6 ms·

Another U.S.-Wide Housing Slump Is Coming

46 points by harambae 7y ago

alkibiades 7y ago
i hope so. millennials might finally be able to own
- baggsie 7y ago
  The reality is older people buying up cheaper property to rent out as they are the only ones able to get mortgages.
- samsonradu 7y ago
  Unfortunately, I’d argue the contrary. Housing prices will further decouple from the economical reality and become a safe-heaven like asset that protects wealth from inflation.
- cm2187 7y ago
  If they still have a job
- ketzu 7y ago
  While homeownership of millennials is lower than that of their parents' generation at the same age in the US, it is far from being zero. Most results I've seen point it at 32-37% compared to the parents' generation at the same age in the US at 42-47%. It's not a small gap (with various factors leading to it), but it's not like millennials don't own anything or previous generations even owned mostly at that age. (But the data is not the most recent, so actually previous generations might have had more than 50% ownership at that age in the US)
  - mschuster91 7y ago
    The key issue is the rural-urban gap, and it's not just only in the US (although it's the most extreme there). In Germany, if you live in the more... remote parts that don't have much in terms of jobs or public transportation, you can live for cheap or continue living in your parents' house. No biggie. But getting started with ownership in urban areas? Next to impossible without financial assistance from parents. 500k minimum for a 3 room/60 m2 is the ultimate lowest of the low you'll get in Munich. 10% downpayment is 50k plus closing costs of 35k (17k taxes, 17k realtor) which means prospective owners have to save at least 85k (and better 100k to account for moving costs, furniture, repairs)... which means that if you want to own an apartment at 35 you have to save 10k a year beginning with 25 - and no one I know here in my age group can put aside 900€ a month, not with regular rents gobbling up 50% or more of your paycheck! And... even with 1% interest rate you'll end up with 1.100€ mortgage payment at least plus hundreds of euros a month in HOA fees (if applicable, usually only in condos/bigger private developments), insurances (fire, weather, ...), some emergency fund for issues such as heating or renovations), that is next to unaffordable.
    - ketzu 7y ago
      While I agree in general, I don't think it's as easy as urban-rural. Germany has some cities with extreme housing prices, notably Munich, but the discrepancy is big within the group of larger cities as well. I can't say much about my friend group, as we don't talk about buying houses often. The few I talked to have an even split between the ones that want to buy (or just did) and the ones that don't even want to, even though we're in an income segment where it would be affordable. I was surprised to find that home-owner rates in Germany have been quite low compared to other countries, but I couldn't find data before 2005 (it was 51-55% overall). It's really interesting to look into these kinds of things!
- Tycho 7y ago
  I’m hearing that in the current economic situation banks are asking for 40% deposits to get a mortgage. I remember my landlord in 2008 saying it had been hiked to 20%. In good times people can get a mortgage with 5-10% down.
  - ag56 7y ago
    In 2005, in Holland, my deposit was -20%. I went into the bank hoping I might get 100% and the mortgage guy immediately offered me 120% "to help with the furniture".
roenxi 7y ago
US national debt [0] is at wartime levels and I believe US private debt is also at or approaching all time highs relative to income. At a guess, any surprise of any sort away from best-case is going to cause a crisis in debt-exposed markets. The coronavirus is one of many of paths to an ugly slump. The level of debt is a story in itself; it is a creeping horror that comes to a head suddenly at difficult moments. Somebody is expecting money to come to them that is not going to. [0] https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
- rwmj 7y ago
  Surely that is the fault of the lenders who seem quite happy to lend out at very low interest rates. They haven't priced in or don't care about the risk of default[1]. [1] And yes, I understand that the US govt cannot default on debt since it can simply print more dollars. But private lending is also very low interest historically, and even the US might "default" in other ways such as having runaway inflation.
- IkmoIkmo 7y ago
  People keep talking about debt as if all debt is made equal. It's not. It's a bit like someone talking about his salary as an amount, without specifying whether it's per hour, per year, per minute, in a world where the unit of time is constantly changing. That'd be completely meaningless. Fact is that interest rates reached levels between 10-20% in the post-war era. Today they've reached 0-3%. Higher debt levels aren't necessarily a problem if interest rates drop meaning debt servicing is low, and inflation mitigates rising nominal debt levels meaning debt in real terms stays low. I'm not saying that debt is not a problem at all, but that it's completely taken out of context by looking at nominal debt figures rising. Even if you express debt as a percentage of GDP, you're still missing interest. Debt servicing as a percentage of GDP isn't at particularly high levels. Second, we must consider what the alternative is: less debt the past decade, or decades, would've likely meant we'd see a deflationary cycle, inhibited investments, research, development and growth. As long as there's a bail-out for the 'reasonably' losers of systemic crises (which is not trivial, but mostly feasible and which we're seeing now), the use of debt the past few decades has probably been a net benefit.
