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A global house-price slump is coming?

• Flatcircle 4y ago
  According to my Dad, younger generations have never experienced a housing environment where your home value goes sideways for a decade. With rates this high and going higher. We may experience our first example of buying a house and selling the houses 10 years later for about the same price.
  • rdtwo 4y ago
    That’s not bad if you buy a newer house and it deprecated but sucks if your old house cost a lot to maintain
  • JumpCrisscross 4y ago
    > buying a house and selling the houses 10 years later for about the same price Which, in practical terms, means losing money.
    • ramesh31 4y ago
      >Which, in practical terms, means losing money. Only if you're a robot that sleeps in a closet. Otherwise you have to live somewhere during that time. And every penny spent on rent is literally just vaporized into nothing.
      • Ekaros 4y ago
        It goes to not dying on the street... Which is variable value, but still quite valued thing.
        • tacticalturtle 4y ago
          Additionally, you’re paying for the right to move relatively quickly and cheaply, even in a depressed housing market. Someone who rents can move to a new opportunity much more easily than someone who owns, and would need to either sell or find and manage tenants.
    • rr888 4y ago
      > Which, in practical terms, means losing money. By definition no. In reality not either as you have to live somewhere - it might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either so is actually good for the average person. Of course if you have a large mortgage the investment is small anyway.
      • loeg 4y ago
        Are you forgetting about the 10% of sale price haircut that accompanies real estate transactions? Agent fees, taxes, title insurance, blah blah. If you sell your house for what you bought it for in the US, you end up with ~90% of what you started with.
        • rr888 4y ago
          Yes I did forget but I'd suggest the transaction costs aren't significant when you hold 10+ years and are just another cost of living. If you rent you have to pay fewer transaction costs but you have rent rising so that has its own problems.
          • JumpCrisscross 4y ago
            > you have rent rising so that has its own problems Rising rents amid flat home prices are necessarily temporary absent price controls.
            • giaour 4y ago
              Yes, assuming the rental market has sufficient competition and can take advantage of existing homes. Local rental property monopolies or regulation (either governmental or from private organizations like HOAs) that prevents the excess homes from being rented can cause a rise in rents that is not related to underlying housing prices.
          • ahtihn 4y ago
            There's no reason for rent to be rising if property values aren't rising. Rent rising would push property prices up.
    • BobbyJo 4y ago
      Depends on your situation. For example, I bought a house and my mortgage+insurance+repair amortization is less than I'd pay for renting a similar sized apartment or home. I had to lock up 30k in my down payment, but I'm saving $500+ (probably closer to 1000) a month vs renting. That's equivalent to 6k a year, or >20% return on my investment.
      • bombcar 4y ago
        Be sure to save that extra money, houses have a way of turning you into a cash machine for Home Depot holy shit there's always something to fix or spend money on
        • disgruntledphd2 4y ago
          Owning a house is essentially like having a bottomless pit to throw all your excess money into. I didn't really appreciate the advantages of renting until the dishwasher and the oven broke in the same month. Don't get me wrong, you spend that money on stuff you use, but the TCO is much higher than the mortgage payment.
    • deleted 4y ago
      [deleted]
  • mgkimsal 4y ago
    Huh? Happened to us and our neighbors - bought end of 2005. 2015... house estimated for... about the same as we paid for it. It wasn't "steady sideways"... it was 'crash and recover'. But it's certainly happened to many folks - buy then sell years later at roughly same price.
    • HarHarVeryFunny 4y ago
      Yeah, bought my first house in 1988 and a decade later was still looking at a steep loss, but by luck sold for a profit at the market peak in 2003. In 2011 it resold for less than in 2003.
      • paulpauper 4y ago
        hmm...profit in real terms or nominal?
        • HarHarVeryFunny 4y ago
          Good question - I never calculated it, but house prices had shot up in the 2000-2003 period, so possible it was a real profit.
  • mywittyname 4y ago
    Disagree. Millennials have never known different until very recently. To them, housing wasn't something that appreciated at all. In fact, it's so common for millennials to say things like, "just waiting on another housing bust." It's like they think 2008 was come cyclical event that you just need to wait another year for. I held a similar attitude towards housing and rented throughout my 20s because every single homeowner I knew bitched about how buying a house was a loss for them. People didn't make money on houses outside of rich coastal cities. Heck, I'm trying to unload a parent's home and they are disappointed that the house they lived in for 16 years has only appreciated by maybe $10k. Covid was the when young people outside of NYC and Cali learned that it is smart to get into the housing market earlier, rather than later.
