29 ms·

Could This U.S. Housing Market Crash Be Worse Than 2008?

20 points by ianai 4y ago

ianai 4y ago
“”” Summary The number of privately-owned housing units under construction in the US is at an all-time high of more than 1.7 million as price declines accelerate. Who's going to buy all of these houses with mortgage rates of 7.3%? At current prices - people really can't, indicating the need for some serious price reductions. Housing demand is tanking while supply is about to soar. Real-time home prices are now falling at a faster rate than the 2008 housing crash. This could be one of the biggest housing crashes in history. The Fed waited too long to hike rates during the boom and now needs home prices lower, so the cavalry won't be there to rescue with rate cuts this time. “”” Lots of great data presented here too.
- jojobas 4y ago
  Are these houses mostly built to be sold on completion, or occupied by their current owners?
  - BrentOzar 4y ago
    > Are these houses mostly built to be sold on completion, or occupied by their current owners? In the US, only a minority of houses are build from the ground up by a specific person (custom houses). Most houses are built like this: property developers buy a large plot of land, divide it into plots, and build a group of houses. From the moment they divide the land into plots, they pre-sell the houses. The earlier you buy in, the lower your price is. Because of that, it's tricky to answer your question: * Some of the houses may not be sold yet * Some of the houses may be under contract, but the buyer can back out by losing their down payment (especially in cases where they can't get financing - you can put a home under contract without the full financing secured) * Some of the houses may be fully sold, with the financing paperwork already secured
    - Valgrim 4y ago
      This way of building is also the root of urban sprawl, and all the infrastructure problems associated with it.
      - bequanna 4y ago
        Right, but that sprawl is apparently what people want. It is not typical in the US to raise a family in an apartment in a high density neighborhood. There are exceptions, but typically only younger or lower income people live in apartments in the US. Pretty much everyone else aspires to have a house with a yard.
        ianai 4y ago
        Better apartment architecture could go a ways towards ameliorating this, I suspect. But I’ve definitely not seen any.
        jamesliudotcc 4y ago
        On the margin, people prefer to live in the city than in the far suburbs. You can see this from the large price premium on houses in the city. There are all sorts of legal impediments to infill development. Some people want one thing. Yes, plenty of people want suburban living. But there are enough exceptions that demand for city living is greater than supply more so than for suburban living.
        iwillbenice 4y ago
        foxyv 4y ago
        > Right, but that sprawl is apparently what people want. To be honest, I'm not sure this is exclusively the case. Older neighborhoods with more density and mixed use are so in demand they will sell for 2-10x as much as suburban counterparts. It's just that they are illegal and can't be built. There seems to be an insane demand for mixed use and medium density housing that is close to services, jobs and transportation. Imagine, never having to commute again. Living next to a walking path that is quiet and well maintained where you can take your kids for a walk. Even better, a 5 minute walk away is a grocery store and an ice cream shop that your kids can walk to safely without ever crossing a dangerous road. There is a demand, just no supply!
codefreeordie 4y ago
It's certainly possible, though I don't think it will unfold that way -- the dynamics this go around are quite different, making it hard to make a prediction with any degree of confidence. In 2008, there were many many more homeowners who were hopelessly overcommitted, for whom foreclosure was inevitable. In some cities, the majority of the housing stock was held using mortgages that couldn't be repaid. This time around, homeowners are in much better shape -- nearly all mortgages outstanding are fully-amortized and fixed-rate, for example. Most of the supply glut is in the hands of developers, and most are still under construction. Developers are more likely than individual owners to be able to wait out a downturn -- they're more likely to be well-capitalized than a homeowner chasing the peak in 2007 was for sure. And if developers fold, their unfinished units may not get finished, and might not come to market (for a long while, at least). But, unlike 2008, the feds don't really want to prop up the market, so "amend, extend, and pretend" isn't likely to be around to slow the supply. All in all, a tough prediction, but I tend to think that this downturn will be milder except in a few key overhot markets (especially TX)
- ianai 4y ago
