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Fed plans to ‘reset’ the housing market–raising likelihood of falling homeprices
- deleted 4y ago[deleted]
- swozey 4y agoGood. I had a house I sold in 2019 that has "doubled" in value since then. I couldn't imagine paying that much for that little house.
- whywhywhywhy 4y agoIt's not like people have had a choice.
- ackbar03 4y agoWhy is there suddenly such a shortage of housing though? There can't have been suddenly more people?
- vsareto 4y agoI think Toronto has a huge problem with foreign investors driving up housing prices, so probably more of that
- subpixel 4y agoHousing valuation over the last decade is not entirely dissimilar from crypto valuation over the same period. But while they are both irrationally overvalued, you can’t mine for new housing stock.
- deleted 4y ago[deleted]
- thebigspacefuck 4y agoBecause the other side of supply is demand. Demand increased as 2 income couples now want to both have a home office to work from home, salaries went up from the great resignation, savings increased due to lack of anything to spend on, and rates were incredibly low. Basically the perfect opportunity that made everyone ready to buy at the same time. Some amount of people moved from a HCOL area to a LCOL area and kept the same salary so they could afford to spend more as well. This all led to the people thinking they need to buy now or they are going to miss out which further increased demand.
- ianai 4y agoI deeply suspect it's got a lot to do with interest rates pushing investors into the residential housing market who never would be there outside of these conditions. When a market is entered by participants with vastly more resources than previous market players valuations change vastly.
- ryathal 4y agoBuilding was paused for about a year (Covid and lumber prices), so there are a ton of new builds that didn't happen or got delayed. New Construction was already barely keeping up or falling behind pre-pandemic. Covid also caused a massive swing in what was desirable housing, small city apartments are a lot less attractive when lockdowns were possible so demand moved to places that weren't prepared for it.
- wolverine876 4y agoIn the US, about a third is being purchased by Wall Street investors. There's a relatively recent Washington Post article about it.
- foogazi 4y ago> It's not like people have had a choice. Buying vs renting is a choice
- jlokier 4y agoRents have increased by a similar factor, as the markets are linked. If you can buy, you can choose between buying and renting, but you can''t choose not to to pay a large increase on a little house one way or another. What's more, unlike long term fixed rate mortgages, rent tends to increase every year according to market conditions, so when renting you can't avoid the increase by staying where you are.
- foogazi 4y ago> What's more, unlike long term fixed rate mortgages, rent tends to increase every year according to market conditions Market conditions means rents can decrease too And unlike mortgages you can’t finance rents - it’s based on what the tenants are willing to pay
- micromacrofoot 4y agoThey overshoot it every time and instead of high housing prices we’ll have a recession. Layoffs and high interest rates. Can’t win either way.
- usrn 4y ago
- thr0wawayf00 4y agoRead up on the era that preceded central banks because it sounds a lot like the crypto landscape today: fraudulent currencies and investments everywhere.
- usrn 4y agoI'd rather deal with a lot of small fraud than have the entire nation captured by a single massive inescapable fraud. That's why I don't mind crypto.
- sentirism 4y ago
- thr0wawayf00 4y agoThen boy do I have the right altcoin for you...
- usrn 4y agoNo you don't.
- Bayart 4y agoChanging obscure tender on public bridges was so much better.
- lukas099 4y ago
- doctoboggan 4y agoMy wife and I are currently shopping for a home in Chicago. Is it a stupid idea to buy a house in the next few weeks?
- thr0wawayf00 4y agoWell rates are only going to increase from here it seems, which increases the cost of borrowing. You could be waiting a year or more for rates to come back down. If you're in a solid financial position and you see something you really want, why not?
- doctoboggan 4y agoI guess it seems like the fed is actively trying to pop the housing bubble and drop prices. If that's the case then buying now seems like a bad idea and we should rent for a year first. But honestly we are moving to a new city and I told myself I was done renting and ready to buy. We are in a solid financial position to put a substantial amount down.
- shakes_mcjunkie 4y agoIf you just moved to a new city would you benefit from waiting anyways? Do you know the neighborhoods you'd want to live in?
- mywittyname 4y agoWhat if this is not a bubble? You can't really time the market. So buy something you want at a price your comfortable with.