    • gilbetron 4y ago
      I don't understand. Housing has been going up steadily for the past decade. 2007-2010ish was the only time it decline, and 2018-2019 had a flat region for some places (not where I live though). https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
      • lotsofpulp 4y ago
        The disconnect is because there are very large regions of the US where land price had stagnated or even went down in price for the past few decades, but there are also very large regions of the US where land price increased or skyrocketed. Many people experienced different things. Of course, the regions where most people were moving to and where most house sales occurred experienced higher land prices, but the regions where land price was stagnating or declining would have fewer sales in the first place and hence not reflect in the data, but the people there would still be experiencing it. So you just have large numbers of people experiencing different price movements depending on where they live.
      • mywittyname 4y ago
        Because you're looking at the USA market as a whole. The regional view tells a much better story because then you don't have movement in one region offset that of other ones. https://fred.stlouisfed.org/graph/?id=MSPNE,MSPMW,MSPS,MSPW https://fred.stlouisfed.org/graph/?id=MSPNE,MSPMW,MSPS,MSPW, You can pretty clearly see that most regions there were long periods of housing stagnation and decline, followed by quick price jumps, then back to stagnation. And look at how wildly the NE region fluctuates. It regularly moves 10% up or down in any given year. And sometimes much more, prices moved from $403k to 566k in one year (2016->2017). Whether you did well or not in your housing purchase comes down to luck. Yeah, in aggregate, over long enough time periods, housing does well. But your individual situation will vary dramatically.
  • PedroBatista 4y ago
    Every millennial lived trough 2008, plus also 9/11, also a global pandemy and now +10% inflation. Everything with real wages being stagnated since the 70's I think we could give those "young latte-sipping kids" a break..
• codexjourneys 4y ago
  I am just not sure about this. There are more Millennials than Gen X, and Millennials are in their prime family-building and house-buying years. At the same time, in the aftermath of the Great Recession, not much new housing was built. The intersection of those two trends might mean demand exceeds supply purely mathematically. Especially if people who locked in mortgages at lower rates are reluctant to sell as a result, furthering lowering supply. Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers, but will it be enough to counteract the imbalance of demand and supply? I think it's an open question.
  • swexbe 4y ago
    At the same time, boomers are starting to die off.
  • arberx 4y ago
    Prices are already down in many places, and it's only been 5 months since rates started rising. Many factors to supply imbalance. Look at the increase in the amount of Airbnbs since 2010. People might be reluctant to sell, but they might need to when they can't rent, Airbnb, or lose their job.
    • phlipski 4y ago
      I do wonder how many people can afford that vacation home without making use of Airbnb (or other vacation rental type system) to help with the payments...
  • ghastmaster 4y ago
    > Millennials are in their prime family-building and house-buying years. They have less earnings and savings than the previous generation as compared to the price of homes at the same time in their lives. While government intervention in the USA has adjusted the requirements to get a loan approved, it will not be enough to keep up with rising interest rates. Prices have to come down for millennials to make purchases. This will cause a "house-price" slump.
  • 4y ago
• solaarphunk 4y ago
  Interest rates go up, housing (and most asset prices) prices go down, and vice versa. No surprise here.
• ramesh31 4y ago
  Bring it on. As a first time buyer, I don't even care about prices going down as much as I care about being able to actually buy a home that I want without feeling like it's a blind gamble. I want to be able to look at a listing, talk to the realtor, have a scheduled showing, and put in an offer at list price with inspection/appraisal contingencies. You know, like how normal life was forever until the last 5 years.
  • electrondood 4y ago
    5 years? The norm here has been 10-20 bids on a house, with an all-cash offer from foreign investors behind a faceless LLC, for like 30 years. Where are you living?
    • ramesh31 4y ago
      >5 years? The norm here has been 10-20 bids on a house, with an all-cash offer from foreign investors behind a faceless LLC, for like 30 years. Where are you living? In the major metros, sure. But I'm talking about 3rd tier city suburbs.
    • bombcar 4y ago
      Every area is different, some places the norm is to price the house low and then take the highest offer, other places price the house high and then take the highest offer (that will be below the asking price). Arguably if the house doesn't sit on the market for about 3 months it was priced too low, and if it sits longer it was priced too high (this can also depend on if it is empty or inhabited at the time).
  • hedora 4y ago
    What you are describing has more to do with listing agent strategies than absolute prices. Some agents price a bit above market, and hope for one offer. Some price below in hopes of creating bidding wars, and/or getting people to waive inspections/contingencies on a questionable house.
    • Cyph0n 4y ago
• Proven 4y ago
• pc86 4y ago
  > In condo-crazed Canada homes cost 9% less than they did in February. OK, but how do they compare to February of 2019? According to this[0] they are still 20-25% higher than that point in time. [0] https://tradingeconomics.com/canada/housing-index https://tradingeconomics.com/canada/housing-index
  • digianarchist 4y ago
    Homes prices are not falling fast enough to offset the increase in interest rates. Homes are more expensive is some areas now than in Feb 2022 as a result.
