5 ms·

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.

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.
- voisin 4y ago
  > I think we see a recession, modest asset price decline, and then stagnant home prices and stock market returns for 10 years. This is the mythical soft landing that central bankers always seek and never achieve.
RealityVoid 4y ago
If we take path 2, then you would expect the stock market NOT to crash as it is currently doing... and if it would take that path, now would be a great moment to buy in, right? Since the prices it would stabilize should be inflation adjusted at the moment.
est31 4y ago
There is a third outcome, which is that mortgages continue increasing with rents not following suit, making buying homes unaffordable for increasing numbers of people. Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. But if new landlords, say wall st, show up, who buy houses in cash, then it might cause an increase in purchase prices without an increase in rents.
- burlesona 4y ago
  That’s an interesting point: higher interest rates offer increasing advantage to those who already have cash on hand.
  - foogazi 4y ago
    Yes, to put it in the bank While the drive towards lower interest rates has made that money come out of savings accounts and drive up all asset prices
  - sfblah 4y ago
    Yes. The Fed's low interest rate policy has been a huge tax on those prudent investors who held safer assets like cash and T-bills. At the same time, they maximally rewarded extreme gambling in the markets. That's why we live in world that somewhat resembles the 80s TV show "20 minutes into the future" -- all just crazy schemes and advertising plastered everywhere. Who knows what comes next.
- nkingsy 4y ago
  Just here in the Bay Area, prices have doubled while rents have gone up maybe 5% in desirable areas post pandemic and are still way down in SF. Just moved into a bigger place with a pool for $100/m more than my last rent (Marin county). We want to buy, but our monthly cost would literally double to own the house we are in now.
  - swimfar 4y ago
    House prices may have doubled (even that sounds high), but in a lot of places condo prices are down to where they were 5 years ago, with listing prices often being reduced from the initial price. This is the opposite of what you hear about houses where they are being sold above list price. In any discussion about housing prices in the Bay Area it's important to distinguish between condos and houses. The markets are very different because lots of new condos are being built while the supply of houses is (mostly) fixed.
notatoad 4y ago
a correction would imply that housing prices are inflated by artificial factors, rather than actual demand. it seems like that's mostly not true, and house prices are high because the demand is simply outpacing supply. i don't see any reason to expect that the status quo can't continue and simply get worse. inequality between the homeowner class and the renter class will continue to grow. the wealthy will get to participate in the ownership market, and it'll be irrelevant for everybody else. as long as homes are treated as an investment commodity and investors can expect significant returns without having to rely on rental income, the rent market and the ownership market can be detatched from each other.
- 300bps 4y ago
  Demand is high because there is so much money in the economy and interest rates are so low. When these reverse, demand will reverse with it. Stimulus payments, $9 trillion fed balance sheet, historically low interest rates. All in the process of stopping / reversing. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
  - notatoad 4y ago
    In America, yes. But housing prices are following the same trend in most of the world, and not everywhere has quite the same economics.
- UncleEntity 4y ago
  > a correction would imply that housing prices are inflated by artificial factors, rather than actual demand. One of those Silicon Valley house buying companies, forgot which one, took a $500 billion haircut a few months ago for their algorithm driving up prices above actual demand. Haven’t heard anything since but I can guarantee they didn’t dump those houses at market prices, they said they were going to bundle them up and sell in bulk but don’t know how that’s working out for them.
  - 5822130027 4y ago
newhotelowner 4y ago
I don't see that we are headed that way. Consumers started spending less. Target has already announced that they are reducing prices. Compared to last year, there are a lot more items on clearance in the clothing stores. There are only 20 or so ships are waiting at the LA port. Whirlpool has started laying off assembly line employees as demand softens. New mortgage applications are down by 21%.
bradleyjg 4y ago
I expect to see the 50 year mortgage (still 20%, still no prepayment penalty) at suspiciously low rates introduced by Freddie and Frannie soon. No politician wants to be the one in office when the music stops.
- to11mtm 4y ago
  IDK if we'll see that extreme. We probably will see 40 Year loan Mods from FHA by EOY, they've been getting guidelines around those ready for some time. But that is a stopgap for borrowers that are falling behind, not for buyers hoping to get into a home. If I had to guess any can-kicks will be more gradual. 'First time homebuyer' grants would be a good candidate for tweaks on things like maximum income. I spent much of my 30s in a weird spot where I was just out of the range of eligibility for such programs, and it would have made a huge difference. > still 20% PSA: You don't -need- 20% down. I will say, if it's anything other than a starter home, you probably -should- have 20% down. But the biggest mistake I made in my 30s was worrying more about getting that 20% than just getting into the game. If I would have gotten in back in 2016, I would have been able to refi into a conventional anytime between 2019-2021 and come out ahead.
  - bradleyjg 4y ago
    >If I would have gotten in back in 2016 I mean by that token you should have just bought eth and now you could have had many houses paid off. Hindsight is 20/20.
User23 4y ago
Don’t forget the option where BlackRock and friends buy up all the housing slack with the printed trillions they were given and we get a go at “You will own nothing and be happy.”
paulpauper 4y ago
I think it's much more likely prices will continue to march higher for years to come. Don't see any reason for things to change. Still huge demand for certain area/neighborhoods.
winternett 4y ago
There is simply far too much housing inventory for companies to own absolutely everything. There is also the prospect that if prices climb so high that the middle and lower class residents are priced out, homeless encampments will take over absolutely everything, while unoccupied inventory slowly deteriorates. I am not a market analyst, but if you look around even at some of the most prestigious retail neighborhoods, the effect of engineered inflation on the housing market has already displaced so many people that even the wealthy are not safe in venturing out to shopping districts and nightlife spots. It's a self defeating cycle that needs to be reigned in. No matter how many fences people build around their homes, and how much security they hire. If the majority is forced into desperate living situations, they eventually revolt and redistribute wealth. It is really government's responsibility to reign this in by lowering income taxes, taxing the rich and corporations properly, by reinforcing fair wages, and in many other ways, but even people in those positions of responsibility are asleep at the wheel of accountability, and also lining their own pockets. Eventually, we as consumers need to stop contributing to these cycles of hysteria by not buying those overpriced homes, and working to develop the communities we're currently in. Individuals need to avoid greed impulse as landlords and stop dramatically raising rent and for companies to prevent artificial price inflation too (gouging), understanding that it will create a better eco system over time for us all. Globalism of information and companies has led to harmful results in many ways, it has also driven us to a point where price controlling monopolies have far too much power, and too much overhead to keep costs down, and to keep world-wide distribution and value up for goods reliably. There are literally thousands of overconfident investors now (many faking success and many that inherited their wealth) sitting on vacant properties, failing companies, and losing money on business ideas, yet posting about their extravagant lives and fake symbols of their business skill along with terrible investor advice on social media. Along with Crypto, NFT, and investment scams that are regularly promoted by big industry, this drives the greed and ignorance that in turn affects current investment and ultimately business failure. We need to call this practice out, or face experiencing the market chaos and even deeper crashes that will indeed come.
gnicholas 4y ago
One factor to consider is that as inflation erodes stock market prices, investors will exit equities in favor of real estate. These buyers can pay cash and therefore won't care about mortgage rates like homeowners do.