  Actually the glut is in several types of hands. Developers, homeowners who will turn into sellers in 1-2 years, and flippers. The flippers particularly hold more housing stock than they did in 05-08 by wide margin (per this source). He also tied in buyers of new construction having signed onto prices during the low interest rate regime and now facing high rates. With much fewer population growth than seen after the 08 correction the demand fundamentals look much more troubling at least in that respect. This does make me wonder how many ARM mortgages are outstanding and likely to become insolvent in the new interest rate regime. Edit- Not finding something exactly related but here’s a chart of “troubling” mortgages “30-Year Fixed Rate Conforming Mortgage Index: Loan-to-Value Greater Than 80, FICO Score Between 680 and 699”: https://fred.stlouisfed.org/series/OBMMIC30YFLVGT80FB680A699 https://fred.stlouisfed.org/series/OBMMIC30YFLVGT80FB680A699 Was looking for how many outstanding ARM mortgages will mature in the next several quarters. Edit-looks like it’s been trending to 10% of the market recently. https://themortgagereports.com/93472/adjustable-rate-mortgage-trends-2022 https://themortgagereports.com/93472/adjustable-rate-mortgag...
Ptchd 4y ago
Can only hope
aww_dang 4y ago
There are market elements to the US housing market, but there are also huge central planning elements. It is hard to make predictions in this environment. Further interventions may become politically palatable at any time. Who's to say what may happen? Interventions become more probable as public perceptions of a decline increase. It isn't enough to look at the stats. Second order effects such as intervention and public sentiment have to be considered. The political economy may be more relevant than underlying market fundamentals.
vanilla_nut 4y ago
As a millennial who aspires to home ownership in the next year or two, thanks to the suffocating rental market: this article gives me hope. I'm not interested in paying obscene amounts of money for currently overvalued housing just to line the pockets of boomers trying to cash in on... owning a house at the right time. A crash would finally get me to jump into the market. I suspect there are a lot of other millennials like myself who feel priced out of housing in general, so I think this is a necessary crash if we want my generation to avoid renting for our entire lives. On the subject of rent, some interesting tidbits in this article about price-fixing in the rental market over the past few years. Maybe we'll see the federal government clamp down on that nonsense finally. One especially interesting quote from the article: > Tarrant County, in the Dallas-Fort Worth metro area, saw 52% of all home sales go to investors in 2021! For anyone renting or considering buying in a US city over the last 2-3 years, this won't come as much of a surprise. But it's crazy to think that this is just institutional investors taking up half the market. It doesn't even account for short term rentals, second homes, etc., which definitely distort market demand as well. I really wish the USA would come down hard on these investors, especially when homelessness is on an obvious rise. But let's be honest, when the market crashes they'll just get a ton of tax write-offs and beg for government assistance on top of that. I hope we don't fall for it this time.
- ianai 4y ago
  I’m in that highly-unlucky older millennial to almost gen-X cohort that got royally screwed by the Great Recession. So yeah really wish policies would favor us little people for once.
- LUmBULtERA 4y ago
  A pessimistic view is that if housing prices do crash, even more of the houses will get snapped up by institutional investors. Unfortunately, this seems likely to me.
  - cercatrova 4y ago
    Millennials just have to snap them up before investors do. And will investors have enough money and appetite for risk in a heavily crashed market? My intuition is that they'd be too spooked and would want to preserve capital rather than deploying it.
hasbot 4y ago
There's a coming supply glut? In the markets I'm familiar with there isn't any significant construction of houses. The few houses I see being built are high end and out of the price range of most people. Quality houses around me are still finding buyers in a couple of days.
- sp332 4y ago
  Even so, at current interest rates, much fewer people can buy houses now than at the beginning of the year.
- bequanna 4y ago
  The article addresses this. There are currently more new homes under construction in the US than at any other time in history.
  - halfmatthalfcat 4y ago
    Where though? Echoing the parent poster, where I live (metro Chicago) there is very little room to build and it’s more teardown/$1M+ rebuilds happening. I can see more building happening in the boonies/far burbs but you end up moving too far from the city. NYC is in the exact same spot. If you’re outside Columbus, OH or Little Rock, this might be a good sign but for those who prefer urban or urban+suburban living, I can’t see much relief happening any time soon.
- MrMan 4y ago
  where I am there is a lot of overbuilding at the low mid and high level
LatteLazy 4y ago
Could it? Yes, a thing is possible. Will it? Almost certainly not. How do we know? We don't, but that just means no one knows. It doesn't mean you should fling yourself towards one extreme opinion because it claims certainty.
