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Podcast: Housing prices soar with rising inflation

37 points by fairytalemtg 4y ago

ethbr0 4y ago
This is a curious fact for folks who are hypothesizing another 2008-style real estate meltdown. People need to live somewhere, every day. Wages and cost of living have an innate balance, that sometimes swings more one way or the other, but by definition can't exceed certain limits: e.g. we can't all make US minimum wage and afford SF rents / home prices. And you know what a great investment during inflationary periods is? Debt! Specifically, fixed-rate debt. And you know what the easiest to obtain source of large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages.
- itsoktocry 4y ago
  >And you know what the easiest to obtain source of large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages. The banks are going to price in their forward expectations of inflation into their interest rates. They won't just hand you cheap money and eat it.
  - jjeaff 4y ago
    Yes, but some of this is based on federal lending which cares more about stability of the loan rather than interest rate. Many banks don't care what the interest rate is because they are simply in it to collect the fees and then sell the mortgage to someone else like Fannie Mae and Freddie Mac.
    - voisin 4y ago
      So then the taxpayer gets screwed?
      - to11mtm 4y ago
        Sometimes. In the case of FHA loans (which are the ones that taxpayers would be considered 'most on the hook for'), there has been a lot of reform around trying to avoid that scenario. Lenders get audited on underwriting more strictly than before. If it turns out a loan didn't meet guidelines, the lander may have to buy the loan back and/or pay penalties. Also, FHA's Mortgage insurance fund is in a much better spot thanks to rule changes around MIP (FHA's equivalent to Conventional PMI.) Last report I think they had 1.2T to cover losses in value with that fund. That's about 10% of -all- household debt in the country.
    - SantalBlush 4y ago
      Do you have a list of some of those banks? I'd love to get a 1% rate.
- lijogdfljk 4y ago
  > Wages and cost of living have an innate balance, that sometimes swings more one way or the other, but by definition can't exceed certain limits: e.g. we can't all make US minimum wage and afford SF rents / home prices. So reading your comment gave me a thought.. Why? To pose a question, why does it matter that people need housing? (Matter, in the sense of - have an impact). Ie, it will only have an impact if something will correct it, right? And what would correct it? Normally i'd say "Well people can't afford homes, so the prices will lower" - but people haven't been able to afford homes for a long time, i thought. This tweaks some already janky numbers, but i fear it doesn't tip the apple cart. If "people" (in the common sense) aren't propping the housing market up then their lack of participation in this market wouldn't change much, no? Ie, i wonder if the people who were offering cash and driving up housing prices yesterday will be doing the same thing tomorrow. Mortgage rates don't matter much to cash rich, no?
  - bobthepanda 4y ago
    I remember seeing a report that some of the cash offers are actually the mortgage equivalent of payday loans (we'll front you the cash for a premium interest rate) Obviously, there's not a whole lot of data around this, but interest rates have normally been a very big sledgehammer by which to hit asset prices.
- throw93232 4y ago
  》People need to live somewhere, every day You assume people also had to pay rent or mortgage. There was already very long moratorium on evictions...
- riku_iki 4y ago
  > People need to live somewhere, every day. Americans have lots of space to downsize from detached large houses with big lots while cutting on rental/mortgage costs.
  - bobthepanda 4y ago
    A lot of times due to zoning, subdividing lots or getting smaller ones is not possible.
    - riku_iki 4y ago
      There are many other ways to downsize. Young without kids share the same 2br, children live with parents, many people live in trailers close to work, etc. This is already happening, with more price pressure more people will go this route, or more to the area with less zoning and more smaller cheaper condos.
- mupuff1234 4y ago
  But why have prices soared in just a few years while the population barely grew? Something else seems to be driving up prices other than just "people need a place to live", and I don't see any inherit reason as to why housing prices cant go down 20-30% just like the stock market.
  - dlp211 4y ago
    Demand significantly outstrips supply in desirable areas. It's not just about population growth, it's about where that population chooses to live and how much of the population are looking to buy a home.
    - pbuzbee 4y ago
      Over the last two years, it feels like even undesirable places have had huge price increases too.
    - mupuff1234 4y ago
      > Demand significantly outstrips supply in desirable areas Is there a state that hasn't seen major price increases? Edit: Just checked, and except Alaska all states saw at least a 20% increase in the last 2 years (and quite a few had 30-50% increases) > how much of the population are looking to buy So if mortgage rates go higher that should mostly likely drop, no?