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.
voisin 4y ago
> I think we see a recession, modest asset price decline, and then stagnant home prices and stock market returns for 10 years. This is the mythical soft landing that central bankers always seek and never achieve.

RealityVoid 4y ago

If we take path 2, then you would expect the stock market NOT to crash as it is currently doing... and if it would take that path, now would be a great moment to buy in, right? Since the prices it would stabilize should be inflation adjusted at the moment.

est31 4y ago

There is a third outcome, which is that mortgages continue increasing with rents not following suit, making buying homes unaffordable for increasing numbers of people. Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. But if new landlords, say wall st, show up, who buy houses in cash, then it might cause an increase in purchase prices without an increase in rents.

burlesona 4y ago
That’s an interesting point: higher interest rates offer increasing advantage to those who already have cash on hand.
- foogazi 4y ago
  Yes, to put it in the bank While the drive towards lower interest rates has made that money come out of savings accounts and drive up all asset prices
- sfblah 4y ago
  Yes. The Fed's low interest rate policy has been a huge tax on those prudent investors who held safer assets like cash and T-bills. At the same time, they maximally rewarded extreme gambling in the markets. That's why we live in world that somewhat resembles the 80s TV show "20 minutes into the future" -- all just crazy schemes and advertising plastered everywhere. Who knows what comes next.
nkingsy 4y ago
Just here in the Bay Area, prices have doubled while rents have gone up maybe 5% in desirable areas post pandemic and are still way down in SF. Just moved into a bigger place with a pool for $100/m more than my last rent (Marin county). We want to buy, but our monthly cost would literally double to own the house we are in now.
- swimfar 4y ago
  House prices may have doubled (even that sounds high), but in a lot of places condo prices are down to where they were 5 years ago, with listing prices often being reduced from the initial price. This is the opposite of what you hear about houses where they are being sold above list price. In any discussion about housing prices in the Bay Area it's important to distinguish between condos and houses. The markets are very different because lots of new condos are being built while the supply of houses is (mostly) fixed.

notatoad 4y ago

a correction would imply that housing prices are inflated by artificial factors, rather than actual demand. it seems like that's mostly not true, and house prices are high because the demand is simply outpacing supply. i don't see any reason to expect that the status quo can't continue and simply get worse. inequality between the homeowner class and the renter class will continue to grow. the wealthy will get to participate in the ownership market, and it'll be irrelevant for everybody else. as long as homes are treated as an investment commodity and investors can expect significant returns without having to rely on rental income, the rent market and the ownership market can be detatched from each other.