voodooranger 7y ago
a housing slump may be coming but then so are pay cuts. in fact they’re already here for many people. prices are also falling for energy and lots of other commodities as aggregate demand collapses. all of this amounts to textbook deflation. those with debts to service (mortgage, auto, student) are going to be feeling a lot of pain in this environment. good news is gov’t just needs to print money to bring nominal prices up. bad news is there’s no free lunch for young people hoping to buy homes. imo wages are largely going to move in unison with home prices.
arcticbull 7y ago
Interesting that "housing is still overvalued" -- I'm not entirely sure that it's drastically priced out of line with history. The price per square foot of the average American home, when adjusted for inflation, is almost exactly the same as in 1978 -- right around $130. What's changed is houses have gotten bigger (1600 sqft vs 2400). [1] Now there are pools where arbitrary supply constraints have created massive price increases above inflation (SF, NY) but those markets are historically the ones least affected by a downturn anyways. With that in mind, it's clear that in SF and NY the price of housing is tied to the economic productivity of the area, and frankly, the chances big tech is going to cut pay is below zero. The dot-com bubble only took 10% off the average house price in SF. The 2008 mortage crisis took 27% over the entire time period -- which was followed by an 88% increase. [2] [1] https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/ [2] https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby https://www.bayareamarketreports.com/trend/3-recessions-2-bu...
- IkmoIkmo 7y ago
  Yeah it's insane these simply facts are completely devoid of any discussion. Inflation as we talk about it colloquially is supposed to measure price changes of the same thing. Like an apple. What actually happens in most discussions is that we measure wildly different things and then say 'look, prices changed'. Not just have homes gotten bigger, the heating and cooling is better, they're safer, they're equipped with more amenities etc. My grandparents didn't have a shower, but went to the communal bathhouse once a week. My parents didn't have central heating in one of their homes. I see the same discussion in healthcare. Life expectancy in many western countries grew by 20-30 years since the second world war, which is a radically improved outcome which proxies health throughout life, yet we are shocked this outcome is much more expensive than before. College is trickier, there's tons of inflation there and you can wonder if education really improved. By some measures, it worsened, by some it's much better. What's clear however is that educational attainment has never been higher. That's not to say there's no inflation in any of these areas. But rather that it's much more nuanced if corrected for some values.
  - 7y ago
bradleyjg 7y ago
Housing is a universal cost. When prices come down human flourishing goes up. How did we get to a place where governments across the west desperately manipulate markets to increase the cost of a basic necessity? How perverse!
- arcticbull 7y ago
  I agree with part of your premise -- artificial supply constraints caused by NIMBY-ism precludes building up in highest-demand metros which causes prices to go up. On the other hand, "human flourishing" is unlikely tied to real estate. Real estate is an investment vehicle, and one that is pretty broadly indexed to inflation on average in the US. It's often the case that renting somewhere cheaper will leave you economically advantaged as compared to ownership. I'd suggest playing with the variables on the New York Times rent vs. buy calculator from a few years back [1]. Owning is by no means a "clear win" but rather part of the American wealth-building narrative. [1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
  - rwmj 7y ago
    I guess the OP means that humans are less able to function if they have to pay out a large proportion of their salary in rent, which is basically true for people living in cities near to jobs. It becomes a constant source of anxiety, and could mean that any break from work threatens to make them homeless. So it's probably fair to say that humans don't "flourish" if house prices (and therefore rent or mortgage payments) are very high in the specific places where jobs are located.
    - bradleyjg 7y ago
      Imagine an article bemoaning the fact that the cost of clean potable water was coming down across the country and calling for massive government intervention to increase the price of drinking water. That’s how this kind of article reads to me.
      - 7y ago
deleted 7y ago
[deleted]
woofie11 7y ago
This article ignores stimuluses, printing money, and inflation.
battery_cowboy 7y ago
I know this is going to happen because my apartment's management company gave everyone the chance to renew now for an additional 12 months for the same rent as previous, while also fear mongering that this offer was only available for 1 month. I immediately knew that within the next few months rent would drop a ton, because this management company had never given a single shit about us previously, and I'm sure they're only offering this to lock in another year for everyone.