hnews_account_1 4y ago
I love these finance articles. It’s like asking “could this recession be as bad as the 1930s?” Like sure the stock market may fall that much but will a reduction in output cause THAT much hardship? Likely not. But if you don’t write a tantalizing title no one will open your article and make you money. Could the house prices fall as much as 2008? Sure. Will the economy stare down the abyss to the end of modern civilization like it did in 2008? Much more unlikely.
- mjthrowaway1 4y ago
  Source: trust me bro I’m on the opposite end of this with the same source. Not assuming that since we lived through ‘08 that we’ve “seen it all”.
  - hnews_account_1 4y ago
    I’m in the field. I likely know more about it than you ever will. So yes, trust me bro. Or don’t. It’s a free country.
    - mjthrowaway1 4y ago
      I’m in the field as well. I own/manage multiple commercial properties. It’s in my post history. Your comments are low quality and do not give me the impression that you’re experienced in RE.
      - hnews_account_1 4y ago
        That’s because I’m not in real estate. I’m in finance - which is what my comment is about. Notice how I have no opinion of housing prices, only their effect on the system. In simple terms, I understand loans, debt and derivatives. Not actual real estate.
- dont__panic 4y ago
  I despite clickbait as much as the next HN commenter, but I thought this article rather substantive. From rent statistics to observations on unemployment to investor housing purchases to speculation on the high-price high-interest rate market behavior, I learned quite a bit. > Will the economy stare down the abyss to the end of modern civilization like it did in 2008? That seems a bit melodramatic to me. Did we "stare down the abyss to the end of modern civilization" during the worst, early, unvaccinated days of COVID-19, amidst George Floyd-inspired protests? Did anyone think 2008 was some kind of "end of days" scenario for civilization, instead of just desserts being served up to unwise overleveraged homeowners and investors? I feel like it was always limited to the economic domain, but I was pretty young at the time, so maybe I missed the worst of it. The housing and rental markets are absolutely insane at the moment, in a way they've never been before in our country. My old boomer relatives made a killing over the last few years in house price gains. My young friends and family in their 20s are struggling to pay rent, much less afford (and find) their first home. I think it's interesting to look into why the markets are so insane, and if the bubble could burst soon.
lumost 4y ago
There is only one winner in the last 40 years of policy induced price volatility. The finance industry. Human beings need to live in houses. Housing is one of the oldest and most basic of commodities. What do you do as an individual renting in 2020, 2007, 2004, or 2012? The answer is you reduce your housing exposure by buying.
- kaashif 4y ago
  > The answer is you reduce your housing exposure by buying. My exposure to housing is certainly much higher if I buy than if I don't (and invest that money in e.g. stocks). What do you mean by exposure here?
  - lumost 4y ago
    Housing has been on a long term uptrend. In 2010 I rented in my neighborhood for 700/month. A comparable property would rent for 4K/month now. This is outside of the city center in the northeast. As I am naturally short housing, locking in a specific price point has massive benefits. If I had bought then, inflation alone would have reduced my long term monthly liability. As it stands I waited until 2018, locking in a 3k/month rate for housing. If housing corrects back to 2000 levels, I will sell my place for whatever I get - walk away from the mortgage and purchase a home in cash. The thing that makes housing a strange asset class is that individuals are naturally short. Hence you carry a variable long-term liability on housing costs from day 1. Purchasing limits that liability.
- rdtwo 4y ago
  Don’t forget tax liability. By living in a house you own you get to keep the money you would have paid for rent and you get to avoid paying for that rent in post tax money. It’s kind of a complicated thing to wrap your mind around but owning the things you use (car, house etc) pulls those transactions out of the taxable economy thereby becoming a tax advantaged incentive.
rdtwo 4y ago
I can see the entire covid bubble blowing off just as fast as it blew up. Not a lot of people bought during covid but they will probably be screwed. For everyone else they just made less money than they would have liked to. On a long enough timeline rent/interest rate = house price (simplified) so many prices have a long way to go
- rShergold 4y ago
  On a long enough timeline the natural value of land tends towards infinity. If a corporate entity can take out a 1,000 year loan it can make a profit buying a single home for one billion dollars. This is why the economic models created to understand supply and demand for manufacturing pins in a factory eventually unravel when discussing land.