300bps 4y ago
Demand is high because there is so much money in the economy and interest rates are so low. When these reverse, demand will reverse with it. Stimulus payments, $9 trillion fed balance sheet, historically low interest rates. All in the process of stopping / reversing. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
- notatoad 4y ago
  In America, yes. But housing prices are following the same trend in most of the world, and not everywhere has quite the same economics.
UncleEntity 4y ago
> a correction would imply that housing prices are inflated by artificial factors, rather than actual demand. One of those Silicon Valley house buying companies, forgot which one, took a $500 billion haircut a few months ago for their algorithm driving up prices above actual demand. Haven’t heard anything since but I can guarantee they didn’t dump those houses at market prices, they said they were going to bundle them up and sell in bulk but don’t know how that’s working out for them.
- 5822130027 4y ago

newhotelowner 4y ago

I don't see that we are headed that way. Consumers started spending less. Target has already announced that they are reducing prices. Compared to last year, there are a lot more items on clearance in the clothing stores. There are only 20 or so ships are waiting at the LA port. Whirlpool has started laying off assembly line employees as demand softens. New mortgage applications are down by 21%.

bradleyjg 4y ago

I expect to see the 50 year mortgage (still 20%, still no prepayment penalty) at suspiciously low rates introduced by Freddie and Frannie soon. No politician wants to be the one in office when the music stops.

to11mtm 4y ago
IDK if we'll see that extreme. We probably will see 40 Year loan Mods from FHA by EOY, they've been getting guidelines around those ready for some time. But that is a stopgap for borrowers that are falling behind, not for buyers hoping to get into a home. If I had to guess any can-kicks will be more gradual. 'First time homebuyer' grants would be a good candidate for tweaks on things like maximum income. I spent much of my 30s in a weird spot where I was just out of the range of eligibility for such programs, and it would have made a huge difference. > still 20% PSA: You don't -need- 20% down. I will say, if it's anything other than a starter home, you probably -should- have 20% down. But the biggest mistake I made in my 30s was worrying more about getting that 20% than just getting into the game. If I would have gotten in back in 2016, I would have been able to refi into a conventional anytime between 2019-2021 and come out ahead.
- bradleyjg 4y ago
  >If I would have gotten in back in 2016 I mean by that token you should have just bought eth and now you could have had many houses paid off. Hindsight is 20/20.

User23 4y ago

Don’t forget the option where BlackRock and friends buy up all the housing slack with the printed trillions they were given and we get a go at “You will own nothing and be happy.”

paulpauper 4y ago

I think it's much more likely prices will continue to march higher for years to come. Don't see any reason for things to change. Still huge demand for certain area/neighborhoods.

winternett 4y ago

There is simply far too much housing inventory for companies to own absolutely everything. There is also the prospect that if prices climb so high that the middle and lower class residents are priced out, homeless encampments will take over absolutely everything, while unoccupied inventory slowly deteriorates. I am not a market analyst, but if you look around even at some of the most prestigious retail neighborhoods, the effect of engineered inflation on the housing market has already displaced so many people that even the wealthy are not safe in venturing out to shopping districts and nightlife spots. It's a self defeating cycle that needs to be reigned in. No matter how many fences people build around their homes, and how much security they hire. If the majority is forced into desperate living situations, they eventually revolt and redistribute wealth. It is really government's responsibility to reign this in by lowering income taxes, taxing the rich and corporations properly, by reinforcing fair wages, and in many other ways, but even people in those positions of responsibility are asleep at the wheel of accountability, and also lining their own pockets. Eventually, we as consumers need to stop contributing to these cycles of hysteria by not buying those overpriced homes, and working to develop the communities we're currently in. Individuals need to avoid greed impulse as landlords and stop dramatically raising rent and for companies to prevent artificial price inflation too (gouging), understanding that it will create a better eco system over time for us all. Globalism of information and companies has led to harmful results in many ways, it has also driven us to a point where price controlling monopolies have far too much power, and too much overhead to keep costs down, and to keep world-wide distribution and value up for goods reliably. There are literally thousands of overconfident investors now (many faking success and many that inherited their wealth) sitting on vacant properties, failing companies, and losing money on business ideas, yet posting about their extravagant lives and fake symbols of their business skill along with terrible investor advice on social media. Along with Crypto, NFT, and investment scams that are regularly promoted by big industry, this drives the greed and ignorance that in turn affects current investment and ultimately business failure. We need to call this practice out, or face experiencing the market chaos and even deeper crashes that will indeed come.

gnicholas 4y ago

One factor to consider is that as inflation erodes stock market prices, investors will exit equities in favor of real estate. These buyers can pay cash and therefore won't care about mortgage rates like homeowners do.