4 ms·

What happens when buyers disappear for the homes in the expensive markets? The prices drop, and the cash available to buy in a cheaper market dries up. You ca

What happens when buyers disappear for the homes in the expensive markets? The prices drop, and the cash available to buy in a cheaper market dries up. You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home. I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining.

lmm 4y ago
> You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home. > I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining. The houses sit empty because the owner would rather maintain a (fictious at this point) valuation than realise the loss. That panic sell dynamic you mentioned doesn't seem to happen in housing, and foreclosure sales etc. can always be dismissed as unrepresentative.
- 01100011 4y ago
  > The houses sit empty Who can afford to let a > $1 million USD asset sit idle? There is an opportunity cost to that. You also have to service any outstanding debt on the property and pay the property taxes. There are also life changes(i.e. retirement, illness, children, etc) which force relocations. The owner could try renting the unit, but that involves risk and still has issues with opportunity cost. What if the home sits idle and the owner relies on the income to afford a rental in another market?
  - teeray 4y ago
    > Who can afford to let a > $1 million USD asset sit idle? People that own >$1 million USD assets. Some of these folks have multi-million dollar properties that they only actually use for a week or two per year.
  - almost_usual 4y ago
    I know someone who had a 2m+ home sit empty in SF for years. A 2m+ home in the Peninsula where the tenants stopped paying rent during COVID and still live there today. The tenant not paying rent annoys them but they’re not financially impacted by any of it. They own a business and make enough money that it’s not worth their time or energy to deal it. They have no connection to tech and work in a niche industry.
    - 01100011 4y ago
      That's great. That's one data point. Most folks owning homes in CA aren't rich beyond their real estate.
    - cudgy 4y ago
      Does this person have any other rentals? Sound like a good deal for the renter to have a landlord that doesn’t care if they pay rent.
  - rcpt 4y ago
    Since he's talking about California the answer is boomers. They bought decades ago and locked in miniscule property tax rates which don't go up because of Prop 13.
    - 01100011 4y ago
      Right, but those boomers want to sell so they can buy their dream house on a golf course in AZ. Their clock is ticking and their not going to stay in CA wasting their retirements.
      - deleted 4y ago
- deleted 4y ago
  [deleted]
- nilsbunger 4y ago
  > The houses sit empty because the owner would rather maintain a (fictious at this point) valuation than realise the loss. This happens for a while, and volume collapses except distressed sales. Then there’s a gradual recalibration where sellers adjust to a new normal and properties come back on the market. Take a look at post-2008 crash behavior and you’ll see this dynamic: volume collapses, then a gradual normalization of volume, all while still far below the previous peak. One example scenario: if you own a home but want to upgrade, the new home you want got a lot cheaper too. So you might take a loss on your current place to get into the new one.
  - bushbaba 4y ago
    That only works if rates go down. Most people won’t sell a house worth N financed at 2.5% to buy a new house worth N at 6%. California’s prop 13 was found to have this effect. So too will the prior low mortgage interest rates.
    - nilsbunger 4y ago
      That doesn't seem quite right. If you're moving up, your decision to buy will primarily be based on affordability, even if the old house had a better interest rate. And in a high-interest environment, house prices become lower and partially offset the extra interest expense, so affordability hasn't changed all that much. Prop 13 has a big effect but more so in downsizing (eg empty nest / retirement) than in upsizing.
- frumper 4y ago
  Divorce, death, job transfers force sales and those things happen all of the time. Not everyone can stay in their homes.

lmm 4y ago

> You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home. > I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining. The houses sit empty because the owner would rather maintain a (fictious at this point) valuation than realise the loss. That panic sell dynamic you mentioned doesn't seem to happen in housing, and foreclosure sales etc. can always be dismissed as unrepresentative.

01100011 4y ago
> The houses sit empty Who can afford to let a > $1 million USD asset sit idle? There is an opportunity cost to that. You also have to service any outstanding debt on the property and pay the property taxes. There are also life changes(i.e. retirement, illness, children, etc) which force relocations. The owner could try renting the unit, but that involves risk and still has issues with opportunity cost. What if the home sits idle and the owner relies on the income to afford a rental in another market?
- teeray 4y ago
  > Who can afford to let a > $1 million USD asset sit idle? People that own >$1 million USD assets. Some of these folks have multi-million dollar properties that they only actually use for a week or two per year.
- almost_usual 4y ago
  I know someone who had a 2m+ home sit empty in SF for years. A 2m+ home in the Peninsula where the tenants stopped paying rent during COVID and still live there today. The tenant not paying rent annoys them but they’re not financially impacted by any of it. They own a business and make enough money that it’s not worth their time or energy to deal it. They have no connection to tech and work in a niche industry.
  - 01100011 4y ago
    That's great. That's one data point. Most folks owning homes in CA aren't rich beyond their real estate.
  - cudgy 4y ago
    Does this person have any other rentals? Sound like a good deal for the renter to have a landlord that doesn’t care if they pay rent.
- rcpt 4y ago
  Since he's talking about California the answer is boomers. They bought decades ago and locked in miniscule property tax rates which don't go up because of Prop 13.
  - 01100011 4y ago
    Right, but those boomers want to sell so they can buy their dream house on a golf course in AZ. Their clock is ticking and their not going to stay in CA wasting their retirements.
    - deleted 4y ago
deleted 4y ago
[deleted]
nilsbunger 4y ago
> The houses sit empty because the owner would rather maintain a (fictious at this point) valuation than realise the loss. This happens for a while, and volume collapses except distressed sales. Then there’s a gradual recalibration where sellers adjust to a new normal and properties come back on the market. Take a look at post-2008 crash behavior and you’ll see this dynamic: volume collapses, then a gradual normalization of volume, all while still far below the previous peak. One example scenario: if you own a home but want to upgrade, the new home you want got a lot cheaper too. So you might take a loss on your current place to get into the new one.
- bushbaba 4y ago
  That only works if rates go down. Most people won’t sell a house worth N financed at 2.5% to buy a new house worth N at 6%. California’s prop 13 was found to have this effect. So too will the prior low mortgage interest rates.
  - nilsbunger 4y ago
    That doesn't seem quite right. If you're moving up, your decision to buy will primarily be based on affordability, even if the old house had a better interest rate. And in a high-interest environment, house prices become lower and partially offset the extra interest expense, so affordability hasn't changed all that much. Prop 13 has a big effect but more so in downsizing (eg empty nest / retirement) than in upsizing.
frumper 4y ago
Divorce, death, job transfers force sales and those things happen all of the time. Not everyone can stay in their homes.