12 ms·

A lot of people simply won't sell in that situation which is going to further constrain supply.

by khuey 4y ago

gedy 4y ago
I hear this every cycle, but people forget even if the person who bought high won't, their neighbor who bought low (maybe a long time ago) will. And a lot of people end up having to sell.
- dont__panic 4y ago
  And dropping prices mean that someone who's been holding out over the last few years of insane price growth might finally find a home elsewhere that they can afford. As someone who was too young to climb aboard the price bubble of the last 5 years: here's hoping.
  - falcolas 4y ago
    The price would have to drop dramatically (30%, the amount the last bubble dropped, would not be enough) to get a lower monthly mortgage payment.
    - gedy 4y ago
      Your downpayment goes a lot further though.
_huayra_ 4y ago
This is another thing people don't consider: housing is priced at the margin. One house has to sell in the neighborhood because of divorce / death / etc, and boom you have the one comp that everything else is tied to. Even if they stay in their home, people over-levered on their fake housing equity through HELOCs are in trouble.
- ghastmaster 4y ago
  You are very correct. HELOCs, however, are not as big a factor as they used to be. They will become more popular though. Wolf Richter shows some nice graphs in the article linked below. He states that mortgages in Q2 were $11.4T and HELOCs a mere $320B. https://wolfstreet.com/2022/08/04/trip-back-to-reality-starts-mortgages-helocs-balances-delinquencies-foreclosures-in-q2/ https://wolfstreet.com/2022/08/04/trip-back-to-reality-start...
  - bushbaba 4y ago
    Low rates meant that people could cash out refi at lower rates. Don’t forget there’s a small but still notable number of homeowners with ARM mortgages.
conception 4y ago
There isn’t a supply issue. There is a corporations buying property issue.
- refurb 4y ago
  So too many buyers and not enough houses? Sounds like a supply issue.
- diogenescynic 4y ago
  You've got it backwards. The bigger issue is that we aren't building new supply to meet demand. Corporations buying property is only an issue because we've stopped/slowed new home development/supply to not keep up with demand. Allow supply to meet demand and the corporations don't have a market to monopolize. This is the law of supply and demand 101. But the same people that are usually against corporations buying properties, are usually against new home development and increased housing density. I saw many housing activists in the Bay Area who were against new housing at market rates and thought all new housing should be at below-market-rate prices--which simply isn't possible.
- epistasis 4y ago
  I sometimes hear people say this, but it makes zero sense to me, and I can never get anybody to explain what they mean by it. Could you try to explain how we have enough houses but somehow corporations are the problem?
  - kitsunesoba 4y ago
    Corporate buyers are one of the many exacerbating factors, and I think that’s what most are saying when they say corporate home buying is a problem. In other words, there aren’t enough homes and corporations sitting on some percentage of them is making the situation that much worse.
    - epistasis 4y ago
      I don't understand how a corporate purchaser is worse than any other investor; I live in an area with almost only single family homes, and a huge fraction of them are investor owned and rented out. The small time land lords have a huge variance in how well they behave, but I'm not sure why corporate landlords are worse.
ren_engineer 4y ago
you think people are going to pay mortgages they are massively underwater on? This also ignores the fact that the Fed's stated goal with raising interests rates is to increase unemployment to slow inflation. You are already seeing the results in quarterly financials. Once layoffs start happening people won't have an option but to sell when they can't make payments
- kotlin2 4y ago
  In most states, lenders have recourse. So if you stop paying your mortgage, the bank will foreclose on your home and then come after your other assets to make up the difference in what you owe vs. what the home is currently worth.
  - toomuchtodo 4y ago
    I’ve defaulted on two mortgages in a recourse state, one primary residence, one investment property. Neither was pursued. While extreme, you can always move to Texas or Florida; they have incredibly strong creditor protections making you mostly judgement proof. Depends on your threat model, exposure, and risk tolerance. (not legal advice, educational purposes only)
    - kotlin2 4y ago
      How much did you owe after the properties were sold?
      - toomuchtodo 4y ago
        Zero. And I was eligible for a new FHA mortgage 3 years after.
        kotlin2 4y ago
        I mean what was the difference between your outstanding mortgage principal and the value of the homes at the time of default?
saiya-jin 4y ago
Exactly, prices don't fall in symmetrical ways as they rise in happy times due to people's greed (or patience to wait). Seen it in 2008 and even before. Now it we are facing truly cataclysmic long term situation down the road never ever seen before (or at least comparable to 1929) that's a different story, but few insiders believe that now.
thatfrenchguy 4y ago
And no more building because rates are high there so the next time rates go down there’s no supply…
- seanmcdirmid 4y ago
  Even worse than that: people in construction will change career paths, and apprentices won't enter the industry for the next 5-10 years leading to a dearth of experience when it comes time to build houses again.
qqqwerty 4y ago
Most people only own one home and when they sell their current home they need to buy or rent another one. So for these owners, the supply/demand balance should be minimally impacted by their actions. This is certainly an over simplification of how things work, for example during COVID a flight to the burbs caused a drop in urban condos and rise in single family homes. But on balance, I think it is a good rule of thumb to consider when trying to evaluate the real estate market. This means that prices are more likely going to be determined by the supply-demand balance between first time buyers, investor activity, new home builders, life events (death, divorce, etc...) and immigration vs emigration. I personally think that if employment holds steady, we will see more of a sideways market with some regional variances, but if employment starts going down then do does housing.

