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I am REALLY curious about home prices during this coming period. Are we due for a correction down or was the 15-20% overnight housing cost jump a correction of

I am REALLY curious about home prices during this coming period. Are we due for a correction down or was the 15-20% overnight housing cost jump a correction of house prices being too low (yes, absurd but I’m serious). A perfect storm of Millennials finally buying homes with low interest rates (?). COVID just jump started it. Who knows. Either way: - Huge amount of people fleeing to suburbs regretting their new commute times is likely. - Huge amount of people who can’t carry their new housing bill and find remote work like planned. Seems inevitable. Either way, I think housing cost will be one of the best indicators if remote is here to stay or not.

breadzeppelin__ 5y ago
I'm "attending" the "strategic investment conference" currently and there was a presentation on housing a few days ago that implied that housing prices will continue to rise due to demographic factors and "housing stock shortages" for at least a couple more years
shados 5y ago
While there's a lot of factors involved, the impact of lowering interest rate is usually underestimated. I didn't pay an absurd amount of money for my house because the market was super hot and I had to outbid everyone in a bidding war (though I did have to do that). I paid an absurd amount because with interest rates so low, it was cheaper than renting in term of monthly payment + maintenance. I'd obviously be willing to go as high as my current rent, and probably a bit higher (to be allowed to do whatever I want with it), and that just came up to the price I paid. The only thing blocking you, financially, is the down payment. The lower the interest rate, the higher the down payment will be for the same monthly payment. That's the problem. To live in the house, if you can afford 1500/month (including insurance, HoA, maintenance), it doesn't matter if the house is worth 100k, 300k, 600k, 1 million...if the math adds up to 1500/month, you'll buy it. Interest rates go down, house value go up. Simple as that. Now if you add all the other factors, like how home ownership becomes a potentially profitable investment, alongside society's pressure that "it's what you're supposed to do", and of course prices will skyrocket, shortage or not. In turn, it raises rent prices, which makes the math above work out even more, and it's a self reinforcing cycle.
- pashamur 5y ago
  Yeah, you pretty much nailed it - this article gives context, but it's pretty much as you said, most people are not adjusting by inflation & interest rate: https://realestatedecoded.com/the-shocking-truth-about-house-prices-since-1990/ https://realestatedecoded.com/the-shocking-truth-about-house... Think of houses like bonds that pay a coupon (rent). If risk free rate goes down, the coupon is worth more in comparison so house price goes up. The only downside is that when you buy a house that is cheap with a high interest rate you can benefit from refinancing if the rate goes down (and deduct your mortgage interest, which used to be significant tax savings). When you buy an expensive house at a low rate, you get no such benefit (although if inflation does pick up, the fact that you are implicitly short the borrowed dollars might still work in your favor).
  - epistasis 5y ago
    I think this is the correct analysis in many ways, but I am very fond of the Minsky view that we are all agents dealing with cash-flow. The other side of cash flow is income, and I'd be very interested to see if income has kept under this analysis too...
- me_me_me 5y ago
  Exactly, and not everyone is in white collar high paying job. I have few friends that are in a saving vicious cycle, high rent and cost of living eat up saving so that they save little. This makes them resigned and depressed - so the spend money on stuff to make them happy. Having 25 yr old tell you that they will be able to afford a down-payment in 20 years is a telling sign.
- darrylb42 5y ago
  And what I never got when I was younger rent ticks up 2-4% every year, your mortgage costs are fixed. I am now locked in paying the same as what I had in rent 5 years ago. I used the the same rent vs buy cost allocation with a down payment to get the monthly cost I wanted. Percent of my income for housing costs has actually dropped since buying, that never happened when I rented.
woudsma 5y ago
In The Netherlands the house prices have only continued to go up during the pandemic. As a Millenial myself, buying a house is still out of reach. No resignation for me anytime soon.
- stevievee 5y ago
  I feel for you. From what I hear, the population in the Netherlands has a unique appetite for overleveraging to buy a home (and this is coming from someone who lives in the most overpriced housing market in the world)
  - jacquesm 5y ago
    It's a combination of many factors. Restricted supply of new homes is one very large one, ridiculously high rents, ridiculously low interest, preferential treatment for tax reduction on account of a mortgage further reducing the net interest paid and so on. Even after 2008, arguably the largest drop in house prices here in a very long time the market didn't drop nearly as far as it could have on account of everybody being locked in to their purchases and unable to move to something else until the market loosened up again. It's a pretty tricky situation, everybody knows that the market is overvalued but as long as supply is this constrained and prices remain high buyers are left with very few options. If the interests go up to something reasonable again (5-10% or so) there will be a lot of people in trouble but it won't immediately lead to a price drop unless investors move away from the buy side. This is especially true for apartments which are going for crazy rates because investors buy them up as fast as they hit the market. A typical property is for sale less than two weeks, and usually on the day it goes up for sale there is already a waiting list.
    - selectodude 5y ago
      It seems like most of Europe currently has issues like that. Sweden had to recently pass a law capping mortgage terms at 105 years. The average mortgage term for a time was 140 years. https://www.thelocal.se/20160324/sweden-limits-mortgage-loans-to-105-years/ https://www.thelocal.se/20160324/sweden-limits-mortgage-loan...
genedan 5y ago
My wife and I have been living in a studio to save for a down payment and meant to buy last year, but didn't. Now we have saved up double what we were expecting since we stayed in the studio for a year longer than planned. I think there are a lot of couples like us who are now on the market, having been vaccinated and ready to move out.
dominotw 5y ago
I know everyone is expecting housing to go up in near future for a variety of reasons but I see couple of counter trends that might temper the market 1. return to office 2. increase in interest rates due to inflation 3. effects from lifting eviction bans, rolling back unemployment covid provisions ect. 4. Biden govt encouraging more house building.
- darkwizard42 5y ago
  If #4 happens that would be the best thing all around (imho). Creates real value that can be absorbed without destroying access as people leave/reenter cities. However, as we have seen in many densely populated cities the amount of red tape in development is absurd and probably results in an incredibly diluted impact
onlyrealcuzzo 5y ago
How can house prices go down when there's 4x as much money (M1) [1], 30% more broad money (M2) [2], and debt service is 25% cheaper [3]? This is /before/ any additional stimulus (monetized by the Fed). Additionally, the personal savings rate is also at an all time high [4] - and net worth of individuals has increased by >$12Tr (>50% of US GDP). In one year... [1] https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1 [2] https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 [3] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US [4] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT
ashtonkem 5y ago
I think we’re overstating the WFH effect in a lot of places. During Covid I moved from CA to Boise, ID. On the surface, it seems like I’d be part of the problem that’s driving up the cost of homes in the area. But once you dig in a bit more, you’ll realize that the majority of the people moving to Boise come from ... the rest of Idaho. There are more trends at play in the housing market above and beyond office workers moving to or from WFH.
- throwaway0a5e 5y ago
  >On the surface, it seems like I’d be part of the problem that’s driving up the cost of homes in the area. But once you dig in a bit more, you’ll realize that the majority of the people moving to Boise come from ... the rest of Idaho. It only takes a minority of bad actors to ruin a good thing for everybody.
  - ashtonkem 5y ago
    Buying a house is bad faith? That seems pretty unkind of you.
    - throwaway0a5e 5y ago
      I said "bad actors" not "bad faith". Litter in the economic park is litter in the economic park regardless of whether someone tossed it there intentionally or the wind took it from someone who would otherwise have thrown it in a trashcan.
      - ashtonkem 5y ago
        So, buying a house outside CA is like littering?
crossroadsguy 5y ago
In India home prices do not depend on factors such as market conditions, demand-supply, pandemic etc. It is just one thing - real estate mafia which includes a whole lot of politicians and their vested interests. When you look at real estate prices and everything else in last decade and a half here, you’d be forced to think real estate has been living in an entirely different dimension all this while. It just doesn’t make sense. I’m talking about urban India of course.