- ianai 4y agoYou’re a good example of how humans are not simple logical and rational decision makers. And also that houses are more than hedonic compositions of goods to be traded solely for investment.
- datavirtue 4y ago
- thr0wawayf00 4y agoThe problem is that we've been spoiled with crazy low interest rates for years now. I have a hard time seeing lots of people being motivated to sell a primary residence with rates rising like they are.
- api 4y agoPeople might look at houses as homes instead of financial instruments. Wow.
- ianai 4y agoDeath, divorce, and other major life events don’t wait for opportune market conditions.
- thr0wawayf00 4y agoBut that was true before the rate hikes and yet the Fed still wasn't happy with the housing supply. There aren't more people dying and going through a divorce now that we've gotten the .75% hike.
- foogazi 4y ago> and yet the Fed still wasn't happy with the housing supply. Why would this be a Fed concern at all ? At most they can affect the demand side
- thr0wawayf00 4y agoFrom the article: "It's clear that Powell hopes the housing cooldown caused by rising mortgage rates will help to push inventory levels up. " The Fed wants housing prices to fall and is hoping this will bolster housing supply in the short term since building inventory takes a lot of time.
- ianai 4y agoA quick google will give you an idea of why people decide to sell their houses. It's generally got nothing to do with interest rates and everything to do with personal factors and a huge seasonality factor. People prefer to sell in the summer, and sellers make the worst returns in the winter months.
- lukas099 4y agoIt makes sense from an inflation-fighting standpoint to focus on home prices, which have been inflating faster than consumer prices as a whole.
- ianai 4y agoIt seems inflating housing prices are tied to some of the worst societal outcomes in the modern era, too. i.e. The Great Depression and Great Recession were both real estate devaluation driven. I also wonder about investor owned homes not being as beneficial to localities as householders. Out of area investors don't shop at local stores, pay local taxes to support local governments/projects, etc. That stuff matters. Look at how fast Detroit deteriorated without people living in the neighborhoods to keep things up.
- theandrewbailey 4y ago> Home prices can fall, however, but for it to happen inventory will likely need to rise much higher. Once U.S. inventory levels climb above 2 million units, Mohtashami says, home prices could begin to fall nationally on a year-over-year basis. The US needs to be building millions of houses every year from here on out, but NIMBYs won't let one be built!
- usrn 4y agoIt's not zoning, there's plenty of space that's permissibly zoned. The way credit works heavily discourages people from building houses and only lets them buy housing that's already built. EDIT: Yes the way things are is a symptom of this. Pointing out that individuals don't get loans to build houses only proves my point.
- chrisseaton 4y agoOnly a tiny minority of new houses are self-builds - most are built by developers and sold as normal with mortgages.
- datavirtue 4y agoNormal ain't working.
- chrisseaton 4y agoBut that’s got nothing to do with credit.
- randomdata 4y agoWhich is the outcome of potential self-builders not usually being able to secure the funding necessary.
- chrisseaton 4y agoSelf-building is a lifestyle thing - vast majority of people don't have the time, effort, skill, or inclination to take on a project like that.
- yrgulation 4y agoOooh, i just sold a flat here in europe with the intention to buy something bigger. It would be fun if i bought it back next year at a lower cost or if house prices dropped just as i buy a new one. With rising interest rates and inflation it will be the little people that will suffer. Because those with liquidity available will buy properties at a discount, while regular folks wont afford them anyway since everything else costs more.
- thebigspacefuck 4y agoDo US rates affect the price of housing in Europe?
- ddek 4y agoThere is a relationship, yes, but it’s fairly indirect. More important is simply that the ailments of the US are suffered by the west in general. The UK raised its interest rate this week, by less than the US, but with a feeling that a much larger rise will come in August.
- excuses_ 4y agoDepends but overall the US rates put pressure on euro and generally all other currencies. In my country, which does not have euro, the last hike of the US rates got the currency to drop over 2% (which is already super weak). This means that our central bank will need to bump its rates even further.
- yrgulation 4y agoAll of europe is having similar issues. Many eu countries and the uk have increased their rates to try and stop inflation and as a result fewer people afford mortgages driving prices down. But the issue in some places is that builders have stopped building due to increased costs and as such the offer is lower. No clue how things will play out.
