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America Faces a Housing Bust

44 points by lxm 4y ago

atlasunshrugged 4y ago
Great! Maybe home prices will become affordable for folks looking to enter the market. Although the U.S. needs to get its act together and enable the development of much more housing and automation in the market to make homes actually affordable to folks. I don't want to get too philosophical but I think a big part of the American dream was being able to own a home for you and your family and that is out of reach for so many people right now, in no small part due to NIMBY regulations but also overregulation of processes that prevent automation and more in the industry (among many other factors).
- cratermoon 4y ago
  What does automation have to do with building more affordable housing?
  - atlasunshrugged 4y ago
    Labor inputs make up a portion of a homes cost, so working to automate pieces of the homebuilding process that would lower that cost would lead to decreased prices
    - 20after4 4y ago
      But couldn't it just as easily lead to increased profits instead of decreased prices?
      - whimsicalism 4y ago
        Not in a competitive market. Small and medium scale development is usually pretty competitive.
  - iav 4y ago
    For a typical suburban American home, 80% of the cost is labor and 20% is materials. This rule of thumb even applies in small cases - replacing the floor will likely cost you 5x more to have it done for you vs what the materials cost at Home Depot
- tus666 4y ago
  > Great! Maybe home prices will become affordable for folks looking to enter the market Well the problem with that is that housing busts are usually associated with rescission (can't buy a house without a job) and rising interest rates (can't borrow the money anymore).
  - atlasunshrugged 4y ago
    Yes, indeed--although weirdly the jobs report out today was quite good (372,000 over the expected 250,000) so this might be a somewhat different type of recession if there is one. But yes, interest rates will rise and make long-term mortgages much more expensive for new borrowers. https://www.cnbc.com/2022/07/08/jobs-report-june-2022-.html https://www.cnbc.com/2022/07/08/jobs-report-june-2022-.html
    - rejor121 4y ago
      I think we might need to rethink what a recession is. AFAIK, we have been in a recession since 2008. IMO we never really got out of it. We will either bust hard and go into an actual depression, or we will forever stave off a true depression by… Working for the same wage for years and years while costs go up and raises only happen to slightly offset cost of living. We’ve been doing that for about 8 years now
      - aetherson 4y ago
        That's crazy talk. It would've been arguably true in 2015 or so. But then we had years of high job growth, high median wage growth, and generally great economic conditions, right up until COVID, and then we actually recovered very quickly from COVID. Like, is inflation high? You bet. Could we go into recession? We absolutely could. Did we have the last 8 years of costs going up and raises only happen to slightly offset cost of living? Absolutely not.
        rejor121 4y ago
        For all job markets? Or just tech?
- WheelsAtLarge 4y ago
  Yes, but get ready to go in if that's the case. People waste the opportunity to get in at a lower price since they think it will go down even more when it's going back up. Just remember that you'll be unlikely to buy at the bottom. Just buy when you need to buy and hope for the best.
- jseliger 4y ago
  There are people working on the automation part—e.g. https://www.buildcover.com/ https://www.buildcover.com/
  - atlasunshrugged 4y ago
    Yeah absolutely! But even people like cover have to work around ridiculous regulations for the type of homes they can create and where they're allowed to put them. If you look at one of the main callouts for benefits, one is "We take care of zoning research, design, permitting, manufacturing, project management, and installation." So 2/6 of these are regulatory related benefits (zoning research, permitting) even for a relatively simple structure that will go in a backyard. Govs need to do much more to enable automation at scale for all parts of the construction process and for all types of dwellings
- stjohnswarts 4y ago
  I don't think housing prices in popular cities will crash but they might at least flatline
tus666 4y ago
Again?
- WheelsAtLarge 4y ago
  Yes, again and again and again. But the price trend has been to go up higher after the crash than the last all time high, if you pick the right area. Places where there are plenty of jobs and people want to live there. It's likely to be a long wait though.
jschveibinz 4y ago
Another bait-and-switch headline for an article with no data or insights. > …the numbers don’t work anymore. What numbers? None were given as an explanation for a “bust” except for a mortgage rate that is less than 6% and an increase in home prices since January. We are not in 2008. The market may cool but the economics of home purchases are still pretty strong: lack of supply and increased demand from the large generation now ready to buy houses.
- vinyl7 4y ago
