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Home prices are not going down. The math just doesn’t work. The demand outweighs the inventory by several orders of magnitude the last time I checked. Rate hike

Home prices are not going down. The math just doesn’t work. The demand outweighs the inventory by several orders of magnitude the last time I checked. Rate hikes and inflation won’t have much of an impact.

lazide 4y ago
Demand is driven by ability to finance. People buy the maximum home they can 'afford' (really, that they'll be loaned most of the time). That is determined mostly by loan servicing costs to income ratios. What happens when interest rates go up? Hint: what people can 'afford' changes. And it doesn't get better. Prices on the market of course won't dip right away, because most sellers don't have to sell right away, and most owners won't have to sell at all. It takes inventory backlogging and houses sitting on the market a few years (usually) before sellers get desperate and start being willing to compete on price. Short sales and foreclosures can force the issue sometimes, but since people REALLY want to avoid those, they also tend to be lagging. In rich neighborhoods, often the sellers will just pull the listing and wait, both to avoid drops in nearby property values based on comps (neighbors will hate them, and that matters in places like that), and because they have the capital to wait out a downturn and don't want to take the haircut. The poor/shitty areas though, once the dam breaks it is quite impressive. I've watched it happen a few times now. This is why real estate is often considered illiquid and hard to value.
sokoloff 4y ago
There are 100 buyers for every home (charitably assuming "several" is only 2) or 1000 buyers for every home (a more reasonable reading that "several" is minimum of 3)? That doesn't sound right at all.
- rory 4y ago
  Several base 2 orders of magnitude :)
- onlyrealcuzzo 4y ago
  There are only 409k homes for sale: https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS The home ownership rate is ~65%: https://fred.stlouisfed.org/series/RHORUSQ156N https://fred.stlouisfed.org/series/RHORUSQ156N Theoretically, there are close to 30M HH that want to own a home, but don't. That's close to 100:1. More practically, probably only a 1/3rd of them are remotely qualified to buy something they'd want to own, and only a 1/3rd probably actually want to own & are currently interested in houses at this price. That could still be >10 buyers for every house.

lazide 4y ago

Demand is driven by ability to finance. People buy the maximum home they can 'afford' (really, that they'll be loaned most of the time). That is determined mostly by loan servicing costs to income ratios. What happens when interest rates go up? Hint: what people can 'afford' changes. And it doesn't get better. Prices on the market of course won't dip right away, because most sellers don't have to sell right away, and most owners won't have to sell at all. It takes inventory backlogging and houses sitting on the market a few years (usually) before sellers get desperate and start being willing to compete on price. Short sales and foreclosures can force the issue sometimes, but since people REALLY want to avoid those, they also tend to be lagging. In rich neighborhoods, often the sellers will just pull the listing and wait, both to avoid drops in nearby property values based on comps (neighbors will hate them, and that matters in places like that), and because they have the capital to wait out a downturn and don't want to take the haircut. The poor/shitty areas though, once the dam breaks it is quite impressive. I've watched it happen a few times now. This is why real estate is often considered illiquid and hard to value.

sokoloff 4y ago

There are 100 buyers for every home (charitably assuming "several" is only 2) or 1000 buyers for every home (a more reasonable reading that "several" is minimum of 3)? That doesn't sound right at all.

rory 4y ago
Several base 2 orders of magnitude :)
onlyrealcuzzo 4y ago
There are only 409k homes for sale: https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS The home ownership rate is ~65%: https://fred.stlouisfed.org/series/RHORUSQ156N https://fred.stlouisfed.org/series/RHORUSQ156N Theoretically, there are close to 30M HH that want to own a home, but don't. That's close to 100:1. More practically, probably only a 1/3rd of them are remotely qualified to buy something they'd want to own, and only a 1/3rd probably actually want to own & are currently interested in houses at this price. That could still be >10 buyers for every house.