  • elevenoh 4y ago
• jdhn 4y ago
  I'm very skeptical that there's going to be a prolonged slump. What happens when the next economic recession/crisis comes, and the Fed starts lowering interest rates again? Couple that with how wages are adjusting for inflation, and you're going to have a floor on prices that'll probably be higher than most people think.
  • bombcar 4y ago
    There's nothing guaranteeing the Fed will try to juice the market the same way they've done in the past; for example the government could decide to try to counter unemployment with direct employment instead of lowering rates, or sudden reductions in immigration (for whatever reason) could cause unemployment to remain low even as rates skyrocket. The main floor on prices is the cost of new building, if that starts to drop than house prices will drop with it in the areas where building is occurring, which helps slow down the rise everywhere.
    • lotsofpulp 4y ago
      >There's nothing guaranteeing the Fed will try to juice the market the same way they've done in the past; There is a ton of political will to ensuring the market keeps rising. Significant portion of voters are invested via retirement account. Politicians are invested via their own investments. Rich people own public equities, And finally, hundreds of billions of dollars of unfunded liabilities for taxpayer funded pensions are invested in the market. The worse the market performs, the higher taxes have to be to pay for all those good plated retirement benefits. If anything, I would say the only guarantee is that on a timescale of 5+ years, government leaders will always choose to sacrifice purchasing power of currency to keep nominal asset value increasing.
• Nifty3929 4y ago
  Aside from supply and demand, housing prices depend largely on how much money is available to pay for them. Lower interest rates and looser monetary policy, stimulus, and loan assistance all drive prices up. Higher interest rates, tighter monetary policy, and stricter loan qualifications push prices down. In the US, at least for now, it seems the fed is committed to tightening, which will push prices down (all else being equal).
  • deleted 4y ago
    [deleted]
• AlexandrB 4y ago
  Hopefully this discourages investment firms from buying up housing stock[1]. To me the long-term danger for housing affordability seems to be that individuals will be priced out by institutional money. [1] https://www.wsj.com/articles/blackstone-bets-6-billion-on-buying-and-renting-homes-11624359600 https://www.wsj.com/articles/blackstone-bets-6-billion-on-bu...
  • dan-robertson 4y ago
    If interest rates are up then you want a comparably higher yield (ie rent as % of purchase price) on the property (otherwise you could just earn interest on the money directly) and so that’s either a lower sale price or a higher rent. The rents you take in will mostly be determined by the market and it likely wouldn’t be a good investment to buy a house to rent it if market rents suggest you’d make a lower yield than buying similarly risky bonds. It’s a bit of a different story if you’re just buying the property on the expectation that its value will go up better than other assets. There are reasons to expect that might happen (old people typically own more property and vote more than young people and they tend to care a lot about the value of their property going down so governments often have policies to try to ‘help people buy homes’ which allow people to afford higher prices which helps to keep the prices high) but it does seem that something has to give eventually (and eg it seems like there has been a bit of a change in Californian housing policy recently). Generally I would expect an institutional investor to be more sensitive to things like interest rates and price when making purchasing decisions than a potential owner-occupier who has to live somewhere and may be more sentimental about certain things investors don’t care about.
  • EricDeb 4y ago
    with wealth inequality what it is this seems more and more likely
  • preinheimer 4y ago
    If you have cash, buy when prices crash and hold.
  • imtringued 4y ago
    It massively encourages investment firms to buy up housing stock from people whose mortgage is underwater and are forced to sell. Investment firms keep liquid cash precisely for this reason, just in case a fire sale pops up and they can move quickly.
• Minor49er 4y ago
  Full text version: https://archive.ph/hlpXJ https://archive.ph/hlpXJ
• bombcar 4y ago
  Take a look at inventory: https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS We have a ways to go to get back to "normal" whatever you define that as. Locally and anecdotally, I've noticed houses are sitting on the market much longer, and I'm starting to see "price lowered" emails from Zillow. We've definitely entered a cooling off and people are moving less.
• spicyusername 4y ago
  Sounds like FED policy is doing its thing, then.
• jlhawn 4y ago
  "House-Price" is a terrible metric that only house sellers really care about. Everyone else is more concerned with monthly total housing costs. If house prices stayed the same and interest rates increased 2-3x that means monthly payments for new mortgages also increase. Buyers are unable or unwilling to pay the higher monthly cost so they bid less and the price comes down but their total monthly payment does not decrease. In some sense this is a transfer of wealth from home owners/sellers to banks/lenders and hopeful and prospective first time buyers see no benefit, aside from maybe smaller down payments.
