 https://www.marketwatch.com/story/housing-market-has-hit-a-s...
ronnier 8y ago
I have two houses paid off in the Seattle area. I'm tempted to sell them (I rent one out), but I don't know what I'd do with the money. I could hold and wait for a downturn and buy again but that seems risky.
- darawk 8y ago
  Keep in mind the tax implications. You basically can't sell real estate without immediately turning around and buying more real estate via 1031 exchange, unless you want to pay a massive capital gains bill.
- a_wild_dandan 8y ago
  The recession is coming. We're in the 2nd longest expansion in US history (at ~10 years), and the contraction is on the horizon. Liquidating a property now, waiting for the recession to hit, and sticking the money into a low-fee index fund seems pretty reasonable. Maybe a financial advisor could check in and let us know if that's a valid strategy? I've been thinking of doing something similar.
  - Bombthecat 8y ago
    I'm not so convinced that we are entering a recession. I think we will more likely enter a dystopian phase to squeeze out more money from the workforce.
    - claydavisss 8y ago
      I agree that for the dominant tech titans, reducing costs is the next phase. Amazon has saturated the US market for Prime accounts...Apple has found a near-term ceiling for phone prices...etc etc The most obvious tool for juicing margins in the next two years is in reducing costs (headcount or salaries)
      - hedvig 8y ago
        Why can't the overlords just accept current profit margins?
        deleted 8y ago
        [deleted]
        WJW 8y ago
        It's an unstable condition in a game theoretic sense, because if you don't push for a higher margin when you have the chance, your competition might and then you go out of business altogether because they can outspend and outinvest you. So you always have the incentive to optimize margin as high as you can.
  - claydavisss 8y ago
    When enough people start wondering about a recession, one is assured
  - twblalock 8y ago
    A recession is always coming. It is nearly a certainty that there will be one at some point in the future. That is not a good argument for liquidating investments now, because nobody knows when the next recession will happen, how bad it will be, and how long it will last. A lot of people have missed out on big market gains over the past few years because they wanted to protect themselves from a recession. It's a poor long-term investing strategy and it's based purely on guesswork, unless you own a time machine.
  - nostromo 8y ago
    If you think we're at the top of the market, liquidating property, paying taxes on the gains, and then putting money in an index fund isn't great advice. In 08 the S&P tanked 50%+, while housing (measured by Case-Shiller national home price) only dropped around 18%. In desirable cities the housing correction was even smaller. In any case, bull markets don't die of old age, they die from recessions.
- dmoy 8y ago
  You could also liquidate them, put stuff away in the market without waiting for a downturn, and probably be fine. Timing the downturn is usually not possible. What's the phrase? Time in the market beats timing the market.
- kurtisc 8y ago
  Isn't having about half of your gross worth in one city's housing market more risky?
  - twblalock 8y ago
    How do you know the houses are so much of his net worth?
    - kurtisc 8y ago
      I don't, that's why I said about.
- twblalock 8y ago
  I would keep them. You get rental income, and they are likely to appreciate in the long term. They are paid off, so your expenses should be low. You can't liquidate them without paying taxes on the gains unless you use the money to buy more real estate, which seems to defeat the purpose.
- redisman 8y ago
  I'll take one off your hands
- liftbigweights 8y ago
  If you have two houses paid off, then you are way ahead of the game. So I wouldn't take any advice from any of us and just keep doing whatever it is that got you where you are.
Pxtl 8y ago
That time never stopped here in the big-city parts of Canada. The US housing crisis was a speed-bump in our endless upward price-march out of affordability.
- deleted 8y ago
  [deleted]
- refurb 8y ago
  Vancouver sfh’s are down at least 10% now from their peak last year. The slump has already started.
  - jiveturkey 8y ago
    vancouver is completely different. the government is intentionally depressing prices.
- canadiancreed 8y ago
  It's definitely still going in Toronto. I'm seeing condos that are selling for 50-100k more then they did a year ago, and anything in the downtown core or near a subway line seems to gain value like clockwork.
bradleyjg 8y ago
Post-WWII the US home ownership rate increased from under 50% to between 60% and 70% and has stayed there ever since. https://dqydj.com/wp-content/uploads/2014/11/historical_homeownership_1890_present_USA.png https://dqydj.com/wp-content/uploads/2014/11/historical_home... I'd argue that this makes for a bad public policy environment. With such a high levels of concentrated investment in a single asset class political manipulation of that asset class isn't just tempting, it's practically a political necessity. What the voters demand is impossible to sustain forever (monotonically increasing nominal prices and above the rate of general inflation growth over every five year period), but with such high political pressure politicians try anyway.