20 points by ianai 4y ago

“”” Summary The number of privately-owned housing units under construction in the US is at an all-time high of more than 1.7 million as price declines accelerate. Who's going to buy all of these houses with mortgage rates of 7.3%? At current prices - people really can't, indicating the need for some serious price reductions. Housing demand is tanking while supply is about to soar. Real-time home prices are now falling at a faster rate than the 2008 housing crash. This could be one of the biggest housing crashes in history. The Fed waited too long to hike rates during the boom and now needs home prices lower, so the cavalry won't be there to rescue with rate cuts this time. “”” Lots of great data presented here too.

jojobas 4y ago
Are these houses mostly built to be sold on completion, or occupied by their current owners?
- BrentOzar 4y ago
  > Are these houses mostly built to be sold on completion, or occupied by their current owners? In the US, only a minority of houses are build from the ground up by a specific person (custom houses). Most houses are built like this: property developers buy a large plot of land, divide it into plots, and build a group of houses. From the moment they divide the land into plots, they pre-sell the houses. The earlier you buy in, the lower your price is. Because of that, it's tricky to answer your question: * Some of the houses may not be sold yet * Some of the houses may be under contract, but the buyer can back out by losing their down payment (especially in cases where they can't get financing - you can put a home under contract without the full financing secured) * Some of the houses may be fully sold, with the financing paperwork already secured
  - Valgrim 4y ago
    This way of building is also the root of urban sprawl, and all the infrastructure problems associated with it.
    - bequanna 4y ago
      Right, but that sprawl is apparently what people want. It is not typical in the US to raise a family in an apartment in a high density neighborhood. There are exceptions, but typically only younger or lower income people live in apartments in the US. Pretty much everyone else aspires to have a house with a yard.
      - ianai 4y ago
        Better apartment architecture could go a ways towards ameliorating this, I suspect. But I’ve definitely not seen any.
      - jamesliudotcc 4y ago
        On the margin, people prefer to live in the city than in the far suburbs. You can see this from the large price premium on houses in the city. There are all sorts of legal impediments to infill development. Some people want one thing. Yes, plenty of people want suburban living. But there are enough exceptions that demand for city living is greater than supply more so than for suburban living.
        iwillbenice 4y ago
      - foxyv 4y ago
        > Right, but that sprawl is apparently what people want. To be honest, I'm not sure this is exclusively the case. Older neighborhoods with more density and mixed use are so in demand they will sell for 2-10x as much as suburban counterparts. It's just that they are illegal and can't be built. There seems to be an insane demand for mixed use and medium density housing that is close to services, jobs and transportation. Imagine, never having to commute again. Living next to a walking path that is quiet and well maintained where you can take your kids for a walk. Even better, a 5 minute walk away is a grocery store and an ice cream shop that your kids can walk to safely without ever crossing a dangerous road. There is a demand, just no supply!

codefreeordie 4y ago

It's certainly possible, though I don't think it will unfold that way -- the dynamics this go around are quite different, making it hard to make a prediction with any degree of confidence. In 2008, there were many many more homeowners who were hopelessly overcommitted, for whom foreclosure was inevitable. In some cities, the majority of the housing stock was held using mortgages that couldn't be repaid. This time around, homeowners are in much better shape -- nearly all mortgages outstanding are fully-amortized and fixed-rate, for example. Most of the supply glut is in the hands of developers, and most are still under construction. Developers are more likely than individual owners to be able to wait out a downturn -- they're more likely to be well-capitalized than a homeowner chasing the peak in 2007 was for sure. And if developers fold, their unfinished units may not get finished, and might not come to market (for a long while, at least). But, unlike 2008, the feds don't really want to prop up the market, so "amend, extend, and pretend" isn't likely to be around to slow the supply. All in all, a tough prediction, but I tend to think that this downturn will be milder except in a few key overhot markets (especially TX)