  • sokoloff 4y ago
    When you’re talking about the price of the most expensive purchase most people will ever make, it seems like house owners (around 2/3 of American households) would be quite interested in the topic. First-time buyers benefit from both the decrease in down payments and the easier ability to pay down principal as nominal salary grows and/or if interest rates fall during the mortgage term.
    • tcmart14 4y ago
      Sure, but I think the point is that a perspective home buyer ultimately rationalizes the cost with monthly payments. It is harder to wrap your mind around paying, lets just say, $500,000 over 30 years as compared to paying $1,300 monthly. When your considering purchasing a home and how that relates to your budgeting, a flat $500,000 over 30 years is meaningless compared to, okay, this is how much money will be going out of my bank account each month. When I buy a car, I don't think of it in terms of $20,000 over 5 years. I think of it in terms of $350/month over 5 years.
      • deleted 4y ago
        [deleted]
      • lotsofpulp 4y ago
        In a market where sellers have an advantage over buyers, buyers have to compete using the highest monthly payment they can afford which allows them to pay the highest price for the home to outbid other buyers. But outside of that type of market, buyers are not trying to pay more for a house just because they can afford a monthly payment.
• ethotool 4y ago
  Underwriters are much more strict after the 2008 crash and it’s become more difficult to qualify for a conventional mortgage. New home builders were building less overall and focused mostly on building expensive ($500K+) rather than affordable homes. In addition, cash buyers still make up over a 3rd of US home purchases which include many investors. A healthy drop in prices might happen in the near term but any kind of doomsday scenario is unlikely to play out IMO.
• throwthere 4y ago
  Could be wrong but the Economist doesn't usually make predictions like this? This article doesn't have the same depth they usually write to. The reasoning behind their predicted price slump is that interst rates are going higher, making homes less affordable. But I think they stop there without looking at any other factors. Such as, the tempering effect of rising commodity and labor costs of new builds. The other half of the article is about knock-on effects of higher interest rates and the predicted price slump. I guess I'm not saying their predictions will or will not come true, just that they don't support them.
  • esja 4y ago
    They called it pretty well in 2005: https://www.economist.com/leaders/2005/06/16/after-the-fall https://www.economist.com/leaders/2005/06/16/after-the-fall
  • yieldcrv 4y ago
    > Such as, the tempering effect of rising commodity and labor costs of new builds. Understated from my experience. I recently had a relative going through the process of having a new build and the builder had very many excuses and delays due to scarcity of materials and costs. I was pretty sure the relative was getting scammed, or that the builder simply wouldn't be able to deliver. They did finish that home eventually, and made a lot of progress on the development of that neighborhood. And all their issues were corroborated by what's seen in commodities circles and general supply chain issues. I think they could have gotten the resources they needed at a higher bid but they had to operate within the budget as they had collected money and credit in advance of the supply chain constriction, which would be passed down to the forecast of what the home would have cost.
  • rwmj 4y ago
    The article is in the Leaders section, which is a section with 4 or 5 short summaries of important weekly news. They do special reports on all sorts of topics although unhelpfully in this case their last one on housing was back in 2020 (https://www.economist.com/special-report/2020-01-18 https://www.economist.com/special-report/2020-01-18). Probably due another one soon.
• enahs-sf 4y ago
  https://archive.ph/hlpXJ https://archive.ph/hlpXJ
• jollyllama 4y ago
  Seeing a lot of long term analysis in these comments, I would add: Whenever the boomer sell-off begins, that will be the paradigm shift. It may be in 5, 10, 15, or 20 years.
• devX3 4y ago
  Maybe globally true but if you live in a strong developed country I disagree. Looking back at a +-150% value increase in 20 years I'll take a slump but every other indicator like more pop and less being built works against this theory. Ofcourse I can see this in less desirable areas of the world being true or regions like china with massively bloated housing sectors.
• pessimizer 4y ago
  It's sickening that this is always marketed as bad news, even though we've been in a bubble for the past 20 years. The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans. Somehow every non-homeowner has to be a policy slave to the passive income of some wealthy person. And we defend it by claiming that old people who are worth enough money not to work are not wealthy, as if we care about old people. We only care about old people as model "savers" who can be used to morally justify policies that directly and overwhelmingly benefit the very wealthy to the obscenely wealthy. And also, there's a problem with revolving credit (i.e. a 2-year mortgage), such as Australia or Britain, or anything that is floating along with some interest rate. But these are a) intentional problems that the people making the loans hope will make them rich, and b) problems with pricing, because people are expected to take decades longer to pay off a house than it would take for them to build it alone with their own hands in their spare time.
  • paulpauper 4y ago
    It's bad news if you bought a home and the market falls. It's good news for people who want to buy a home and have been waiting for prices to fall. People who read the Economist probably fall in the former category by demographics.