      - dlp211 4y ago
        > Just checked, and except Alaska all states saw at least a 20% increase in the last 2 years (and quite a few had 30-50% increases) Which goes to my last point, the population of people wanting to purchase a home has grown. > So if mortgage rates go higher that should mostly likely drop, no? I don't know why so many people try to boil down markets to "A therefore B" statements. These are complex systems with 100's of different inputs plus 10's of millions of individual actors. Interest rates don't affect just the buy side, but also the supply side. If supply drops in proportion to demand, then the marginal house will still maintain these high price levels. We could also see a pullback in less desirable areas and a leveling off or even a continued increase in prices in desirable areas. There are many different scenarios that can play out, and yes, prices could pull back...but by how much? My best guess is that prices level off or have a small pull back.
- mellavora 4y ago
  > large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages. Actually, outside of the US, most mortgages are floating-rate.
- grapeskin 4y ago
  > People need to live somewhere, every day. > we can't all make US minimum wage and afford SF rents / home prices. This is true. SF also has one of the worst homeless problems in the first world. It’s easy to think the problem will be confined to a few particularly bad cities and things will stay balanced at a lower amount elsewhere. The reality is there really is no reason it won’t become the standard, or even the minimum. Home sellers and landlords are demanding increasingly ridiculous prices and they’re more than happy to let properties sit empty for years than they are to lower prices a single dollar. I’m not sure if it’ll be resolved so easily.
- paulpauper 4y ago
  Every year the passes in which prices go up means having to buy at a higher price. After a certain point, even if the market does correct, you may still never have a chance to buy at the original price you wanted but waited. It's not like gold or bitcoin, in which prices can crash and take forever to recover. Housing prices tend to be much more stable and recover from crashes faster, so this means fewer bargains can be found. You have to hold your nose and buy at a high price, often.
burlesona 4y ago
So as mortgage rates rise, prices will be under tremendous pressure, because monthly payments will be increasingly out of reach for more and more of the market. At some point it seems there are only two possible outcomes: either the whole thing tips over and we see a significant price correction ala 2008, or we get hyperinflation (without asset price appreciation) to bring wages and purchasing power in line with nominal asset costs (ie houses still cost $1M+, but a new Honda costs $200k and minimum wage is $50/hour). Anyone see this differently, or feel confident which way we’re headed?
- VonGuard 4y ago
  That's pretty much exactly what happened in the 1980s
  - arberx 4y ago
    We didn't have the debt problems in the 1980s.
    - voisin 4y ago
      Or the record low unemployment.
- itsoktocry 4y ago
  >either the whole thing tips over and we see a significant price correction ala 2008 There's a ton of middle ground between your two scenarios. 2008 was the biggest housing price crash in history. I think we see a recession, modest asset price decline, and then stagnant home prices and stock market returns for 10 years.
  - mistrial9 4y ago
    core upper-tier housing in California only slowed in price, even at the worst weeks of that era, while low-tier, obviously cheap housing and especially condos, tanked. It is well-documented in Zillow charts and others.
unicornmama 4y ago
Variable and renewing mortgage holders are screwed on both ends. Mortgage rates will go up, house prices must go down.
aceon48 4y ago
This article tries to put the blame partially on Ukraine. These media outlets are just extensions of the democrat party. The amount of money printed in the past 2 years, along with Covid shortages, are causing inflation. Stop blaming someone else, own it, and fix it.
- deleted 4y ago
  [deleted]
- sfblah 4y ago
  The money printing far, far, far predates the present administration. It's been going on for at least 15 years, and many argue it started after the 1987 crash. The big question is whether this is finally when the music stops.
paulpauper 4y ago
So glad I ignored the doom and gloom headlines about housing bubbles. Maybe there will be a correction, but prices will have gone up so much that buyers will still come out ahead, such as in the Bay Area, even if there is a correction. Home in some neighborhoods selling for $3 million vs $2 million just 5 years ago.
- adra 4y ago
  Don't worry, they'll be 25 milion in 20 years. 50 million in 40 years, and a cool 100 million in 60 years. There's definitely lots of room for asset prices to rise. One could argue infinitely. Your property will definitely always rise way above inflation with no possible reason for correction.
morninglight 4y ago
Everyone wants to talk about housing price increases and high mortgage rates. Don't forget about property taxes. They can also go up quickly, and they almost never go down. .