ianai 4y ago
Actually the glut is in several types of hands. Developers, homeowners who will turn into sellers in 1-2 years, and flippers. The flippers particularly hold more housing stock than they did in 05-08 by wide margin (per this source). He also tied in buyers of new construction having signed onto prices during the low interest rate regime and now facing high rates. With much fewer population growth than seen after the 08 correction the demand fundamentals look much more troubling at least in that respect. This does make me wonder how many ARM mortgages are outstanding and likely to become insolvent in the new interest rate regime. Edit- Not finding something exactly related but here’s a chart of “troubling” mortgages “30-Year Fixed Rate Conforming Mortgage Index: Loan-to-Value Greater Than 80, FICO Score Between 680 and 699”: https://fred.stlouisfed.org/series/OBMMIC30YFLVGT80FB680A699 https://fred.stlouisfed.org/series/OBMMIC30YFLVGT80FB680A699 Was looking for how many outstanding ARM mortgages will mature in the next several quarters. Edit-looks like it’s been trending to 10% of the market recently. https://themortgagereports.com/93472/adjustable-rate-mortgage-trends-2022 https://themortgagereports.com/93472/adjustable-rate-mortgag...

Ptchd 4y ago

Can only hope

aww_dang 4y ago

There are market elements to the US housing market, but there are also huge central planning elements. It is hard to make predictions in this environment. Further interventions may become politically palatable at any time. Who's to say what may happen? Interventions become more probable as public perceptions of a decline increase. It isn't enough to look at the stats. Second order effects such as intervention and public sentiment have to be considered. The political economy may be more relevant than underlying market fundamentals.

vanilla_nut 4y ago

As a millennial who aspires to home ownership in the next year or two, thanks to the suffocating rental market: this article gives me hope. I'm not interested in paying obscene amounts of money for currently overvalued housing just to line the pockets of boomers trying to cash in on... owning a house at the right time. A crash would finally get me to jump into the market. I suspect there are a lot of other millennials like myself who feel priced out of housing in general, so I think this is a necessary crash if we want my generation to avoid renting for our entire lives. On the subject of rent, some interesting tidbits in this article about price-fixing in the rental market over the past few years. Maybe we'll see the federal government clamp down on that nonsense finally. One especially interesting quote from the article: > Tarrant County, in the Dallas-Fort Worth metro area, saw 52% of all home sales go to investors in 2021! For anyone renting or considering buying in a US city over the last 2-3 years, this won't come as much of a surprise. But it's crazy to think that this is just institutional investors taking up half the market. It doesn't even account for short term rentals, second homes, etc., which definitely distort market demand as well. I really wish the USA would come down hard on these investors, especially when homelessness is on an obvious rise. But let's be honest, when the market crashes they'll just get a ton of tax write-offs and beg for government assistance on top of that. I hope we don't fall for it this time.

ianai 4y ago
I’m in that highly-unlucky older millennial to almost gen-X cohort that got royally screwed by the Great Recession. So yeah really wish policies would favor us little people for once.
LUmBULtERA 4y ago
A pessimistic view is that if housing prices do crash, even more of the houses will get snapped up by institutional investors. Unfortunately, this seems likely to me.
- cercatrova 4y ago
  Millennials just have to snap them up before investors do. And will investors have enough money and appetite for risk in a heavily crashed market? My intuition is that they'd be too spooked and would want to preserve capital rather than deploying it.

hasbot 4y ago

There's a coming supply glut? In the markets I'm familiar with there isn't any significant construction of houses. The few houses I see being built are high end and out of the price range of most people. Quality houses around me are still finding buyers in a couple of days.

sp332 4y ago
Even so, at current interest rates, much fewer people can buy houses now than at the beginning of the year.
bequanna 4y ago
The article addresses this. There are currently more new homes under construction in the US than at any other time in history.
- halfmatthalfcat 4y ago
  Where though? Echoing the parent poster, where I live (metro Chicago) there is very little room to build and it’s more teardown/$1M+ rebuilds happening. I can see more building happening in the boonies/far burbs but you end up moving too far from the city. NYC is in the exact same spot. If you’re outside Columbus, OH or Little Rock, this might be a good sign but for those who prefer urban or urban+suburban living, I can’t see much relief happening any time soon.
MrMan 4y ago
where I am there is a lot of overbuilding at the low mid and high level