    • bombcar 4y ago
      It's bad news if you own a home and the market falls and you need to sell. Otherwise it's some opportunity cost (arguably) but you can continue paying your mortgage payments to stay in your house, and if you hold long enough it'll likely recover. This is different from the last major crash because that time house prices AND mortgage rates both dropped so you could easily feel "trapped" in your underwater house.
      • enraged_camel 4y ago
        >> Otherwise it's some opportunity cost (arguably) but you can continue paying your mortgage payments to stay in your house, and if you hold long enough it'll likely recover. Most people cannot do this though, because the conditions that lead to housing market crashes also result in huge numbers of layoffs. What that means is that not only do people find themselves "underwater" but also unemployed, which means they either can no longer afford their mortgage payments, or sell at a (often huge) loss and start renting and/or relocate.
• PedroBatista 4y ago
  If the market was something remotely non-dysfunctional a slump would be expected. BUT, why are thousands of buildings/units empty in NYC that have been empty for years with an outrageous rent? Because among other things the owners win/lose less when the building is empty due to taxes plus many are with a noose around the neck waiting for the big sheik to come around and buy their building for a non-sense amount of money. A version of that exists all around the country, plus builders "stopped" building new houses around a year ago, so inventory will disappear and prices will stay or even go up. Apartment buildings are the exception for now but it's a gamble and with the high costs of everything ( now including finance ), I don't see how those prices will slump. They'll stop being so ridiculous at best.
  • colinmhayes 4y ago
    NYC vacancy is around 4%. It's effectively impossible to get below 3% due to people moving and renovations. The meme that the issue is vacant units is pretty much just straight up false. Yes, there are some luxury condos that are largely vacant, but those barely effect the rental prices of normal units other than maybe encouraging building luxury instead of normal housing.
    • tmnvix 4y ago
      I'm interested to know the source of this figure. It sounds typical for a reported rental vacancy rate. Is this not just the percentage of available rentals that are not currently occupied? This would exclude things like second homes, homes on the market, homes being renovated, land-banked homes, etc. See Melbourne's Speculative Vacancies Report[0] for a comparison (in some years I've seen this report indicate that vacant properties in many areas are over 10%). [0] https://www.prosper.org.au/speculative-vacancy-reports/ https://www.prosper.org.au/speculative-vacancy-reports/ edit: I forget which year's report it was, but they did once find a very strong positive correlation between the rate of capital gains and empty properties. I.e. the stronger the capital gains in an area, the more likely properties were to be left empty.
  • ch4s3 4y ago
    > BUT, why are thousands of buildings/units empty in NYC that have been empty for years with an outrageous rent? There are absolutely not thousands of buildings empty in NYC. It's also worth noting that there are 3.52 million housing units in NYC. As the other reply points out, rental vacancy is lower than 4%. However half of those are either being renovated or are rented/sold but not yet occupied. Of the 3.52 million housing units in NYC a paltry 103,000 (less than 0.2%) are pied-à-terres or seasonal/short-term rentals. On the much maligned Billionaire's Row there are some 350 empty condos. This line about "thousands of empty units" is a sort of innumerate argument made by DSA/Working Families Party types to oppose all new construction or up-zoning.
• paulpauper 4y ago
  Experts have been saying this every year for the past decade. It pays to just ignore these predictions, imho. Had you heeded these warnings 5 years ago , home prices have have up so much that even if prices do fall, you will likely still not be able to buy at the price you had originally planed to buy. Waiting too long means having to buy at a much higher price , even if there is another correction.
  • bequanna 4y ago
    Interest rates. People don’t care about prices, they care about payments and low interest rates kept payments low and pushed prices higher. The Fed was sucking up MBS and keeping mortgage rates artificially low for far too long. That is over and a typically 30 mortgage is now close to 7% with home affordability being at record lows. Unless the Fed drastically changes course and rates lower, prices will absolutely come down.
• SevenNation 4y ago
  > The cause of the crunch is soaring interest rates: in America prospective buyers have been watching, horrified, as the 30-year mortgage rate has hit 6.92%, over twice the level of a year ago and the highest since April 2002. ... Bond markets tell a very different story. In the US, the yield curve is either inverted or flat from the 1Y treasury all the way out to the 30 year. Parts of the curve have been inverted on and off for a long time. This is pointing to much lower rates ahead. Mortgage rates, too. The global house-price slump, if it occurs, will happen not because of high mortgage rates, but in spite of falling mortgage rates. The driver will be job losses and financial turmoil.
  • s1artibartfast 4y ago
    Nobody wants bonds because of inflation. Housing is a good hedge against inflation. It is hard to imagine a US housing slump concurrent with low mortgage rates and high inflation.