  The Fed did a study on the housing market and found that there is no supply issues with housing, rather the housing bubble was caused by too much demand from cheap debt. https://www.federalreserve.gov/econres/feds/volatility-in-home-sales-and-prices-supply-or-demand.htm https://www.federalreserve.gov/econres/feds/volatility-in-ho... Housing increased 30% over the last two years, and I seriously doubt anyone's wages increased by that much. Add inflation and increased interest rates and things will have to come down.
  - mistrial9 4y ago
    location, location and .. location. These overview numbers are as real as having 2.5 children! Here in the San Francisco Bay Area -- poster child for terrible outcomes in housing -- nothing stated above rings true. The whole State is gridlocked in anti-building systems. specific example: when a massive 2017 fire burned more than 3200 homes in the Santa Rosa area, more than a billion dollars eventually was paid out in settlements, yet now five years later, less than two thousand homes have been rebuilt. Is that due to more than a third of the all owners choosing that? hardly likely..
    - ggm 4y ago
      Bad example. Australia is even more fire prone. The planning rules which say "sorry you can't build here now" have a solid scientific basis. Building fire resilient is hugely more expensive and not building to code is stupid. I get that there's a lot of anger about Californian building regs but post fire lower build back levels isn't the peg to hang this on.
h2odragon 4y ago
Where I'm at, there's still a lot of houses around that have not been occupied since 2008. Not for sale, not maintained, not recoverable. I have this feeling that somebody somewhere is sitting on those places (and paying the property taxes!) and valuing them much higher than the true worth. If so, there's probably still holdover from the last crash to cause splash in the next one.
- ChicagoDave 4y ago
  This "formula" was what big banks used to solidify their mortgage backed securities 12 years ago. Instead of letting houses default, they would buy them up. So imagine you're BoA and in one town you back 5000 mortgages. Let's say 500 of those are about to default. You've already sold "paper" that includes all 500 of those loans, some of which may have been in the AAA tranche. In order to keep your AAA tranche from collapsing, you buy those 500 houses outright and sit on them, providing the illusion that your securities are healthy. It's cheaper and simpler. The downside is, when the market collapses, BoA is still stuck with 500 houses and will have to sell them eventually. They don't care. They're just trying to hold on to them until the securities they sold mature. Once that happens, all bets are off and they dump the houses into a depressed housing market. Housing prices are going to collapse. Badly. You can bet on it.
  - ChicagoDave 4y ago
    I'll add this little bit of advice. Sell every bit of real estate you own. Now. If you can. Rent for a year or two. Then jump back in when it hits bottom. You'll pocket a ton of cash and then have the same or better property at a significantly lower cost.
    - WillPostForFood 4y ago
      Maybe good advice if you are a house flipper sitting on inventory, not that useful for the typical home owner with a family.
      - 4y ago
tomdell 4y ago
https://archive.ph/rD4cX https://archive.ph/rD4cX
nostromo 4y ago
An interesting perspective I heard recently from a housing developer: rising interest rates may cause housing to get more expensive, not less. Getting a loan now for developing multifamily or single-family properties is significantly higher than it was last year. That means fewer projects are starting. Rent has already been rising, but may rise even faster next year as new supply dries up. Single family houses may go down in price -- but we all know that isn't really what people care about if they're buying. They usually care about their monthly mortgage payment. And, obviously, that is likely to go up with raising rates, unless there is a very significant downturn in home prices. The Fed's primary tool is interest rates -- but while we could use a cooling of investment into bubbly areas (like, maybe tech equities and crypto) -- we still desperately need more investment into housing. It's a shame that they will likely move in tandem and we'll just get less investment in everything.
- mirntyfirty 4y ago
  From the salary and debt levels I’ve observed, it seems as though there will be a lack of demand at the high prices for rent or purchase.
- solaxun 4y ago
  I'm not sure I understand the point being made here. Are you simply saying that higher rates means a higher monthly payment, and that the amount that prices have fallen is still not enough to offset the increase in the mortgage payment? That's fairly obvious.... for now. The old "it's a supply constraint" argument will not age will IMO. FWIW, the fed agrees:https://www.federalreserve.gov/econres/feds/volatility-in-home-sales-and-prices-supply-or-demand.htm https://www.federalreserve.gov/econres/feds/volatility-in-ho...
  - carom 4y ago
    Their argument is that there are fewer houses being built. In the long term, this will constrain supply far more than rising interest rates will push down prices.
  - majormajor 4y ago
Fargoan 4y ago
Maybe I'll be able to buy a house while I'm still in my 30s!
- chrisseaton 4y ago
  If people in tech aren't able to afford houses then who the hell is buying them?
  - diydsp 4y ago
    People inheriting from boomers, especially covid-dead, landlords, and newly-rich contractors.
    - chrisseaton 4y ago
      I guess at some point almost everyone inherits.