46 points by harambae 7y ago

alkibiades 7y ago

i hope so. millennials might finally be able to own

baggsie 7y ago
The reality is older people buying up cheaper property to rent out as they are the only ones able to get mortgages.
samsonradu 7y ago
Unfortunately, I’d argue the contrary. Housing prices will further decouple from the economical reality and become a safe-heaven like asset that protects wealth from inflation.
cm2187 7y ago
If they still have a job
ketzu 7y ago
While homeownership of millennials is lower than that of their parents' generation at the same age in the US, it is far from being zero. Most results I've seen point it at 32-37% compared to the parents' generation at the same age in the US at 42-47%. It's not a small gap (with various factors leading to it), but it's not like millennials don't own anything or previous generations even owned mostly at that age. (But the data is not the most recent, so actually previous generations might have had more than 50% ownership at that age in the US)
- mschuster91 7y ago
  The key issue is the rural-urban gap, and it's not just only in the US (although it's the most extreme there). In Germany, if you live in the more... remote parts that don't have much in terms of jobs or public transportation, you can live for cheap or continue living in your parents' house. No biggie. But getting started with ownership in urban areas? Next to impossible without financial assistance from parents. 500k minimum for a 3 room/60 m2 is the ultimate lowest of the low you'll get in Munich. 10% downpayment is 50k plus closing costs of 35k (17k taxes, 17k realtor) which means prospective owners have to save at least 85k (and better 100k to account for moving costs, furniture, repairs)... which means that if you want to own an apartment at 35 you have to save 10k a year beginning with 25 - and no one I know here in my age group can put aside 900€ a month, not with regular rents gobbling up 50% or more of your paycheck! And... even with 1% interest rate you'll end up with 1.100€ mortgage payment at least plus hundreds of euros a month in HOA fees (if applicable, usually only in condos/bigger private developments), insurances (fire, weather, ...), some emergency fund for issues such as heating or renovations), that is next to unaffordable.
  - ketzu 7y ago
    While I agree in general, I don't think it's as easy as urban-rural. Germany has some cities with extreme housing prices, notably Munich, but the discrepancy is big within the group of larger cities as well. I can't say much about my friend group, as we don't talk about buying houses often. The few I talked to have an even split between the ones that want to buy (or just did) and the ones that don't even want to, even though we're in an income segment where it would be affordable. I was surprised to find that home-owner rates in Germany have been quite low compared to other countries, but I couldn't find data before 2005 (it was 51-55% overall). It's really interesting to look into these kinds of things!
Tycho 7y ago
I’m hearing that in the current economic situation banks are asking for 40% deposits to get a mortgage. I remember my landlord in 2008 saying it had been hiked to 20%. In good times people can get a mortgage with 5-10% down.
- ag56 7y ago
  In 2005, in Holland, my deposit was -20%. I went into the bank hoping I might get 100% and the mortgage guy immediately offered me 120% "to help with the furniture".

roenxi 7y ago

US national debt [0] is at wartime levels and I believe US private debt is also at or approaching all time highs relative to income. At a guess, any surprise of any sort away from best-case is going to cause a crisis in debt-exposed markets. The coronavirus is one of many of paths to an ugly slump. The level of debt is a story in itself; it is a creeping horror that comes to a head suddenly at difficult moments. Somebody is expecting money to come to them that is not going to. [0] https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St...

rwmj 7y ago
Surely that is the fault of the lenders who seem quite happy to lend out at very low interest rates. They haven't priced in or don't care about the risk of default[1]. [1] And yes, I understand that the US govt cannot default on debt since it can simply print more dollars. But private lending is also very low interest historically, and even the US might "default" in other ways such as having runaway inflation.
IkmoIkmo 7y ago
People keep talking about debt as if all debt is made equal. It's not. It's a bit like someone talking about his salary as an amount, without specifying whether it's per hour, per year, per minute, in a world where the unit of time is constantly changing. That'd be completely meaningless. Fact is that interest rates reached levels between 10-20% in the post-war era. Today they've reached 0-3%. Higher debt levels aren't necessarily a problem if interest rates drop meaning debt servicing is low, and inflation mitigates rising nominal debt levels meaning debt in real terms stays low. I'm not saying that debt is not a problem at all, but that it's completely taken out of context by looking at nominal debt figures rising. Even if you express debt as a percentage of GDP, you're still missing interest. Debt servicing as a percentage of GDP isn't at particularly high levels. Second, we must consider what the alternative is: less debt the past decade, or decades, would've likely meant we'd see a deflationary cycle, inhibited investments, research, development and growth. As long as there's a bail-out for the 'reasonably' losers of systemic crises (which is not trivial, but mostly feasible and which we're seeing now), the use of debt the past few decades has probably been a net benefit.

