4 ms·

Ask HN: What is the main argument for a housing market crash?

8 points by bestinterest 5y ago

It seems to be a pure supply and demand issue. Are we less efficient at building houses due to red tape? Or are houses being inflated for another reason which will cause a crash?

giantg2 5y ago
My assumption is that once rates go up significantly, then people won't be able to afford the current prices. Especially since most of the recent wage growth is t the bottom end of the income spectrum, meaning the middle class might even see their wage value eroded through this inflation (for example I got a 4.5% cut due to inflation).
- bestinterest 5y ago
  Seems like a classical case of supply and demand. Prices will match demand, no?
  - giantg2 5y ago
    Not exactly. Most people require mortgages. The original owners might be underwater on their mortgage. People who can make it work generally aren't going to sell for a loss. The people who can't make it will be foreclosed, providing some affordable options but probably not enough. So yes, prices will move with demand, but it won't be quite as simple due to the debt instruments involved. Essentially, prices will drop due to the lack of demand from a lack of affordable debt. Just my hunch.
  - harambae 5y ago
    So how do you feel about buying a used car right now? (i.e. buy one at this moment, after 40% YoY appreciation, because who knows what tomorrows price will be) And if it's not good advice for used cars, why is it good advice for a house? After all, there's a fixed supply of platinum for catalytic converters and they're not making any more of it! My opinion is that the current housing surge is being driven by people who need more space for screaming children and home offices and are willing to pay whatever they need to for it. I know it's why my brother bought a house he thought was $250k overpriced - just to keep his wife happy during Covid. These factors and the state of Covid WFH are, IMO, not permanent though. Time will tell. If we're never headed back to the office maybe these prices are here to stay.
    - giantg2 5y ago
      "just to keep his wife happy during Covid." If one needs to overpay a quarter million to keep the wife happy, implying house size is a factor in the quality of the marriage, then perhaps there are other issues to look at here. But I do agree that some people were upsizing, moving out of cities, or just not wanting to delay purchasing for a few more years.
- m348e912 5y ago
  I've made the argument that rates cant go up without significantly affecting how much the US pays on it's outstanding 30T debt. This keeps rates low, housing prices at the very least stable, and inflation pervasive. I'd love to hear a counter argument.
  - heurisko 5y ago
    Aren't bonds sold at a fixed interest amount for x number of years? In that case, why would a higher interest rate affect the ability to pay historical debt?
    - deleted 5y ago
      [deleted]
    - credit_guy 5y ago
      A lot of the Government debt is short dated, so it needs to be rolled. For example according to [1] (the official source), about $4 trillion of the debt is in T-bills, so they mature in less than 2 years, and about $13 trillion in T-notes, which mature in less than 10 years. [1] https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opds012022.pdf https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opd...
  - giantg2 5y ago
    Why does the debt prevent rates from going up? The Fed as already signaled an appetite for increasing rates multiple times this year.
    - m348e912 5y ago
      I think they intend to, but my point is I'm not sure they can raise rates with any significance. eg above 5 or 6% These a correlation between fed determined interest rates and how much the govt pays to service it's debt. Another person said they're not related, but I don't think the fed will want to balloon payments on $30T.
      - 5y ago
- deanmoriarty 5y ago
  I highly doubt this is going to happen, prices are not going to go down in my opinion, especially in desirable coastal areas. I would almost bet on mortgages being extended past 30y just to keep the monthly payments possible than housing prices going down significantly. This country (US) is too obsessed with housing, and the demand will always outpace the supply.
  - giantg2 5y ago
    How did that work in 2008? Every area will be slightly different, but I don't think it's realistic to say prices will never go down. Over the long term it will continue to increase, but there will be periods of volatility.

8 points by bestinterest 5y ago

It seems to be a pure supply and demand issue. Are we less efficient at building houses due to red tape? Or are houses being inflated for another reason which will cause a crash?

giantg2 5y ago

My assumption is that once rates go up significantly, then people won't be able to afford the current prices. Especially since most of the recent wage growth is t the bottom end of the income spectrum, meaning the middle class might even see their wage value eroded through this inflation (for example I got a 4.5% cut due to inflation).

bestinterest 5y ago
Seems like a classical case of supply and demand. Prices will match demand, no?
- giantg2 5y ago
  Not exactly. Most people require mortgages. The original owners might be underwater on their mortgage. People who can make it work generally aren't going to sell for a loss. The people who can't make it will be foreclosed, providing some affordable options but probably not enough. So yes, prices will move with demand, but it won't be quite as simple due to the debt instruments involved. Essentially, prices will drop due to the lack of demand from a lack of affordable debt. Just my hunch.
- harambae 5y ago
  So how do you feel about buying a used car right now? (i.e. buy one at this moment, after 40% YoY appreciation, because who knows what tomorrows price will be) And if it's not good advice for used cars, why is it good advice for a house? After all, there's a fixed supply of platinum for catalytic converters and they're not making any more of it! My opinion is that the current housing surge is being driven by people who need more space for screaming children and home offices and are willing to pay whatever they need to for it. I know it's why my brother bought a house he thought was $250k overpriced - just to keep his wife happy during Covid. These factors and the state of Covid WFH are, IMO, not permanent though. Time will tell. If we're never headed back to the office maybe these prices are here to stay.
  - giantg2 5y ago
    "just to keep his wife happy during Covid." If one needs to overpay a quarter million to keep the wife happy, implying house size is a factor in the quality of the marriage, then perhaps there are other issues to look at here. But I do agree that some people were upsizing, moving out of cities, or just not wanting to delay purchasing for a few more years.
m348e912 5y ago
I've made the argument that rates cant go up without significantly affecting how much the US pays on it's outstanding 30T debt. This keeps rates low, housing prices at the very least stable, and inflation pervasive. I'd love to hear a counter argument.
- heurisko 5y ago
  Aren't bonds sold at a fixed interest amount for x number of years? In that case, why would a higher interest rate affect the ability to pay historical debt?
  - deleted 5y ago
    [deleted]
  - credit_guy 5y ago
    A lot of the Government debt is short dated, so it needs to be rolled. For example according to [1] (the official source), about $4 trillion of the debt is in T-bills, so they mature in less than 2 years, and about $13 trillion in T-notes, which mature in less than 10 years. [1] https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opds012022.pdf https://www.treasurydirect.gov/govt/reports/pd/mspd/2022/opd...
- giantg2 5y ago
  Why does the debt prevent rates from going up? The Fed as already signaled an appetite for increasing rates multiple times this year.
  - m348e912 5y ago
    I think they intend to, but my point is I'm not sure they can raise rates with any significance. eg above 5 or 6% These a correlation between fed determined interest rates and how much the govt pays to service it's debt. Another person said they're not related, but I don't think the fed will want to balloon payments on $30T.
    - 5y ago
deanmoriarty 5y ago
I highly doubt this is going to happen, prices are not going to go down in my opinion, especially in desirable coastal areas. I would almost bet on mortgages being extended past 30y just to keep the monthly payments possible than housing prices going down significantly. This country (US) is too obsessed with housing, and the demand will always outpace the supply.
- giantg2 5y ago
  How did that work in 2008? Every area will be slightly different, but I don't think it's realistic to say prices will never go down. Over the long term it will continue to increase, but there will be periods of volatility.