      - deleted 4y ago
        [deleted]
      - whimsicalism 4y ago
        Indeed, 60% of all wealth in the country is inherited. [0] [0]: https://www.washingtonpost.com/us-policy/2019/02/06/people-like-estate-tax-whole-lot-more-when-they-learn-how-wealth-is-distributed/ https://www.washingtonpost.com/us-policy/2019/02/06/people-l...
  - Fargoan 4y ago
    I don't work in tech. Dietary supplement manufacturing in North Dakota
  - svachalek 4y ago
    As someone who has been in FAANG quite a while, I can afford a house. But in Silicon Valley I can only look at 50-60 year old neighborhoods where the original owners were postal workers, grocery store managers, truck drivers. People that today couldn't qualify for a fraction of the necessary mortgage. This sure doesn't feel like economic progress.
deleted 4y ago
[deleted]
IncRnd 4y ago
https://archive.ph/20220701220044/https://www.wsj.com/articles/america-faces-a-housing-bust-11655826309 https://archive.ph/20220701220044/https://www.wsj.com/articl...
Dig1t 4y ago
Everyone keeps talking about this, but I still honestly don't believe it's going to happen. Obviously this is anecdotal, but I just know way too many people who have been holding out, saving money, for years waiting for prices to drop. There are so many people I know with a hoard of wealth just waiting for their chance to get in on a cheaper market. Just seems like there is so much demand for housing and the fact that investment funds are now buying homes en masse as investments just makes me think the market will remain expensive. But who knows, I hope I'm wrong!
- mushbino 4y ago
  I know a ton of people waiting for prices to drop, but so are investors, and hedge funds, which to me means they'll never go down.
- teeray 4y ago
  I can’t help but think investment funds are eyeballing those little war chests and wanting to capture those funds and the economic productivity that produced them.
majormajor 4y ago
On the face of it this seems good - everyone can buy more house for the money - compared to the crazy run-up of prices the last two years, but ... at the end of the day I expect a lot of people to still be priced out even at the low end given the amount of supply and lack of building for decades.
xwdv 4y ago
It will take at least a decade to fill the backlog of housing shortages from the past decade. On top of that, it is now more expensive to build because rising interests make loans more expensive and some materials are still expensive after the shocks to the supply chain. I don’t see any scenario where a home becomes trivial to afford before 2032. People should just start getting used to the fact that it’s going to be an expensive purchase.
mancerayder 4y ago
I've been following this story very closely for 18 months now, via: Housing blogs by various data-driven analysts (conscious of possible bias), Popular news (CNBC, Bloomberg), Industry news (housingwire, therealdeal), Visits to many dozens of homes, Watching listings on realtor and other places, Some YouTube commentators (yes, I know I know), Talking to a couple of agents (one in the city, one in the place-where-people-from-the-city escape to. Here's what I think so far that's talked about: - It's gotten too expensive with the interest rates. Even people who can afford it are raising eyebrows - if you do the math, on a 500K loan you're paying 600+ more a month in interest alone. Next, many people cannot afford it anymore. - People lost a hella lotta money in the stock and crypto markets. I know I did. People feel poorer. Even worse if a fraction of your income is in stock (looking at you, FAANGies). That's less down payment money. - Sellers have ridiculous expectations. I heard a phrase recently, there are two types of sellers, those who know there's a downturn and they better price accordingly and lower prices, and those who haven't realized it yet. Here's what isn't often talked about but I believe is true: - Many, many people bought second homes. Some of these people take advantage of hybrid remote, some of them are taking advantage of Airbnb profits. Alas! Companies are calling people back to the office (there is ENORMOUS pressure from government and business groups due to the economic effects of people not being in the office -- NYC has a ~ 7 percent unemployment rate!). Next - inflation is eating into desire for renting Airbnbs. Next - people who lost a lot of money in the markets may sell those homes. - If you're thinking about selling in the next year or two, you better list Now. That's the bottom line, and people are realizing that. - The "historic low inventory" I think is media propaganda. Yes, it's technically true, but inventory isn't all inventory, it's for sale inventory. There's nothing endemic about that. - The crash appears to be gestating in a few boom-and-bust "remote work is here to stay" hotspots like Phoenix, Austin, Boise... And there are the institutional investors. Some think they're in it for the long-haul (private equity funds are for 10+ years, right). Some think they're going to dump at the first sign of trouble (appreciation is no longer happening, and yield-wise there are alternatives like bonds now). Conclusion - I think buyers will have a lot of relief coming up, especially if you're a buyer with a good down payment and a lot of cash cushion. Edit - I've been here long enough, I should learn better list markup etiquette.