voodooranger 7y ago

a housing slump may be coming but then so are pay cuts. in fact they’re already here for many people. prices are also falling for energy and lots of other commodities as aggregate demand collapses. all of this amounts to textbook deflation. those with debts to service (mortgage, auto, student) are going to be feeling a lot of pain in this environment. good news is gov’t just needs to print money to bring nominal prices up. bad news is there’s no free lunch for young people hoping to buy homes. imo wages are largely going to move in unison with home prices.

arcticbull 7y ago

Interesting that "housing is still overvalued" -- I'm not entirely sure that it's drastically priced out of line with history. The price per square foot of the average American home, when adjusted for inflation, is almost exactly the same as in 1978 -- right around $130. What's changed is houses have gotten bigger (1600 sqft vs 2400). [1] Now there are pools where arbitrary supply constraints have created massive price increases above inflation (SF, NY) but those markets are historically the ones least affected by a downturn anyways. With that in mind, it's clear that in SF and NY the price of housing is tied to the economic productivity of the area, and frankly, the chances big tech is going to cut pay is below zero. The dot-com bubble only took 10% off the average house price in SF. The 2008 mortage crisis took 27% over the entire time period -- which was followed by an 88% increase. [2] [1] https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/ [2] https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby https://www.bayareamarketreports.com/trend/3-recessions-2-bu...

IkmoIkmo 7y ago
Yeah it's insane these simply facts are completely devoid of any discussion. Inflation as we talk about it colloquially is supposed to measure price changes of the same thing. Like an apple. What actually happens in most discussions is that we measure wildly different things and then say 'look, prices changed'. Not just have homes gotten bigger, the heating and cooling is better, they're safer, they're equipped with more amenities etc. My grandparents didn't have a shower, but went to the communal bathhouse once a week. My parents didn't have central heating in one of their homes. I see the same discussion in healthcare. Life expectancy in many western countries grew by 20-30 years since the second world war, which is a radically improved outcome which proxies health throughout life, yet we are shocked this outcome is much more expensive than before. College is trickier, there's tons of inflation there and you can wonder if education really improved. By some measures, it worsened, by some it's much better. What's clear however is that educational attainment has never been higher. That's not to say there's no inflation in any of these areas. But rather that it's much more nuanced if corrected for some values.
- 7y ago

bradleyjg 7y ago

Housing is a universal cost. When prices come down human flourishing goes up. How did we get to a place where governments across the west desperately manipulate markets to increase the cost of a basic necessity? How perverse!

arcticbull 7y ago
I agree with part of your premise -- artificial supply constraints caused by NIMBY-ism precludes building up in highest-demand metros which causes prices to go up. On the other hand, "human flourishing" is unlikely tied to real estate. Real estate is an investment vehicle, and one that is pretty broadly indexed to inflation on average in the US. It's often the case that renting somewhere cheaper will leave you economically advantaged as compared to ownership. I'd suggest playing with the variables on the New York Times rent vs. buy calculator from a few years back [1]. Owning is by no means a "clear win" but rather part of the American wealth-building narrative. [1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
- rwmj 7y ago
  I guess the OP means that humans are less able to function if they have to pay out a large proportion of their salary in rent, which is basically true for people living in cities near to jobs. It becomes a constant source of anxiety, and could mean that any break from work threatens to make them homeless. So it's probably fair to say that humans don't "flourish" if house prices (and therefore rent or mortgage payments) are very high in the specific places where jobs are located.
  - bradleyjg 7y ago
    Imagine an article bemoaning the fact that the cost of clean potable water was coming down across the country and calling for massive government intervention to increase the price of drinking water. That’s how this kind of article reads to me.
    - 7y ago

deleted 7y ago

[deleted]

woofie11 7y ago

This article ignores stimuluses, printing money, and inflation.

battery_cowboy 7y ago

I know this is going to happen because my apartment's management company gave everyone the chance to renew now for an additional 12 months for the same rent as previous, while also fear mongering that this offer was only available for 1 month. I immediately knew that within the next few months rent would drop a ton, because this management company had never given a single shit about us previously, and I'm sure they're only offering this to lock in another year for everyone.