- lukas099 4y agoMy wife and I just started saving to buy a house, and I was resigned to the fact that we would have to buy into a super-inflated market. From my perspective, hearing this from the Fed is great news, but I realize that my own personal bias probably clouds my view quite a bit.
- DethNinja 4y agoAll that printed money has to go somewhere though. So if it is taken out of housing, then either it will go to commodities, stocks or crypto. I got a feeling that rich people will keep investing on land, so I don’t think a housing market crash will happen but prices might drop a bit.
- alexpetralia 4y agoNo, money is created and destroyed all the time.
- JumpCrisscross 4y ago> that printed money has to go somewhere Money isn’t conserved in our system. When the Fed sells a bond, and it’s presently selling tens of billions, scheduled to increase to hundreds of billions, it destroys that money.
- lukas099 4y agoWon't less money will be 'printed' (i.e. created by banks via lending) as mortgages fall?
- imtringued 4y agoYes and all those existing mortgages have to be paid off which reduces the money supply. You actually have a system that ratchets itself back the moment people stop borrowing. The problem is that debt deflation causes the velocity of money to drop making it harder to pay off debt. The central bank is perpetually scared of debt deflation so it targets a 2% inflation rate. If you could implement a -2% negative interest rate you wouldn't need inflation targeting at all. Debt deflation wouldn't result in a stagnant economy with unemployment making it easier for governments run a balanced budget or short term austerity without ill sideffects.
- recursivedoubts 4y agohttps://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco... at sufficiently advanced levels, incompetence is indistinguishable from malice and should be treated as such
- puranjay 4y ago1. Print money indiscriminately, long after the economy has recovered. 2. Institute a forced lockdown on the global economy without sufficient evidence or understanding of the looming disaster 3. Print even more indiscriminately and hand out "loans" to practically anyone wtih any kind of business 4. Insist that inflation is transitory 5. Say you're going to raise rates. But don't raise them high or fast enough, allowing inflation to creep up. 6. Panic. Unreal incompetence. A bunch of suites in a boardroom shouldn't have that much power over the global economy.
- djohnston 4y agoHoping to buy next year, I'll take the higher rates and lower price with the intent of overpaying on my primary residence anyway. Although if everyone else is thinking the same way w.r.t waiting I'm not sure it'll end up any better.
- ryanSrich 4y agoWouldn’t prices have to fall very very significantly for this to make sense? Let’s say you can afford a $700k house at 3%. The principle on that with 20% down is about $2,360 per month. At 6% interest you’d be at $3,360. To have a similar payment of $2,360, that $700k would have to fall to $490,000. I can say with complete confidence that $700k houses are not going anywhere near $490k. Higher interest rates are not the answer.
- datavirtue 4y ago$700k luxury items can easily drop by $200k.
- ryanSrich 4y agoA house isn’t a luxury item for most, and a $700k house is fairly modest in most US cities, if not down right basic.
- jandrewrogers 4y ago$700k is a nice house in most US cities. The median price is around $400k.
- willcipriano 4y agoThe median home isn't in a city is it?
- ryanSrich 4y agoThis doesn’t really mean anything. Look at what $700k (not list price, sale price) gets you in Seattle, Portland, The Bay, LA, or Denver. It’s not much.
- xwdv 4y agoFucking bastards. Home prices aren’t going to fall because there simply isn’t enough housing for everyone. There’s a housing shortage, we need to build more houses, that’s how you make prices fall. Meanwhile, since home prices aren’t going to fall, mortgage rates are going up, so now it becomes prohibitively expensive to even get a mortgage.
- AlexandrB 4y agoI've been hearing this for years and yet houses have already fallen 20+% in the Toronto area since the Canadian government started increasing rates. Maybe it's not just lack of supply? Maybe speculation and cheap credit has created demand for houses as investment vehicles people aren't actually occupying?
- Rury 4y agoYou can make home prices fall, by creating a shortage of dollars/credit that's worse than the shortage of houses. For hyperbole, houses wouldn't trade for hundreds of thousands of dollars, if there were only 1k dollars total in existence. A housing shortage wouldn't change that. Fed is currently removing dollars from circulation by reducing their balance sheet, and removing available credit by raising interest rates. Eventually this will weigh on houses prices (along with many things).