- 01100011 4y ago
yalogin 4y ago
If I understand it correctly the article is simply saying there will be a bust because of raising interest rates. Is that it? The article argues that a sharp reversal and bust will happen but doesn’t provide any rationale for why it would happen. No technical reason given other than that houses are not affordable.
- 01100011 4y ago
  You also have to factor in that the fed will try to push unemployment above 5% to rein in inflation. Overall, expect a slower economy over the next year or two, and along with it, slowing price increases and, in some cases, price reversals. If we repeat the 70s, expect this to cycle, with periods of inflation followed by periods of tightening. Further, houses are just way too damn expensive relative to disposable incomes from a historical perspective. Personally I don't expect a crash, but I do expect a softening in most markets followed by stagnation.
- WheelsAtLarge 4y ago
  Yes, that's enough reason. Higher interest rates makes house affordability even worse. Given that interest rates aren't likely to come down something else has to give and that's price. Also, once people see prices falling they get scared and are less likely to buy so the prices fall further. Add to that the likely job loss and you have the makings for a housing bust. How deep? No one knows. Interesting enough, this is what the FED is looking for when they increase interest rates to reduce inflation. They can't control supply but they can reduce demand with higher interest rates.
  - Ancalagon 4y ago
    owners will be less likely to sell if they cant make a profit either, further reducing supply
    - whimsicalism 4y ago
      Plenty of owners will sell a depreciating asset, especially non-resident owners.
mycentstoo 4y ago
My worry is that as financing becomes more expensive, institutional demand will replace retail demand. Institutional demand will be driven by a constrained supply which will in turn drive up rent prices. I fear a future where houses are nearly exclusively bought by institutional investors because the amount of capital needed to secure a reasonable mortgage will soar and banks in turn will view the retail buyer as too much risk because of the need to have very high income for 30 years.
- deleted 4y ago
  [deleted]
- whimsicalism 4y ago
  High rates also constrain institutional demand. Somehow pressuring banks to give ridiculous money to people they clearly shouldn't so they can all bid against each other is not a long term solution. In fact, it's a solution that we have seen fail numerous times.
- andrewstuart 4y ago
  Dead right. Unless government addresses this, the future is one in which you live in a home owned by a corporation.
- mancerayder 4y ago
  Institutional demand has two drivers that I know of: chasing appreciation or chasing yields. Appreciation is finished. So that leaves cap rates. How much can you keep raising rents? What are vacancy rates going to be? Maintenance costs? At a certain point something like a bond is less hassle and risk. I don't know what percentage of these institutional rentals are intended to be held forever, or in long term funds, etc. versus part of a trade like other assets when financial conditions like debt costs change.
tjr225 4y ago
Housing in the USA has been relatively cheap for a very long time. I think those times are over. The local news has been reporting on this bust in the Seattle area but median prices are barely down from a year ago. People are still lucky if they can get pre-purchase inspections. Californians, Texans, Midwesterners, Southerners still moving here in droves. My sister in law back in the midwest just spent 400k on a house in the middle of nowhere in Southwest Michigan. Welcome to the new order.
- __derek__ 4y ago
  > The local news has been reporting on this bust in the Seattle area but median prices are barely down from a year ago. You're referring to Wednesday's Seattle Times piece[1], I assume? Median prices are still way up from a year ago. They're down from last month. [1]: https://www.seattletimes.com/business/real-estate/king-county-home-prices-fall-6-as-sellers-come-back-down-to-earth/ https://www.seattletimes.com/business/real-estate/king-count...
  - tjr225 4y ago
    Yeah, that’s what I meant, sorry.
z3t4 4y ago
I find it interesting that some religions forbid interest in loans. I think they are into something as it's evil to first lend someone money at say 2%, then increase it to 4% interest. Inflation is created by "printing" more money, usually when a bank issue a loan "new" money is created. This "new" money leads to increasing prices aka inflation. Almost all goods on the market today are auto-made by robots in a factory, meaning it almost doesn't cost anything to produce, and the prices for goods are solely determined by how much people are willing to pay. People are willing to pay 2x for a house, but not 2x for a good. Then at some random point in time news sites starts to print articles about inflation (maybe because of a temporary shortage in some raw material) and sellers of goods decide it's a good time to increase prices, because people are now willing to pay more due to "inflation". This freaks out people who has lended money to others and starts to liquefy their assets. This causes inflated prices to go down. It's self correcting. But then there's interest rates that is just evil as it screws with the economy.