- closeparen 8y ago
  Mass renting creates the worse political incentive structure of anti-gentrification, motivating people to oppose any improvements in their neighborhoods.
sovietmudkipz 8y ago
As someone who just purchased a primary home, it’s unnerving to hear about a correction on the horizon and that my house won’t be worth the debt I took on. I’m still recovering after tapping into my 6 mo emergency fund to make the down payment. I think I need to move to a more aggressive E fund regeneration strategy. The article states having ~20%~ 10% of home value in liquid cash; my ~6~ 3 month E fund is about there. I haven’t learned how to check the indicators to tell if the economy is about to go through deleveraging yet. I don’t know if I’m seeing more attention to this type of article now that I own a home or if the presence of these articles are in indication something bad is about to happen. I guess the future will tell. I’ll tighten my belt much more and get that E fund back up. I wasn’t working in 2008 during the recession; I’ll prepare just in case I lose my job. No new debt. Edit: article recommends 10% the value of your home in cash, not 20%, to get through a downturn. Updated this response.
- GhostVII 8y ago
  Whats the issue with your home not being worth the debt you took on? Obviously it isn't great to have an asset like that loose value, but most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. Even if the value goes to 0, you can still live in it just as well as if it's value stayed constant.
  - brink 8y ago
    Nobody likes to feel stuck in a house.
  - fhrow4484 8y ago
    > Whats the issue with your home not being worth the debt you took on? The issue mentioned in the article is: What if you need to sell? Like what if you lost your job, found a new one but in a completely new city, far away from where you bought your house: will you be able with the new salary to pay for both a rental near your new work, and continue paying the mortgage on your original house? > most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. This is the assumption that people might disagree with. Does it make sense?
mindslight 8y ago
Maybe if the bubble were ever allowed to actually just deflate, then we wouldn't be in a state of perpetual worry? The present feedback loop is straightforward: CPI is an average of consumer goods and the price of housing. Due to technological and economic progress, the costs of manufactured goods are always dropping. To maintain the Fed's stated goal of continual inflation, new money must be injected into the housing market to compensate. (The same goes for anything else that can be financialized, eg cars)
gniv 8y ago
This is from beginning of February. Things have indeed gotten worse since then. Especially the mortgage rates.
kokey 8y ago
I'm not sure what the situation is in the US, but in the UK there has been a number of changes which has helped increase the rate of new house building to increase the stock. This, along with Brexit uncertainly, looks like it's starting to show signs of slowing down the dramatic shortages and house price rises we've been seeing for decades. Some people bought based on assumptions regarding the rate of price rises and may be disappointed, but I don't expect a crash resulting in a lot of defaults because lending criteria has been tightened and many people have the last recession in their recent living memory so they are more careful.
UncleEntity 8y ago
> In 2017 I experienced softening rents first hand when I tried to find replacement tenants for my SF rental house at a similar rent of $9,000 a month. That's more than I pay for a year for a 2bd apartment in downtown Phoenix...
jldugger 8y ago
Every time I read these articles, I'm optimistic this might mean rents are going down, but they always have an asterisk: "Well, except the bay area." Which is understandable -- with 20 cities in the Case Shiller index, one bucking the trend does not negate the trend. But alas, I don't get to live in an index of 20 cities. And it should be noted, this article is from February 2018.
- segmondy 8y ago
  House prices have fallen in the Bay Area, I've been keeping an eye on it. If it falls well enough I will move there. The reason no one wants to reduce rent in the Bay is because of rent control. I saw some multi units for sale, folks were stuck renting out 2 bedrooms for less than $1,000/month.
  - jldugger 8y ago
    > House prices have fallen in the Bay Area, I've been keeping an eye on it. https://fred.stlouisfed.org/series/SFXRSA https://fred.stlouisfed.org/series/SFXRSA is bit lagged (most recent data is july) but doesn't seem down? > The reason no one wants to reduce rent in the Bay is because of rent control. Is rent control common in the south bay? AFAICT, there's only Mountain View which passed by ballot initiative in 2016.
swang720 8y ago
As someone that doesn’t own a home, I really do hope for a correction so housing is more affordable here in California. While Californians are aligned on many things, in some ways your perspective on the housing situation depends a lot on whether you own a home or don’t. If things stay their course I plan on renting indefinitely and moving to another state where prices are relatively affordable for my family. Having grown up in the Bay Area, it’s a little disconcerting that I can’t afford to settle down here after moving back after college.