• 11235813213455 4y ago
  It's logical as it costs more and more to maintain a house until now we were moving to gigantism (houses, cars, ..) (like species without predation), but now hitting the planet's limits we will reduce our dependencies
• saos 4y ago
  In the U.K it is clear that a crash is coming. We've been living on cheap debt for 12 years now.
• taylodl 4y ago
  I missed the news for when there was a house building boom. Oh, there wasn't? Then the law of supply and demand will keep housing prices high. People don't like being homeless and now the Boomer's children are having children and demanding more housing.
  • adammarples 4y ago
    Demand is a function of money, not counting up people and dividing by houses. The supply of credit and discretionary spending is drying up at the same time.
  • tmnvix 4y ago
    You're forgetting that the demand side of the equation is very sensitive to the cost of credit. Put it this way. We know for example that a lot of homes are rented out as AirBnBs. We can safely assume that many of those were purchased for that purpose and that the purchase was funded with borrowed money. The AirBnB income and anticipated capital gains made the borrowing worthwhile. Is it still worthwhile if the cost of credit doubles and capital gains seem much less certain? It's likely that we'll see a lot of investment and speculative demand disappear leading to lower demand overall. In other words, demand isn't just for properties as homes - it's for properties as investments as well.
  • analyte123 4y ago
    The number of housing units under construction in the US is at a record high [1] and the number of people entering their homebuying age is going to slowly decline for the next 20 years [2]. [1] https://fred.stlouisfed.org/series/UNDCONTSA https://fred.stlouisfed.org/series/UNDCONTSA [2] https://en.m.wikipedia.org/wiki/Demographics_of_the_United_States https://en.m.wikipedia.org/wiki/Demographics_of_the_United_S...
• seydor 4y ago
  Amen! Inshallah! etc > As that edifice of capital crumbles, consumers are likely to cut back on spending. Though a cooler economy is what central banks intend to bring about by raising interest rates, collapsing confidence can take on a momentum of its own. Sounds like hitting 2 birds with one stone. Or maybe we don't need to hit one of the birds, not raise interest rates, and thus not cause the other problems mentioned?
• screye 4y ago
  A price-slump in emerging markets with a ton of startup money is practically guaranteed. Bangalore's real estate has been propped up by speculative investor money leading to overpaid employees for a decade, and I can see it collapsing soon. Canada is probably in a similar situation. US cities' housing value is entirely captured within the local committees' ability to block any and all construction nearby. If zoning limitations are eased then the American housing market will crash irrespective of the nature of the economy around it.
  • lazide 4y ago
    While local effects like startup money or industry can definitely not be ignored locally, everyone is lifted by the tide of fed money printing, modulated by their exposure to the US markets. Minus some really out of the way places (Iran? Central Africa?h that’s pretty much everywhere. As money starts to tighten up again, expect a LOT of house pricing headwinds.
  • nikanj 4y ago
    Canada is powered by the dual forces of growing population, and extreme nimby. More people, same number of homes -> higher prices
    • acchow 4y ago
      Few cities have been building housing as fast as Toronto. The main issue is whatever housing toronto builds, the government turns up the immigration tap twice as fast.
      • therealdrag0 4y ago
        Aside: I was in Vancouver last year and I was amazed at all the high rises. It seemed to blow Seattle out of the water. Seattle and Bellevue have high rises but every other suburb is just flat. Whereas every burn of Vancouver seems to have towers.
        • acchow 4y ago
• CommanderData 4y ago
  I doubt this. The super rich have too much money and need this converted to assets. In the UK at least you're not just competing against would be first time buyers but multi-national companies wanting to expand their portfolio and the super/ultra rich. We need to tax the rich to redistribute the wealth. Own more than 3 homes as a single entity? Mega taxes etc.
  • spacephysics 4y ago
    Tax the rich doesn’t work like the utopic stories tell. Typically what happens is the rich leave to a place with less taxes or where they’re not seen as the mortal enemy of X local government. Then all that tax money they otherwise were paying goes somewhere else, and the state is left with a net-negative tax inflow. The top 1% pays over 25% of all taxes, and the top 50% pay 97% of all taxes: https://taxfoundation.org/publications/latest-federal-income-tax-data/ https://taxfoundation.org/publications/latest-federal-income... I agree we have a problem with wealth inequality, but taxing the rich is a simple, poor solution to a complex problem.
    • bagacrap 4y ago
      that's the top 1% of people ordered by how much tax they pay, not the top 1% most wealthy. We tend to tax earnings rather than wealth and thus the super wealthy get by with minimal taxation. This should be fixed imo. Also if you try to dodge US taxes by renouncing your citizenship you owe a large one time payment so it doesn't work so well. So an exodus of super wealthy individuals seems unlikely.