44 points by lxm 4y ago

Great! Maybe home prices will become affordable for folks looking to enter the market. Although the U.S. needs to get its act together and enable the development of much more housing and automation in the market to make homes actually affordable to folks. I don't want to get too philosophical but I think a big part of the American dream was being able to own a home for you and your family and that is out of reach for so many people right now, in no small part due to NIMBY regulations but also overregulation of processes that prevent automation and more in the industry (among many other factors).

cratermoon 4y ago
What does automation have to do with building more affordable housing?
- atlasunshrugged 4y ago
  Labor inputs make up a portion of a homes cost, so working to automate pieces of the homebuilding process that would lower that cost would lead to decreased prices
  - 20after4 4y ago
    But couldn't it just as easily lead to increased profits instead of decreased prices?
    - whimsicalism 4y ago
      Not in a competitive market. Small and medium scale development is usually pretty competitive.
- iav 4y ago
  For a typical suburban American home, 80% of the cost is labor and 20% is materials. This rule of thumb even applies in small cases - replacing the floor will likely cost you 5x more to have it done for you vs what the materials cost at Home Depot
tus666 4y ago
> Great! Maybe home prices will become affordable for folks looking to enter the market Well the problem with that is that housing busts are usually associated with rescission (can't buy a house without a job) and rising interest rates (can't borrow the money anymore).
- atlasunshrugged 4y ago
  Yes, indeed--although weirdly the jobs report out today was quite good (372,000 over the expected 250,000) so this might be a somewhat different type of recession if there is one. But yes, interest rates will rise and make long-term mortgages much more expensive for new borrowers. https://www.cnbc.com/2022/07/08/jobs-report-june-2022-.html https://www.cnbc.com/2022/07/08/jobs-report-june-2022-.html
  - rejor121 4y ago
    I think we might need to rethink what a recession is. AFAIK, we have been in a recession since 2008. IMO we never really got out of it. We will either bust hard and go into an actual depression, or we will forever stave off a true depression by… Working for the same wage for years and years while costs go up and raises only happen to slightly offset cost of living. We’ve been doing that for about 8 years now
    - aetherson 4y ago
      That's crazy talk. It would've been arguably true in 2015 or so. But then we had years of high job growth, high median wage growth, and generally great economic conditions, right up until COVID, and then we actually recovered very quickly from COVID. Like, is inflation high? You bet. Could we go into recession? We absolutely could. Did we have the last 8 years of costs going up and raises only happen to slightly offset cost of living? Absolutely not.
      - rejor121 4y ago
        For all job markets? Or just tech?
WheelsAtLarge 4y ago
Yes, but get ready to go in if that's the case. People waste the opportunity to get in at a lower price since they think it will go down even more when it's going back up. Just remember that you'll be unlikely to buy at the bottom. Just buy when you need to buy and hope for the best.
jseliger 4y ago
There are people working on the automation part—e.g. https://www.buildcover.com/ https://www.buildcover.com/
- atlasunshrugged 4y ago
  Yeah absolutely! But even people like cover have to work around ridiculous regulations for the type of homes they can create and where they're allowed to put them. If you look at one of the main callouts for benefits, one is "We take care of zoning research, design, permitting, manufacturing, project management, and installation." So 2/6 of these are regulatory related benefits (zoning research, permitting) even for a relatively simple structure that will go in a backyard. Govs need to do much more to enable automation at scale for all parts of the construction process and for all types of dwellings
stjohnswarts 4y ago
I don't think housing prices in popular cities will crash but they might at least flatline

tus666 4y ago

Again?

WheelsAtLarge 4y ago
Yes, again and again and again. But the price trend has been to go up higher after the crash than the last all time high, if you pick the right area. Places where there are plenty of jobs and people want to live there. It's likely to be a long wait though.

jschveibinz 4y ago

Another bait-and-switch headline for an article with no data or insights. > …the numbers don’t work anymore. What numbers? None were given as an explanation for a “bust” except for a mortgage rate that is less than 6% and an increase in home prices since January. We are not in 2008. The market may cool but the economics of home purchases are still pretty strong: lack of supply and increased demand from the large generation now ready to buy houses.