59 points by dmitriy_ko 8y ago

The Redfin CEO warned about weakness in the housing market back in August while discussing Redfin's earnings. https://www.marketwatch.com/story/housing-market-has-hit-a-significant-slowdown-in-recent-weeks-redfin-ceo-says-2018-08-09 https://www.marketwatch.com/story/housing-market-has-hit-a-s...

ronnier 8y ago

I have two houses paid off in the Seattle area. I'm tempted to sell them (I rent one out), but I don't know what I'd do with the money. I could hold and wait for a downturn and buy again but that seems risky.

darawk 8y ago
Keep in mind the tax implications. You basically can't sell real estate without immediately turning around and buying more real estate via 1031 exchange, unless you want to pay a massive capital gains bill.
a_wild_dandan 8y ago
The recession is coming. We're in the 2nd longest expansion in US history (at ~10 years), and the contraction is on the horizon. Liquidating a property now, waiting for the recession to hit, and sticking the money into a low-fee index fund seems pretty reasonable. Maybe a financial advisor could check in and let us know if that's a valid strategy? I've been thinking of doing something similar.
- Bombthecat 8y ago
  I'm not so convinced that we are entering a recession. I think we will more likely enter a dystopian phase to squeeze out more money from the workforce.
  - claydavisss 8y ago
    I agree that for the dominant tech titans, reducing costs is the next phase. Amazon has saturated the US market for Prime accounts...Apple has found a near-term ceiling for phone prices...etc etc The most obvious tool for juicing margins in the next two years is in reducing costs (headcount or salaries)
    - hedvig 8y ago
      Why can't the overlords just accept current profit margins?
      - deleted 8y ago
        [deleted]
      - WJW 8y ago
        It's an unstable condition in a game theoretic sense, because if you don't push for a higher margin when you have the chance, your competition might and then you go out of business altogether because they can outspend and outinvest you. So you always have the incentive to optimize margin as high as you can.
- claydavisss 8y ago
  When enough people start wondering about a recession, one is assured
- twblalock 8y ago
  A recession is always coming. It is nearly a certainty that there will be one at some point in the future. That is not a good argument for liquidating investments now, because nobody knows when the next recession will happen, how bad it will be, and how long it will last. A lot of people have missed out on big market gains over the past few years because they wanted to protect themselves from a recession. It's a poor long-term investing strategy and it's based purely on guesswork, unless you own a time machine.
- nostromo 8y ago
  If you think we're at the top of the market, liquidating property, paying taxes on the gains, and then putting money in an index fund isn't great advice. In 08 the S&P tanked 50%+, while housing (measured by Case-Shiller national home price) only dropped around 18%. In desirable cities the housing correction was even smaller. In any case, bull markets don't die of old age, they die from recessions.
dmoy 8y ago
You could also liquidate them, put stuff away in the market without waiting for a downturn, and probably be fine. Timing the downturn is usually not possible. What's the phrase? Time in the market beats timing the market.
kurtisc 8y ago
Isn't having about half of your gross worth in one city's housing market more risky?
- twblalock 8y ago
  How do you know the houses are so much of his net worth?
  - kurtisc 8y ago
    I don't, that's why I said about.
twblalock 8y ago
I would keep them. You get rental income, and they are likely to appreciate in the long term. They are paid off, so your expenses should be low. You can't liquidate them without paying taxes on the gains unless you use the money to buy more real estate, which seems to defeat the purpose.
redisman 8y ago
I'll take one off your hands
liftbigweights 8y ago
If you have two houses paid off, then you are way ahead of the game. So I wouldn't take any advice from any of us and just keep doing whatever it is that got you where you are.

Pxtl 8y ago

That time never stopped here in the big-city parts of Canada. The US housing crisis was a speed-bump in our endless upward price-march out of affordability.

deleted 8y ago
[deleted]
refurb 8y ago
Vancouver sfh’s are down at least 10% now from their peak last year. The slump has already started.
- jiveturkey 8y ago
  vancouver is completely different. the government is intentionally depressing prices.
canadiancreed 8y ago
It's definitely still going in Toronto. I'm seeing condos that are selling for 50-100k more then they did a year ago, and anything in the downtown core or near a subway line seems to gain value like clockwork.

bradleyjg 8y ago

Post-WWII the US home ownership rate increased from under 50% to between 60% and 70% and has stayed there ever since. https://dqydj.com/wp-content/uploads/2014/11/historical_homeownership_1890_present_USA.png https://dqydj.com/wp-content/uploads/2014/11/historical_home... I'd argue that this makes for a bad public policy environment. With such a high levels of concentrated investment in a single asset class political manipulation of that asset class isn't just tempting, it's practically a political necessity. What the voters demand is impossible to sustain forever (monotonically increasing nominal prices and above the rate of general inflation growth over every five year period), but with such high political pressure politicians try anyway.