      • tastyfreeze 4y ago
        Taxing wealth is even more blatant robbery than income taxes. "Give me the amount of your money that I want or go to jail."
        • lotsofpulp 4y ago
          So get rid of property taxes? Everyone who inherited land or valuable IP just gets to be lucky and sit on it?
• sneaked 4y ago
  yes at the way rates are going... 8% on a 30 year mortgage? Are you kidding me? that's insane.
  • danhak 4y ago
    What's insane about it? 8% is a pretty normal rate, historically speaking. The average rate for a 30 year fixed mortgage since 1971 is 7.76% https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
    • tmnvix 4y ago
      Insane considering current prices. Which is really to say that current prices are insane. They won't stay that way if interest rates don't go down again soon.
      • danhak 4y ago
        Yup. Prices will lag rates, and the market is already seeing significant softening
• uptownfunk 4y ago
  If you analyze the house prices in "fast-moving" economies (bay area, nyc, etc.) you will see prices have corrected rapidly. However relative to the interest rate, these asset prices are still somewhat inflated. However due to the cash-heavy nature of buyers in these specific markets, you can expect less correction relative to interest rates as cost of borrowing is less of a concern. Now move out to more desirable places to live (say, San Diego with it's great sunshine) and you will see asset prices are blown way out of proportion. This is a very geo-specific asset class, so you will have to look relative to the geo. Unfortunately or fortunately, it has a lot to do with the interest rates and inflation. What you will see is with the layoffs and for folks who have taken out ARMs to optimize the cost of borrowing, a lot of folks are in for a big wake up call.
• wonder_er 4y ago
  It's inevitable, as the 30-year mortgage is an intrinsically toxic product: https://byrnehobart.medium.com/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a https://byrnehobart.medium.com/the-30-year-mortgage-is-an-in...
• stephc_int13 4y ago
  The housing market is quite peculiar in many aspects. The article is right about the effect of interest rates, they tend to push the prices up when they are low and having high interest rates will reduce demand of people who are using houses as investment assets. This is far from marginal but also not the complete picture. Most homeowners are living in them, and most potential home buyers are looking to do the same. The core (and thus the long-term trends) of the supply/demand game in the housing market is directly related to demography. Short term panic can occur, but unless people are dying _en masse_ or you wait long enough to see effect the demographic slowdown in your area, I don't think the housing market is susceptible to crash durably. I think it would be an excellent thing if it could stabilize.
• wizofaus 4y ago
  "When people cannot move, it saps labour markets of dynamism" I wonder how much new WFH norms will reduced this impact? I suppose the concern is those working in jobs with the most need to live close to their place of work are those that are least able to move.
• civilized 4y ago
  It would be astonishing if they didn't. 30-year rates have gone from <3% to 8% in the past 2 years, and will rise further. If they go to 10%, that means a monthly payment more than twice what you would have had 2 years ago. Home prices can only go as high as the top bidder can afford. How many people are ready to buy the same house at the same price for twice the monthly payment?
• deleted 4y ago
  [deleted]
• yalogin 4y ago
  I don't even see a reason for a recession yet. We are forcing this slump on ourselves for no reason. If some aspect of the economy is fundamentally rotten then of course a recession is imminent. However, there is nothing like that now. Very low unemployment, a genuine reason for inflation (supply chain issues), low supply coupled with a very sudden need for more space causing housing price jumps. The only issue is excess cash in the market because of government stimulus. That could have contributed to the excess jump in stock market which also led to the home price increases. However this doesn't mean we should be in a recession. Ok, now the interest rates are going up to counter the inflation. I am not convinced it will dent anything other than home and car prices. In this scenario, is a full blown recession actually going to happen if so why?
  • BLKNSLVR 4y ago
    From a totally armchair perspective, the large of quantitative easing to cover various covid-related situations in combination with the supply chain issues also caused by covid have resulted in The inflation figures we've been seeing the last three quarters. This level of inflation isn't sustainable, therefore interest rates are increased to reduce average Joe's disposable income so they're not buying as much stuff and / or being more careful with their spending and / or just can't afford as much alongside their mortgage or rent increases, which, in theory, should lead to inflation dropping. The scale and chosen areas of belt tightening by the proletariat, will cause an equivalent scale of business insolvency and employee shedding in those areas, which will add momentum to the already running scenario. By most indicators the US is already in a recession, and the Fed is (controversially to some) still talking an aggressive game when it comes to rate hikes, so I'd confirm the inevitability of a recession. I think it's possible that those who wield the power would like a recession because it can allow further concentration of power by increasing the wealth gap; provide an opportunity for those like Black Rock to increase their portfolio of real estate once mortgages start defaulting. It's also a reminder to the covid quitters to "get the fuck back to work" (ironic for when jobs are being shed rather than created, but creates that thirst for becoming employed, which has its own societal momentum, and serves business owners well). Also, the way debt works, and the way stock market valuations work, and the level of debt that seems to be in the system, a little bit of fear goes a long recession.