A lot of people simply won't sell in that situation which is going to further constrain supply.

by khuey 4y ago

A lot of people simply won't sell in that situation which is going to further constrain supply.

gedy 4y ago

I hear this every cycle, but people forget even if the person who bought high won't, their neighbor who bought low (maybe a long time ago) will. And a lot of people end up having to sell.

dont__panic 4y ago
And dropping prices mean that someone who's been holding out over the last few years of insane price growth might finally find a home elsewhere that they can afford. As someone who was too young to climb aboard the price bubble of the last 5 years: here's hoping.
- falcolas 4y ago
  The price would have to drop dramatically (30%, the amount the last bubble dropped, would not be enough) to get a lower monthly mortgage payment.
  - gedy 4y ago
    Your downpayment goes a lot further though.

_huayra_ 4y ago

This is another thing people don't consider: housing is priced at the margin. One house has to sell in the neighborhood because of divorce / death / etc, and boom you have the one comp that everything else is tied to. Even if they stay in their home, people over-levered on their fake housing equity through HELOCs are in trouble.

ghastmaster 4y ago
You are very correct. HELOCs, however, are not as big a factor as they used to be. They will become more popular though. Wolf Richter shows some nice graphs in the article linked below. He states that mortgages in Q2 were $11.4T and HELOCs a mere $320B. https://wolfstreet.com/2022/08/04/trip-back-to-reality-starts-mortgages-helocs-balances-delinquencies-foreclosures-in-q2/ https://wolfstreet.com/2022/08/04/trip-back-to-reality-start...
- bushbaba 4y ago
  Low rates meant that people could cash out refi at lower rates. Don’t forget there’s a small but still notable number of homeowners with ARM mortgages.

conception 4y ago

There isn’t a supply issue. There is a corporations buying property issue.

refurb 4y ago
So too many buyers and not enough houses? Sounds like a supply issue.
diogenescynic 4y ago
You've got it backwards. The bigger issue is that we aren't building new supply to meet demand. Corporations buying property is only an issue because we've stopped/slowed new home development/supply to not keep up with demand. Allow supply to meet demand and the corporations don't have a market to monopolize. This is the law of supply and demand 101. But the same people that are usually against corporations buying properties, are usually against new home development and increased housing density. I saw many housing activists in the Bay Area who were against new housing at market rates and thought all new housing should be at below-market-rate prices--which simply isn't possible.
epistasis 4y ago
I sometimes hear people say this, but it makes zero sense to me, and I can never get anybody to explain what they mean by it. Could you try to explain how we have enough houses but somehow corporations are the problem?
- kitsunesoba 4y ago
  Corporate buyers are one of the many exacerbating factors, and I think that’s what most are saying when they say corporate home buying is a problem. In other words, there aren’t enough homes and corporations sitting on some percentage of them is making the situation that much worse.
  - epistasis 4y ago
    I don't understand how a corporate purchaser is worse than any other investor; I live in an area with almost only single family homes, and a huge fraction of them are investor owned and rented out. The small time land lords have a huge variance in how well they behave, but I'm not sure why corporate landlords are worse.

ren_engineer 4y ago

you think people are going to pay mortgages they are massively underwater on? This also ignores the fact that the Fed's stated goal with raising interests rates is to increase unemployment to slow inflation. You are already seeing the results in quarterly financials. Once layoffs start happening people won't have an option but to sell when they can't make payments

kotlin2 4y ago
In most states, lenders have recourse. So if you stop paying your mortgage, the bank will foreclose on your home and then come after your other assets to make up the difference in what you owe vs. what the home is currently worth.
- toomuchtodo 4y ago
  I’ve defaulted on two mortgages in a recourse state, one primary residence, one investment property. Neither was pursued. While extreme, you can always move to Texas or Florida; they have incredibly strong creditor protections making you mostly judgement proof. Depends on your threat model, exposure, and risk tolerance. (not legal advice, educational purposes only)
  - kotlin2 4y ago
    How much did you owe after the properties were sold?
    - toomuchtodo 4y ago
      Zero. And I was eligible for a new FHA mortgage 3 years after.
      - kotlin2 4y ago
        I mean what was the difference between your outstanding mortgage principal and the value of the homes at the time of default?

saiya-jin 4y ago

Exactly, prices don't fall in symmetrical ways as they rise in happy times due to people's greed (or patience to wait). Seen it in 2008 and even before. Now it we are facing truly cataclysmic long term situation down the road never ever seen before (or at least comparable to 1929) that's a different story, but few insiders believe that now.

thatfrenchguy 4y ago

And no more building because rates are high there so the next time rates go down there’s no supply…

seanmcdirmid 4y ago
Even worse than that: people in construction will change career paths, and apprentices won't enter the industry for the next 5-10 years leading to a dearth of experience when it comes time to build houses again.

qqqwerty 4y ago

Most people only own one home and when they sell their current home they need to buy or rent another one. So for these owners, the supply/demand balance should be minimally impacted by their actions. This is certainly an over simplification of how things work, for example during COVID a flight to the burbs caused a drop in urban condos and rise in single family homes. But on balance, I think it is a good rule of thumb to consider when trying to evaluate the real estate market. This means that prices are more likely going to be determined by the supply-demand balance between first time buyers, investor activity, new home builders, life events (death, divorce, etc...) and immigration vs emigration. I personally think that if employment holds steady, we will see more of a sideways market with some regional variances, but if employment starts going down then do does housing.