vinyl7 4y ago
The Fed did a study on the housing market and found that there is no supply issues with housing, rather the housing bubble was caused by too much demand from cheap debt. https://www.federalreserve.gov/econres/feds/volatility-in-home-sales-and-prices-supply-or-demand.htm https://www.federalreserve.gov/econres/feds/volatility-in-ho... Housing increased 30% over the last two years, and I seriously doubt anyone's wages increased by that much. Add inflation and increased interest rates and things will have to come down.
- mistrial9 4y ago
  location, location and .. location. These overview numbers are as real as having 2.5 children! Here in the San Francisco Bay Area -- poster child for terrible outcomes in housing -- nothing stated above rings true. The whole State is gridlocked in anti-building systems. specific example: when a massive 2017 fire burned more than 3200 homes in the Santa Rosa area, more than a billion dollars eventually was paid out in settlements, yet now five years later, less than two thousand homes have been rebuilt. Is that due to more than a third of the all owners choosing that? hardly likely..
  - ggm 4y ago
    Bad example. Australia is even more fire prone. The planning rules which say "sorry you can't build here now" have a solid scientific basis. Building fire resilient is hugely more expensive and not building to code is stupid. I get that there's a lot of anger about Californian building regs but post fire lower build back levels isn't the peg to hang this on.

h2odragon 4y ago

Where I'm at, there's still a lot of houses around that have not been occupied since 2008. Not for sale, not maintained, not recoverable. I have this feeling that somebody somewhere is sitting on those places (and paying the property taxes!) and valuing them much higher than the true worth. If so, there's probably still holdover from the last crash to cause splash in the next one.

ChicagoDave 4y ago
This "formula" was what big banks used to solidify their mortgage backed securities 12 years ago. Instead of letting houses default, they would buy them up. So imagine you're BoA and in one town you back 5000 mortgages. Let's say 500 of those are about to default. You've already sold "paper" that includes all 500 of those loans, some of which may have been in the AAA tranche. In order to keep your AAA tranche from collapsing, you buy those 500 houses outright and sit on them, providing the illusion that your securities are healthy. It's cheaper and simpler. The downside is, when the market collapses, BoA is still stuck with 500 houses and will have to sell them eventually. They don't care. They're just trying to hold on to them until the securities they sold mature. Once that happens, all bets are off and they dump the houses into a depressed housing market. Housing prices are going to collapse. Badly. You can bet on it.
- ChicagoDave 4y ago
  I'll add this little bit of advice. Sell every bit of real estate you own. Now. If you can. Rent for a year or two. Then jump back in when it hits bottom. You'll pocket a ton of cash and then have the same or better property at a significantly lower cost.
  - WillPostForFood 4y ago
    Maybe good advice if you are a house flipper sitting on inventory, not that useful for the typical home owner with a family.
    - 4y ago

tomdell 4y ago

https://archive.ph/rD4cX https://archive.ph/rD4cX

nostromo 4y ago

An interesting perspective I heard recently from a housing developer: rising interest rates may cause housing to get more expensive, not less. Getting a loan now for developing multifamily or single-family properties is significantly higher than it was last year. That means fewer projects are starting. Rent has already been rising, but may rise even faster next year as new supply dries up. Single family houses may go down in price -- but we all know that isn't really what people care about if they're buying. They usually care about their monthly mortgage payment. And, obviously, that is likely to go up with raising rates, unless there is a very significant downturn in home prices. The Fed's primary tool is interest rates -- but while we could use a cooling of investment into bubbly areas (like, maybe tech equities and crypto) -- we still desperately need more investment into housing. It's a shame that they will likely move in tandem and we'll just get less investment in everything.

mirntyfirty 4y ago
From the salary and debt levels I’ve observed, it seems as though there will be a lack of demand at the high prices for rent or purchase.
solaxun 4y ago
I'm not sure I understand the point being made here. Are you simply saying that higher rates means a higher monthly payment, and that the amount that prices have fallen is still not enough to offset the increase in the mortgage payment? That's fairly obvious.... for now. The old "it's a supply constraint" argument will not age will IMO. FWIW, the fed agrees:https://www.federalreserve.gov/econres/feds/volatility-in-home-sales-and-prices-supply-or-demand.htm https://www.federalreserve.gov/econres/feds/volatility-in-ho...
- carom 4y ago
  Their argument is that there are fewer houses being built. In the long term, this will constrain supply far more than rising interest rates will push down prices.
- majormajor 4y ago

Fargoan 4y ago

Maybe I'll be able to buy a house while I'm still in my 30s!