37 points by fairytalemtg 4y ago

This is a curious fact for folks who are hypothesizing another 2008-style real estate meltdown. People need to live somewhere, every day. Wages and cost of living have an innate balance, that sometimes swings more one way or the other, but by definition can't exceed certain limits: e.g. we can't all make US minimum wage and afford SF rents / home prices. And you know what a great investment during inflationary periods is? Debt! Specifically, fixed-rate debt. And you know what the easiest to obtain source of large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages.

itsoktocry 4y ago
>And you know what the easiest to obtain source of large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages. The banks are going to price in their forward expectations of inflation into their interest rates. They won't just hand you cheap money and eat it.
- jjeaff 4y ago
  Yes, but some of this is based on federal lending which cares more about stability of the loan rather than interest rate. Many banks don't care what the interest rate is because they are simply in it to collect the fees and then sell the mortgage to someone else like Fannie Mae and Freddie Mac.
  - voisin 4y ago
    So then the taxpayer gets screwed?
    - to11mtm 4y ago
      Sometimes. In the case of FHA loans (which are the ones that taxpayers would be considered 'most on the hook for'), there has been a lot of reform around trying to avoid that scenario. Lenders get audited on underwriting more strictly than before. If it turns out a loan didn't meet guidelines, the lander may have to buy the loan back and/or pay penalties. Also, FHA's Mortgage insurance fund is in a much better spot thanks to rule changes around MIP (FHA's equivalent to Conventional PMI.) Last report I think they had 1.2T to cover losses in value with that fund. That's about 10% of -all- household debt in the country.
  - SantalBlush 4y ago
    Do you have a list of some of those banks? I'd love to get a 1% rate.
lijogdfljk 4y ago
> Wages and cost of living have an innate balance, that sometimes swings more one way or the other, but by definition can't exceed certain limits: e.g. we can't all make US minimum wage and afford SF rents / home prices. So reading your comment gave me a thought.. Why? To pose a question, why does it matter that people need housing? (Matter, in the sense of - have an impact). Ie, it will only have an impact if something will correct it, right? And what would correct it? Normally i'd say "Well people can't afford homes, so the prices will lower" - but people haven't been able to afford homes for a long time, i thought. This tweaks some already janky numbers, but i fear it doesn't tip the apple cart. If "people" (in the common sense) aren't propping the housing market up then their lack of participation in this market wouldn't change much, no? Ie, i wonder if the people who were offering cash and driving up housing prices yesterday will be doing the same thing tomorrow. Mortgage rates don't matter much to cash rich, no?
- bobthepanda 4y ago
  I remember seeing a report that some of the cash offers are actually the mortgage equivalent of payday loans (we'll front you the cash for a premium interest rate) Obviously, there's not a whole lot of data around this, but interest rates have normally been a very big sledgehammer by which to hit asset prices.
throw93232 4y ago
》People need to live somewhere, every day You assume people also had to pay rent or mortgage. There was already very long moratorium on evictions...
riku_iki 4y ago
> People need to live somewhere, every day. Americans have lots of space to downsize from detached large houses with big lots while cutting on rental/mortgage costs.
- bobthepanda 4y ago
  A lot of times due to zoning, subdividing lots or getting smaller ones is not possible.
  - riku_iki 4y ago
    There are many other ways to downsize. Young without kids share the same 2br, children live with parents, many people live in trailers close to work, etc. This is already happening, with more price pressure more people will go this route, or more to the area with less zoning and more smaller cheaper condos.
mupuff1234 4y ago
But why have prices soared in just a few years while the population barely grew? Something else seems to be driving up prices other than just "people need a place to live", and I don't see any inherit reason as to why housing prices cant go down 20-30% just like the stock market.
- dlp211 4y ago
  Demand significantly outstrips supply in desirable areas. It's not just about population growth, it's about where that population chooses to live and how much of the population are looking to buy a home.
  - pbuzbee 4y ago
    Over the last two years, it feels like even undesirable places have had huge price increases too.
  - mupuff1234 4y ago
    > Demand significantly outstrips supply in desirable areas Is there a state that hasn't seen major price increases? Edit: Just checked, and except Alaska all states saw at least a 20% increase in the last 2 years (and quite a few had 30-50% increases) > how much of the population are looking to buy So if mortgage rates go higher that should mostly likely drop, no?
    - dlp211 4y ago
      > Just checked, and except Alaska all states saw at least a 20% increase in the last 2 years (and quite a few had 30-50% increases) Which goes to my last point, the population of people wanting to purchase a home has grown. > So if mortgage rates go higher that should mostly likely drop, no? I don't know why so many people try to boil down markets to "A therefore B" statements. These are complex systems with 100's of different inputs plus 10's of millions of individual actors. Interest rates don't affect just the buy side, but also the supply side. If supply drops in proportion to demand, then the marginal house will still maintain these high price levels. We could also see a pullback in less desirable areas and a leveling off or even a continued increase in prices in desirable areas. There are many different scenarios that can play out, and yes, prices could pull back...but by how much? My best guess is that prices level off or have a small pull back.
mellavora 4y ago
> large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages. Actually, outside of the US, most mortgages are floating-rate.
grapeskin 4y ago
> People need to live somewhere, every day. > we can't all make US minimum wage and afford SF rents / home prices. This is true. SF also has one of the worst homeless problems in the first world. It’s easy to think the problem will be confined to a few particularly bad cities and things will stay balanced at a lower amount elsewhere. The reality is there really is no reason it won’t become the standard, or even the minimum. Home sellers and landlords are demanding increasingly ridiculous prices and they’re more than happy to let properties sit empty for years than they are to lower prices a single dollar. I’m not sure if it’ll be resolved so easily.
paulpauper 4y ago
Every year the passes in which prices go up means having to buy at a higher price. After a certain point, even if the market does correct, you may still never have a chance to buy at the original price you wanted but waited. It's not like gold or bitcoin, in which prices can crash and take forever to recover. Housing prices tend to be much more stable and recover from crashes faster, so this means fewer bargains can be found. You have to hold your nose and buy at a high price, often.