- lukas099 4y agoThere is enough housing for everyone. Many houses have more bedrooms than people and most bedrooms could hold more people than they currently hold. The supply is more elastic than you would expect just looking at number of houses vs. number of people.
- Barrera 4y ago> Here's what Powell had to say: "We saw [home] prices moving up very very strongly for the last couple of years. So that changes now. And rates have moved up. We are well aware that mortgage rates have moved up a lot. And you are seeing a changing housing market. We are watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. Obviously, we are watching that quite carefully…It’s a very tight market. So prices might keep going up for a while, even in a world where rates are up. So it’s a complicated situation and we watch it very carefully. I'd say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again." That word "reset" is ominous and should be taken very seriously. People think that we're due for a correction in house prices so that first time buyers can get a chance to enter. That's not how housing bubbles end. They end with lower house prices, but such a crippled economy that few can or want to buy them out of fear of future declines/job losses, and severely restricted lending standards. The idea that the Fed controls any of this is ridiculous. The arrogance of this institution is astounding. It's not a central bank. It doesn't control money, but rather a utility token called "bank reserves." It doesn't open and close valves on the monetary steam engine. It doesn't even know where those valves are located or their operating range because for decades the eurodollar system has allowed financial institutions to route around the Fed.
- imtringued 4y agoHow long until the Fed drops interest rates again? Probably not that far off.
- adam_arthur 4y agoThe Fed helped create it via QE, and then convincing the market inflation was transitory, which kept rates suppressed below fundamentals for 2 years. The arrogance was intervening as much as they did in the first place, creating a massive bubble. Even if inflation subsides, they will likely sell MBS to keep mortgage rates high until housing cools off. Home prices are already far higher than the 2000s peak in inflation adjusted terms
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- SenHeng 4y ago
- CapmCrackaWaka 4y agoI’m skeptical that prices are going to fall too much. Go to any Reddit thread on the topic of interest rates, talk to any of your young friends that haven’t bought a house yet, and you’ll find a common theme. “I can’t wait for house prices to fall so I can buy”. Isn’t that the definition of demand? If prices go down 10%, there is going to be a massive number of young people jumping into the market. I’m wondering if we might see more houses go up for sale, but not necessarily a drop in prices simply because the demand will be there to soak up the supply for a long time.
- juve1996 4y ago10% isn't nearly enough. If you're waiting for 10% but your interest rate doubled you're losing out.
- SOLAR_FIELDS 4y agoI’m already seeing a slight correction in Austin, TX. I get an email with an estimate of value from Redfin once a month - last month it was around $640k (up from the $320k I paid for it 5 or so years ago) and this month it was 600k. Before this month it had steadily climbed every single month since the pandemic rebound.
- wbsss4412 4y agoTalking about wanting to buy a house isn’t the same thing as actually being able to afford one though. The definition of demand is quantity demanded at every given price level. With mortgage rates rising, the size of loans any individual can take out at every level of wealth/income is dropping significantly. At the end of the day, you can want to buy all you want, but unless you have or can get the money, it’s a moot point.
- hellisothers 4y agoGiven the whole “we need to build more houses” angle would help “reset” housing, won’t increasing interest rates and rising inflation discourage construction?
- lukas099 4y agoThat stands to reason. On the other hand, maybe demand for housing is not the bottleneck preventing construction, so demand can be lowered without expecting a commensurate loss of supply.
- taylodl 4y agoFinancial policy isn't going to solve the root problem: housing construction fell off a cliff after the 2008 housing crises. We have a supply problem. that's true for many areas in the economy, not just housing. Yet all the Fed can think to do is raise rates. All that's going to accomplish at the moment is transferring more wealth from the poor and middle class to the wealthy. Then again I'm becoming so jaded maybe that's all it was ever intended to do? Maybe they were just looking for a veneer of plausibility to justify the theft?
- woleium 4y agoThere has been supply restrictions caused by older folks not selling and moving to assisted living due to COVID risk and increasing value. Now it's clear value is declining I expect a large chunk of folk who were holding off will sell.
- wolverine876 4y agoRecall that around a third of housing is purchased by major Wall Street investors (there's a Washington Post article that describes it). I wonder how this will affect them? Will they bail out? Will they hold on through the dip? Will they purchase even more - do interest rates affect their purchasing, or are they self-financing?