chrisseaton 4y ago
If people in tech aren't able to afford houses then who the hell is buying them?
- diydsp 4y ago
  People inheriting from boomers, especially covid-dead, landlords, and newly-rich contractors.
  - chrisseaton 4y ago
    I guess at some point almost everyone inherits.
    - deleted 4y ago
      [deleted]
    - whimsicalism 4y ago
      Indeed, 60% of all wealth in the country is inherited. [0] [0]: https://www.washingtonpost.com/us-policy/2019/02/06/people-like-estate-tax-whole-lot-more-when-they-learn-how-wealth-is-distributed/ https://www.washingtonpost.com/us-policy/2019/02/06/people-l...
- Fargoan 4y ago
  I don't work in tech. Dietary supplement manufacturing in North Dakota
- svachalek 4y ago
  As someone who has been in FAANG quite a while, I can afford a house. But in Silicon Valley I can only look at 50-60 year old neighborhoods where the original owners were postal workers, grocery store managers, truck drivers. People that today couldn't qualify for a fraction of the necessary mortgage. This sure doesn't feel like economic progress.

deleted 4y ago

[deleted]

IncRnd 4y ago

https://archive.ph/20220701220044/https://www.wsj.com/articles/america-faces-a-housing-bust-11655826309 https://archive.ph/20220701220044/https://www.wsj.com/articl...

Dig1t 4y ago

Everyone keeps talking about this, but I still honestly don't believe it's going to happen. Obviously this is anecdotal, but I just know way too many people who have been holding out, saving money, for years waiting for prices to drop. There are so many people I know with a hoard of wealth just waiting for their chance to get in on a cheaper market. Just seems like there is so much demand for housing and the fact that investment funds are now buying homes en masse as investments just makes me think the market will remain expensive. But who knows, I hope I'm wrong!

mushbino 4y ago
I know a ton of people waiting for prices to drop, but so are investors, and hedge funds, which to me means they'll never go down.
teeray 4y ago
I can’t help but think investment funds are eyeballing those little war chests and wanting to capture those funds and the economic productivity that produced them.

majormajor 4y ago

On the face of it this seems good - everyone can buy more house for the money - compared to the crazy run-up of prices the last two years, but ... at the end of the day I expect a lot of people to still be priced out even at the low end given the amount of supply and lack of building for decades.

xwdv 4y ago

It will take at least a decade to fill the backlog of housing shortages from the past decade. On top of that, it is now more expensive to build because rising interests make loans more expensive and some materials are still expensive after the shocks to the supply chain. I don’t see any scenario where a home becomes trivial to afford before 2032. People should just start getting used to the fact that it’s going to be an expensive purchase.

mancerayder 4y ago

I've been following this story very closely for 18 months now, via: Housing blogs by various data-driven analysts (conscious of possible bias), Popular news (CNBC, Bloomberg), Industry news (housingwire, therealdeal), Visits to many dozens of homes, Watching listings on realtor and other places, Some YouTube commentators (yes, I know I know), Talking to a couple of agents (one in the city, one in the place-where-people-from-the-city escape to. Here's what I think so far that's talked about: - It's gotten too expensive with the interest rates. Even people who can afford it are raising eyebrows - if you do the math, on a 500K loan you're paying 600+ more a month in interest alone. Next, many people cannot afford it anymore. - People lost a hella lotta money in the stock and crypto markets. I know I did. People feel poorer. Even worse if a fraction of your income is in stock (looking at you, FAANGies). That's less down payment money. - Sellers have ridiculous expectations. I heard a phrase recently, there are two types of sellers, those who know there's a downturn and they better price accordingly and lower prices, and those who haven't realized it yet. Here's what isn't often talked about but I believe is true: - Many, many people bought second homes. Some of these people take advantage of hybrid remote, some of them are taking advantage of Airbnb profits. Alas! Companies are calling people back to the office (there is ENORMOUS pressure from government and business groups due to the economic effects of people not being in the office -- NYC has a ~ 7 percent unemployment rate!). Next - inflation is eating into desire for renting Airbnbs. Next - people who lost a lot of money in the markets may sell those homes. - If you're thinking about selling in the next year or two, you better list Now. That's the bottom line, and people are realizing that. - The "historic low inventory" I think is media propaganda. Yes, it's technically true, but inventory isn't all inventory, it's for sale inventory. There's nothing endemic about that. - The crash appears to be gestating in a few boom-and-bust "remote work is here to stay" hotspots like Phoenix, Austin, Boise... And there are the institutional investors. Some think they're in it for the long-haul (private equity funds are for 10+ years, right). Some think they're going to dump at the first sign of trouble (appreciation is no longer happening, and yield-wise there are alternatives like bonds now). Conclusion - I think buyers will have a lot of relief coming up, especially if you're a buyer with a good down payment and a lot of cash cushion. Edit - I've been here long enough, I should learn better list markup etiquette.

