4 ms·
> if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict
by nwiswell 4y ago
> if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline.
No, for the simple reason that (most) people buy homes with mortgages. Take a look at the 30 year mortgage interest rate over the past few months.
The total cost to own a newly purchased home is what matters, not the actual sale price. That's mostly paid by the bank.
Even if buyers are prepared to absorb the massive increase in total cost of ownership necessary to keep prices moving upward, it probably doesn't matter because many prospective buyers will no longer even satisfy the mortgage DTI qualification at current prices.
You may object that some are buying with cash. While that's true, it's not enough of the market to sustain prices.
- downrightmike 4y agoAlso, those cash offers from companies don't always work out, look at the haircut Zillow took.
- streetcat1 4y agoSo this is not entirely correct. If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate. Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.
- ryanSrich 4y agoWhy would anyone pay cash for a house when even a horrendous mortgage rate is still only 6%? That cash is earning 10% easily with zero effort. Put 15 minutes of effort in and open a Betterment account and you’re likely getting closer to 20%. Cash buyers make no sense to me.
- throw123123123 4y agoHave you checked your portfolio lately?
- scarface74 4y agoYes, and that’s even more of a reason to be putting extra money into the market if you have a ten year+ time horizon.
- somenameforme 4y agoI'd reference the Nikkei 225 circa 1990 [1]. That graph is not inflation adjusted. Up to 1990 everybody thought Japan was well on its way to becoming the world's largest economy on an exponential and unstoppable economic acceleration. And it was unstoppable. Then it stopped. I am not saying this will be the case, but rather that we're at what is likely the largest inflection point in modern history, and trying to predict where the world will be at in 10 years has become effectively impossible. [1] - https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data https://www.macrotrends.net/2593/nikkei-225-index-historical...
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- teg4n_ 4y ago20% return from Betterment? That’s hyperbole right? I have a betterment account and it’s nowhere close to that.
- ryanSrich 4y agoWhat are you getting? Are you looking at time weighted or money weighted? I just checked and I’m getting an average of 21.6% across 7 different portfolios on betterment (annualized, not cumulative).
- teg4n_ 4y agoThe highest is 8.8 which is time-weighted cumulative, annualized is far worse at 2.2 for time weighted
- alexb_ 4y ago"Just get 20% returns easily" LOL! The fact that you would not only think that type of return is consistent and "easy", but literally think that you should go into debt betting on that, is laughable. If it was guaranteed money, everyone would be doing it.
- asdff 4y agoBecause they aren't just sitting on the house, they are cashing out after buying and also taking advantage of the market with that money.
- atwebb 4y agoMany of the cash buyers are either proxies (Ribbon, etc) or turn right around and get a mortgage. One of the touted benefits of real estate is enhanced leverage with equity as the collateral. "Cash" on an offer is more of a waiver of financing contingency, it does sound cool though.
- 6c737133 4y agoExactly this. Too many people seem to think 'cash deals' in real estate equate to a guy showing up with a louis vutton bag full of 100s that's been collecting dust in their shoe closet It's just an indication of a lack of nuance in the deal-making, lack of contingencies (i.e. I'll give you $XYZ for your house as soon as I get $ABC for my house - agreed?!)
- finlake 4y agoI disagree. Until now there might have been 30% buyers with cash, but with rising interest rates that will stop being the case if house prices stay up. People with large sums of spare money always look for ways to park their money. Interest based products (term deposits, bonds etc.) will now become more attractive, diverting some cash flows away from housing.
- Ozzie_osman 4y agoThe interest on most interest based products will not rise as fast as inflation and so I'm not sure they will be "more attractive" (at least compared to real assets).
- smabie 4y agoAlternatively with interest rates higher, buyers might think they can't get a higher return than the interest rate on the mortgage, thus lowering the opportunity cost of paying all in cash.
- oh_sigh 4y ago"Cash buyers" may very well have a mortgage, but they have enough assets/collateral that the bank is willing to give them carte blanche (ie the bank will waive inspection, because if there is a major flaw that makes the house uninhabitable, they'll just collect some other asset of yours).
- prostoalex 4y ago> If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate. Not necessarily. For anyone who's been working at FAANG and amassed certain amount of financial independence, the advice generally ran along the following scenario: 1) Secure a pledged-asset loan against your stock portfolio. That reduces the need to sell anything and trigger capital gains. 2) Shop around for real estate and submit a cash based offer to signal that you can close quickly. 3) Finalize the transaction. 4) Shop around cashout refi loans with fixed rates. Refi. Cashout. Repay the asset-backed loan. If those 30% who are cash buyers kept their cash locked up in their houses, you wouldn't see household mortgage debt (that includes refi) skyrocket https://www.emarketer.com/newsroom/index.php/us-mortgage-debt-to-surpass-14-trillion-in-2022 https://www.emarketer.com/newsroom/index.php/us-mortgage-deb...
- throw123123123 4y agoA 70% drop in demand would crater the marginal price of homes by over 70%.
- majormajor 4y agoI doubt the 10%+ year over year increases will be sustained with increased mortagage rates. That's a long way away from predicting a crash or even a significant decline in prices, though. That would require a lot more inventory, and all those folks with 3% mortgages are going to be in no hurry to sell, and the stats on their mortgage amounts vs incomes looks WAY better than it did in 2007.
- oceanplexian 4y agoThe problem is that supposedly, since 2020, the Fed has printed somewhere between 40-80% of all dollars in existence (The M1). So my question is, if there is twice as much money in the system, but the same number of assets, why would it be shocking that housing continues to inflate?
- nwiswell 4y agoM1 is a useful tool to understand why the prices of consumer goods have increased but not at all useful to understand home buying power. People regularly sell stocks, bonds, and other homes in order to produce the down payment for a mortgage and have done so since long before 2020. M1 does not measure any of these.
- majormajor 4y agoThe set of homebuyers and the set of stimulus recipients in a lot of these markets are non-overlapping, too. Crypto, on the other hand, is something I know was sold for a downpayment by several of my acquaintances, which is acting as its own form of "money supply increase" since they spent orders of magnitude less to acquire it. The anti-inflation tool creates its own inflation by turning into "new money." :)
- vkou 4y agoThe fed doesn't generally produce most of the dollars in existence, private lenders do by issuing mortgages (which creates money).