burlesona 4y ago

So as mortgage rates rise, prices will be under tremendous pressure, because monthly payments will be increasingly out of reach for more and more of the market. At some point it seems there are only two possible outcomes: either the whole thing tips over and we see a significant price correction ala 2008, or we get hyperinflation (without asset price appreciation) to bring wages and purchasing power in line with nominal asset costs (ie houses still cost $1M+, but a new Honda costs $200k and minimum wage is $50/hour). Anyone see this differently, or feel confident which way we’re headed?

VonGuard 4y ago
That's pretty much exactly what happened in the 1980s
- arberx 4y ago
  We didn't have the debt problems in the 1980s.
  - voisin 4y ago
    Or the record low unemployment.
itsoktocry 4y ago
>either the whole thing tips over and we see a significant price correction ala 2008 There's a ton of middle ground between your two scenarios. 2008 was the biggest housing price crash in history. I think we see a recession, modest asset price decline, and then stagnant home prices and stock market returns for 10 years.
- mistrial9 4y ago
  core upper-tier housing in California only slowed in price, even at the worst weeks of that era, while low-tier, obviously cheap housing and especially condos, tanked. It is well-documented in Zillow charts and others.

unicornmama 4y ago

Variable and renewing mortgage holders are screwed on both ends. Mortgage rates will go up, house prices must go down.

aceon48 4y ago

This article tries to put the blame partially on Ukraine. These media outlets are just extensions of the democrat party. The amount of money printed in the past 2 years, along with Covid shortages, are causing inflation. Stop blaming someone else, own it, and fix it.

deleted 4y ago
[deleted]
sfblah 4y ago
The money printing far, far, far predates the present administration. It's been going on for at least 15 years, and many argue it started after the 1987 crash. The big question is whether this is finally when the music stops.

paulpauper 4y ago

So glad I ignored the doom and gloom headlines about housing bubbles. Maybe there will be a correction, but prices will have gone up so much that buyers will still come out ahead, such as in the Bay Area, even if there is a correction. Home in some neighborhoods selling for $3 million vs $2 million just 5 years ago.

adra 4y ago
Don't worry, they'll be 25 milion in 20 years. 50 million in 40 years, and a cool 100 million in 60 years. There's definitely lots of room for asset prices to rise. One could argue infinitely. Your property will definitely always rise way above inflation with no possible reason for correction.

morninglight 4y ago

Everyone wants to talk about housing price increases and high mortgage rates. Don't forget about property taxes. They can also go up quickly, and they almost never go down. .