breadzeppelin__ 5y ago

I'm "attending" the "strategic investment conference" currently and there was a presentation on housing a few days ago that implied that housing prices will continue to rise due to demographic factors and "housing stock shortages" for at least a couple more years

shados 5y ago

While there's a lot of factors involved, the impact of lowering interest rate is usually underestimated. I didn't pay an absurd amount of money for my house because the market was super hot and I had to outbid everyone in a bidding war (though I did have to do that). I paid an absurd amount because with interest rates so low, it was cheaper than renting in term of monthly payment + maintenance. I'd obviously be willing to go as high as my current rent, and probably a bit higher (to be allowed to do whatever I want with it), and that just came up to the price I paid. The only thing blocking you, financially, is the down payment. The lower the interest rate, the higher the down payment will be for the same monthly payment. That's the problem. To live in the house, if you can afford 1500/month (including insurance, HoA, maintenance), it doesn't matter if the house is worth 100k, 300k, 600k, 1 million...if the math adds up to 1500/month, you'll buy it. Interest rates go down, house value go up. Simple as that. Now if you add all the other factors, like how home ownership becomes a potentially profitable investment, alongside society's pressure that "it's what you're supposed to do", and of course prices will skyrocket, shortage or not. In turn, it raises rent prices, which makes the math above work out even more, and it's a self reinforcing cycle.

pashamur 5y ago
Yeah, you pretty much nailed it - this article gives context, but it's pretty much as you said, most people are not adjusting by inflation & interest rate: https://realestatedecoded.com/the-shocking-truth-about-house-prices-since-1990/ https://realestatedecoded.com/the-shocking-truth-about-house... Think of houses like bonds that pay a coupon (rent). If risk free rate goes down, the coupon is worth more in comparison so house price goes up. The only downside is that when you buy a house that is cheap with a high interest rate you can benefit from refinancing if the rate goes down (and deduct your mortgage interest, which used to be significant tax savings). When you buy an expensive house at a low rate, you get no such benefit (although if inflation does pick up, the fact that you are implicitly short the borrowed dollars might still work in your favor).
- epistasis 5y ago
  I think this is the correct analysis in many ways, but I am very fond of the Minsky view that we are all agents dealing with cash-flow. The other side of cash flow is income, and I'd be very interested to see if income has kept under this analysis too...
me_me_me 5y ago
Exactly, and not everyone is in white collar high paying job. I have few friends that are in a saving vicious cycle, high rent and cost of living eat up saving so that they save little. This makes them resigned and depressed - so the spend money on stuff to make them happy. Having 25 yr old tell you that they will be able to afford a down-payment in 20 years is a telling sign.
darrylb42 5y ago
And what I never got when I was younger rent ticks up 2-4% every year, your mortgage costs are fixed. I am now locked in paying the same as what I had in rent 5 years ago. I used the the same rent vs buy cost allocation with a down payment to get the monthly cost I wanted. Percent of my income for housing costs has actually dropped since buying, that never happened when I rented.