closeparen 8y ago
Mass renting creates the worse political incentive structure of anti-gentrification, motivating people to oppose any improvements in their neighborhoods.

sovietmudkipz 8y ago

As someone who just purchased a primary home, it’s unnerving to hear about a correction on the horizon and that my house won’t be worth the debt I took on. I’m still recovering after tapping into my 6 mo emergency fund to make the down payment. I think I need to move to a more aggressive E fund regeneration strategy. The article states having ~20%~ 10% of home value in liquid cash; my ~6~ 3 month E fund is about there. I haven’t learned how to check the indicators to tell if the economy is about to go through deleveraging yet. I don’t know if I’m seeing more attention to this type of article now that I own a home or if the presence of these articles are in indication something bad is about to happen. I guess the future will tell. I’ll tighten my belt much more and get that E fund back up. I wasn’t working in 2008 during the recession; I’ll prepare just in case I lose my job. No new debt. Edit: article recommends 10% the value of your home in cash, not 20%, to get through a downturn. Updated this response.

GhostVII 8y ago
Whats the issue with your home not being worth the debt you took on? Obviously it isn't great to have an asset like that loose value, but most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. Even if the value goes to 0, you can still live in it just as well as if it's value stayed constant.
- brink 8y ago
  Nobody likes to feel stuck in a house.
- fhrow4484 8y ago
  > Whats the issue with your home not being worth the debt you took on? The issue mentioned in the article is: What if you need to sell? Like what if you lost your job, found a new one but in a completely new city, far away from where you bought your house: will you be able with the new salary to pay for both a rental near your new work, and continue paying the mortgage on your original house? > most people don't change homes very often, so the value of the home shouldn't have much impact on your life until later. This is the assumption that people might disagree with. Does it make sense?

mindslight 8y ago

Maybe if the bubble were ever allowed to actually just deflate, then we wouldn't be in a state of perpetual worry? The present feedback loop is straightforward: CPI is an average of consumer goods and the price of housing. Due to technological and economic progress, the costs of manufactured goods are always dropping. To maintain the Fed's stated goal of continual inflation, new money must be injected into the housing market to compensate. (The same goes for anything else that can be financialized, eg cars)

gniv 8y ago

This is from beginning of February. Things have indeed gotten worse since then. Especially the mortgage rates.

kokey 8y ago

I'm not sure what the situation is in the US, but in the UK there has been a number of changes which has helped increase the rate of new house building to increase the stock. This, along with Brexit uncertainly, looks like it's starting to show signs of slowing down the dramatic shortages and house price rises we've been seeing for decades. Some people bought based on assumptions regarding the rate of price rises and may be disappointed, but I don't expect a crash resulting in a lot of defaults because lending criteria has been tightened and many people have the last recession in their recent living memory so they are more careful.

UncleEntity 8y ago

> In 2017 I experienced softening rents first hand when I tried to find replacement tenants for my SF rental house at a similar rent of $9,000 a month. That's more than I pay for a year for a 2bd apartment in downtown Phoenix...

jldugger 8y ago

Every time I read these articles, I'm optimistic this might mean rents are going down, but they always have an asterisk: "Well, except the bay area." Which is understandable -- with 20 cities in the Case Shiller index, one bucking the trend does not negate the trend. But alas, I don't get to live in an index of 20 cities. And it should be noted, this article is from February 2018.

segmondy 8y ago
House prices have fallen in the Bay Area, I've been keeping an eye on it. If it falls well enough I will move there. The reason no one wants to reduce rent in the Bay is because of rent control. I saw some multi units for sale, folks were stuck renting out 2 bedrooms for less than $1,000/month.
- jldugger 8y ago
  > House prices have fallen in the Bay Area, I've been keeping an eye on it. https://fred.stlouisfed.org/series/SFXRSA https://fred.stlouisfed.org/series/SFXRSA is bit lagged (most recent data is july) but doesn't seem down? > The reason no one wants to reduce rent in the Bay is because of rent control. Is rent control common in the south bay? AFAICT, there's only Mountain View which passed by ballot initiative in 2016.

swang720 8y ago

As someone that doesn’t own a home, I really do hope for a correction so housing is more affordable here in California. While Californians are aligned on many things, in some ways your perspective on the housing situation depends a lot on whether you own a home or don’t. If things stay their course I plan on renting indefinitely and moving to another state where prices are relatively affordable for my family. Having grown up in the Bay Area, it’s a little disconcerting that I can’t afford to settle down here after moving back after college.