• ardel95 4y ago
  If there is a housing crash coming, the builders around me tend to think otherwise. Lots of new construction starts. I think as it often happens, the most likely outcome is that lower priced areas will see the brunt of the value decrease, while higher priced neighborhoods may at best see a moderate speed bump.
• outside1234 4y ago
  This is good news - we want more affordable housing - and we are going to get it!
• mihaic 4y ago
  One thing we always collectively fail at addressing is how to classify housing in a special category of goods, where simple free-market rules don't apply. Things like rent-control are in this direction, yet we never articulate what the goals are and the compromises we're willing to make. Allowing the next generations a good start in life means that everyone that wanted houses to be a great investment need to take a loss, there's simply no way around this and we should collectively accept this. I'd also be for completely different taxation levels depending on if this is your first, second or third home (properly handling even if first buying before selling within x months, so you only have a single home), if you're a company, if you're a foreign citizen that merely wants to snatch some random safe property. Some problems really need a complex, evolving and carefully weighed solution, and housing really has been shamefully abused so that the haves screw other the not-yet-haves.
  • tastyfreeze 4y ago
    Taking a bath on a home sale isn't the only solution. Make it easier for people to build houses. The majority of old houses were built by the first owner. They bought land and built a house the way they wanted not following thousands of regulations dictating how a home must be built. If you build a shitty house, well, good luck selling it. If it falls down thats your own damn fault. All of the ways we have learned over time that houses can be built better should just be shared knowledge and recommendations for somebody wanting to build a house. Every requirement a builder must follow means it costs more to build and less people are capable of following all the rules. Where I live if you build something that doesn't follow code you get fined for every infraction. That's a disincentive for people to build. Remove costly regulations and you get more houses.
    • gremlinsinc 4y ago
      > Taking a bath on a home sale isn't the only solution. Make it easier for people to build houses. The majority of old houses were built by the first owner. They bought land and built a house the way they wanted not following thousands of regulations dictating how a home must be built. If you build a shitty house, well, good luck selling it. If it falls down thats your own damn fault. All of the ways we have learned over time that houses can be built better should just be shared knowledge and recommendations for somebody wanting to build a house. Every requirement a builder must follow means it costs more to build and less people are capable of following all the rules. Where I live if you build something that doesn't follow code you get fined for every infraction. That's a disincentive for people to build. > Remove costly regulations and you get more houses. There's a YouTube channel.. our little homestead I think is the name. They built separate studio apartments for each of their kids on the same lot. They used earth bags and the costs for one was 5k, the other 8k and they're pretty amazing for being something sturdy and safe to live in, and being made of dirt and mud I think they're probably fire proof too. This is what I want to do. I'd also like to help other's do that through a collective or something where everyone builds their own home and helps others build theirs.
• johngalt 4y ago
  A slump is likely. Or specifically a correction followed by a period of slow/no growth, but I don't expect a crash similar to 2008. The last housing crash was primarily due to a combination of overleveraging and overbuilding. The cost of nails, wood, and labor hadn't increased to the same degree. The recent asset price increases have been supported by broad inflation. I don't see how prices drop significantly without monetary deflation. If we see deflation at scale, then everything is in trouble.
• RadixDLT 4y ago
  millennia's can finally afford to buy a home
• eucryphia 4y ago
  All that reserve bank money printing had to go somewhere.
• willhinsa 4y ago
  It turns out when i is greater than 0, it decreases the present value of future payments. Who knew? I've been working in this industry for five years and I've never seen it happen.
• bdcravens 4y ago
  Bought a new home in a community that isn't finished (signed contract last November, closed in July). The prices they are advertising for the new homes under construction seems to be holding firm, but it also looks like those homes are sitting on "available" far longer than my street did. I had an investor come to my door asking about the area; the price he was telling me he was quoted was eye-poppingly low.
• tkk23 4y ago
  Are this valid arguments? >First, because gummed-up property markets are a drag on the jobs market. [...] the uncertainty makes people hesitant about moving It could also mean that a huge supply of real estate makes it easy to move for everybody who doesn't own a house >Lower house prices also hurt growth in a second way: they make already-gloomy consumers even more miserable. Or it frees huge amounts of capital for those who buy a house when prices are low. This is all insignificant to a coming disruptive change. China and India are incentivized to develop more efficient modes of housing. The west is cut off from that development by insisting on maintaining the status quo with zoning laws. Even if western citizens remain in their countries, the west will lose the migrant science workers when they move to where housing doesn't take half of your income. As a consequence, the housing market can collapse even more.