woudsma 5y ago

In The Netherlands the house prices have only continued to go up during the pandemic. As a Millenial myself, buying a house is still out of reach. No resignation for me anytime soon.

stevievee 5y ago
I feel for you. From what I hear, the population in the Netherlands has a unique appetite for overleveraging to buy a home (and this is coming from someone who lives in the most overpriced housing market in the world)
- jacquesm 5y ago
  It's a combination of many factors. Restricted supply of new homes is one very large one, ridiculously high rents, ridiculously low interest, preferential treatment for tax reduction on account of a mortgage further reducing the net interest paid and so on. Even after 2008, arguably the largest drop in house prices here in a very long time the market didn't drop nearly as far as it could have on account of everybody being locked in to their purchases and unable to move to something else until the market loosened up again. It's a pretty tricky situation, everybody knows that the market is overvalued but as long as supply is this constrained and prices remain high buyers are left with very few options. If the interests go up to something reasonable again (5-10% or so) there will be a lot of people in trouble but it won't immediately lead to a price drop unless investors move away from the buy side. This is especially true for apartments which are going for crazy rates because investors buy them up as fast as they hit the market. A typical property is for sale less than two weeks, and usually on the day it goes up for sale there is already a waiting list.
  - selectodude 5y ago
    It seems like most of Europe currently has issues like that. Sweden had to recently pass a law capping mortgage terms at 105 years. The average mortgage term for a time was 140 years. https://www.thelocal.se/20160324/sweden-limits-mortgage-loans-to-105-years/ https://www.thelocal.se/20160324/sweden-limits-mortgage-loan...

genedan 5y ago

My wife and I have been living in a studio to save for a down payment and meant to buy last year, but didn't. Now we have saved up double what we were expecting since we stayed in the studio for a year longer than planned. I think there are a lot of couples like us who are now on the market, having been vaccinated and ready to move out.

dominotw 5y ago

I know everyone is expecting housing to go up in near future for a variety of reasons but I see couple of counter trends that might temper the market 1. return to office 2. increase in interest rates due to inflation 3. effects from lifting eviction bans, rolling back unemployment covid provisions ect. 4. Biden govt encouraging more house building.

darkwizard42 5y ago
If #4 happens that would be the best thing all around (imho). Creates real value that can be absorbed without destroying access as people leave/reenter cities. However, as we have seen in many densely populated cities the amount of red tape in development is absurd and probably results in an incredibly diluted impact

onlyrealcuzzo 5y ago

How can house prices go down when there's 4x as much money (M1) [1], 30% more broad money (M2) [2], and debt service is 25% cheaper [3]? This is /before/ any additional stimulus (monetized by the Fed). Additionally, the personal savings rate is also at an all time high [4] - and net worth of individuals has increased by >$12Tr (>50% of US GDP). In one year... [1] https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1 [2] https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 [3] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US [4] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT

ashtonkem 5y ago

I think we’re overstating the WFH effect in a lot of places. During Covid I moved from CA to Boise, ID. On the surface, it seems like I’d be part of the problem that’s driving up the cost of homes in the area. But once you dig in a bit more, you’ll realize that the majority of the people moving to Boise come from ... the rest of Idaho. There are more trends at play in the housing market above and beyond office workers moving to or from WFH.

throwaway0a5e 5y ago
>On the surface, it seems like I’d be part of the problem that’s driving up the cost of homes in the area. But once you dig in a bit more, you’ll realize that the majority of the people moving to Boise come from ... the rest of Idaho. It only takes a minority of bad actors to ruin a good thing for everybody.
- ashtonkem 5y ago
  Buying a house is bad faith? That seems pretty unkind of you.
  - throwaway0a5e 5y ago
    I said "bad actors" not "bad faith". Litter in the economic park is litter in the economic park regardless of whether someone tossed it there intentionally or the wind took it from someone who would otherwise have thrown it in a trashcan.
    - ashtonkem 5y ago
      So, buying a house outside CA is like littering?

crossroadsguy 5y ago

In India home prices do not depend on factors such as market conditions, demand-supply, pandemic etc. It is just one thing - real estate mafia which includes a whole lot of politicians and their vested interests. When you look at real estate prices and everything else in last decade and a half here, you’d be forced to think real estate has been living in an entirely different dimension all this while. It just doesn’t make sense. I’m talking about urban India of course.