01100011 4y ago

yalogin 4y ago

If I understand it correctly the article is simply saying there will be a bust because of raising interest rates. Is that it? The article argues that a sharp reversal and bust will happen but doesn’t provide any rationale for why it would happen. No technical reason given other than that houses are not affordable.

01100011 4y ago
You also have to factor in that the fed will try to push unemployment above 5% to rein in inflation. Overall, expect a slower economy over the next year or two, and along with it, slowing price increases and, in some cases, price reversals. If we repeat the 70s, expect this to cycle, with periods of inflation followed by periods of tightening. Further, houses are just way too damn expensive relative to disposable incomes from a historical perspective. Personally I don't expect a crash, but I do expect a softening in most markets followed by stagnation.
WheelsAtLarge 4y ago
Yes, that's enough reason. Higher interest rates makes house affordability even worse. Given that interest rates aren't likely to come down something else has to give and that's price. Also, once people see prices falling they get scared and are less likely to buy so the prices fall further. Add to that the likely job loss and you have the makings for a housing bust. How deep? No one knows. Interesting enough, this is what the FED is looking for when they increase interest rates to reduce inflation. They can't control supply but they can reduce demand with higher interest rates.
- Ancalagon 4y ago
  owners will be less likely to sell if they cant make a profit either, further reducing supply
  - whimsicalism 4y ago
    Plenty of owners will sell a depreciating asset, especially non-resident owners.

mycentstoo 4y ago

My worry is that as financing becomes more expensive, institutional demand will replace retail demand. Institutional demand will be driven by a constrained supply which will in turn drive up rent prices. I fear a future where houses are nearly exclusively bought by institutional investors because the amount of capital needed to secure a reasonable mortgage will soar and banks in turn will view the retail buyer as too much risk because of the need to have very high income for 30 years.

deleted 4y ago
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whimsicalism 4y ago
High rates also constrain institutional demand. Somehow pressuring banks to give ridiculous money to people they clearly shouldn't so they can all bid against each other is not a long term solution. In fact, it's a solution that we have seen fail numerous times.
andrewstuart 4y ago
Dead right. Unless government addresses this, the future is one in which you live in a home owned by a corporation.
mancerayder 4y ago
Institutional demand has two drivers that I know of: chasing appreciation or chasing yields. Appreciation is finished. So that leaves cap rates. How much can you keep raising rents? What are vacancy rates going to be? Maintenance costs? At a certain point something like a bond is less hassle and risk. I don't know what percentage of these institutional rentals are intended to be held forever, or in long term funds, etc. versus part of a trade like other assets when financial conditions like debt costs change.

tjr225 4y ago

Housing in the USA has been relatively cheap for a very long time. I think those times are over. The local news has been reporting on this bust in the Seattle area but median prices are barely down from a year ago. People are still lucky if they can get pre-purchase inspections. Californians, Texans, Midwesterners, Southerners still moving here in droves. My sister in law back in the midwest just spent 400k on a house in the middle of nowhere in Southwest Michigan. Welcome to the new order.

__derek__ 4y ago
> The local news has been reporting on this bust in the Seattle area but median prices are barely down from a year ago. You're referring to Wednesday's Seattle Times piece[1], I assume? Median prices are still way up from a year ago. They're down from last month. [1]: https://www.seattletimes.com/business/real-estate/king-county-home-prices-fall-6-as-sellers-come-back-down-to-earth/ https://www.seattletimes.com/business/real-estate/king-count...
- tjr225 4y ago
  Yeah, that’s what I meant, sorry.

z3t4 4y ago

I find it interesting that some religions forbid interest in loans. I think they are into something as it's evil to first lend someone money at say 2%, then increase it to 4% interest. Inflation is created by "printing" more money, usually when a bank issue a loan "new" money is created. This "new" money leads to increasing prices aka inflation. Almost all goods on the market today are auto-made by robots in a factory, meaning it almost doesn't cost anything to produce, and the prices for goods are solely determined by how much people are willing to pay. People are willing to pay 2x for a house, but not 2x for a good. Then at some random point in time news sites starts to print articles about inflation (maybe because of a temporary shortage in some raw material) and sellers of goods decide it's a good time to increase prices, because people are now willing to pay more due to "inflation". This freaks out people who has lended money to others and starts to liquefy their assets. This causes inflated prices to go down. It's self correcting. But then there's interest rates that is just evil as it screws with the economy.