LatteLazy 4y ago

Could it? Yes, a thing is possible. Will it? Almost certainly not. How do we know? We don't, but that just means no one knows. It doesn't mean you should fling yourself towards one extreme opinion because it claims certainty.

hnews_account_1 4y ago

I love these finance articles. It’s like asking “could this recession be as bad as the 1930s?” Like sure the stock market may fall that much but will a reduction in output cause THAT much hardship? Likely not. But if you don’t write a tantalizing title no one will open your article and make you money. Could the house prices fall as much as 2008? Sure. Will the economy stare down the abyss to the end of modern civilization like it did in 2008? Much more unlikely.

mjthrowaway1 4y ago
Source: trust me bro I’m on the opposite end of this with the same source. Not assuming that since we lived through ‘08 that we’ve “seen it all”.
- hnews_account_1 4y ago
  I’m in the field. I likely know more about it than you ever will. So yes, trust me bro. Or don’t. It’s a free country.
  - mjthrowaway1 4y ago
    I’m in the field as well. I own/manage multiple commercial properties. It’s in my post history. Your comments are low quality and do not give me the impression that you’re experienced in RE.
    - hnews_account_1 4y ago
      That’s because I’m not in real estate. I’m in finance - which is what my comment is about. Notice how I have no opinion of housing prices, only their effect on the system. In simple terms, I understand loans, debt and derivatives. Not actual real estate.
dont__panic 4y ago
I despite clickbait as much as the next HN commenter, but I thought this article rather substantive. From rent statistics to observations on unemployment to investor housing purchases to speculation on the high-price high-interest rate market behavior, I learned quite a bit. > Will the economy stare down the abyss to the end of modern civilization like it did in 2008? That seems a bit melodramatic to me. Did we "stare down the abyss to the end of modern civilization" during the worst, early, unvaccinated days of COVID-19, amidst George Floyd-inspired protests? Did anyone think 2008 was some kind of "end of days" scenario for civilization, instead of just desserts being served up to unwise overleveraged homeowners and investors? I feel like it was always limited to the economic domain, but I was pretty young at the time, so maybe I missed the worst of it. The housing and rental markets are absolutely insane at the moment, in a way they've never been before in our country. My old boomer relatives made a killing over the last few years in house price gains. My young friends and family in their 20s are struggling to pay rent, much less afford (and find) their first home. I think it's interesting to look into why the markets are so insane, and if the bubble could burst soon.

lumost 4y ago

There is only one winner in the last 40 years of policy induced price volatility. The finance industry. Human beings need to live in houses. Housing is one of the oldest and most basic of commodities. What do you do as an individual renting in 2020, 2007, 2004, or 2012? The answer is you reduce your housing exposure by buying.

kaashif 4y ago
> The answer is you reduce your housing exposure by buying. My exposure to housing is certainly much higher if I buy than if I don't (and invest that money in e.g. stocks). What do you mean by exposure here?
- lumost 4y ago
  Housing has been on a long term uptrend. In 2010 I rented in my neighborhood for 700/month. A comparable property would rent for 4K/month now. This is outside of the city center in the northeast. As I am naturally short housing, locking in a specific price point has massive benefits. If I had bought then, inflation alone would have reduced my long term monthly liability. As it stands I waited until 2018, locking in a 3k/month rate for housing. If housing corrects back to 2000 levels, I will sell my place for whatever I get - walk away from the mortgage and purchase a home in cash. The thing that makes housing a strange asset class is that individuals are naturally short. Hence you carry a variable long-term liability on housing costs from day 1. Purchasing limits that liability.
rdtwo 4y ago
Don’t forget tax liability. By living in a house you own you get to keep the money you would have paid for rent and you get to avoid paying for that rent in post tax money. It’s kind of a complicated thing to wrap your mind around but owning the things you use (car, house etc) pulls those transactions out of the taxable economy thereby becoming a tax advantaged incentive.

rdtwo 4y ago

I can see the entire covid bubble blowing off just as fast as it blew up. Not a lot of people bought during covid but they will probably be screwed. For everyone else they just made less money than they would have liked to. On a long enough timeline rent/interest rate = house price (simplified) so many prices have a long way to go

rShergold 4y ago
On a long enough timeline the natural value of land tends towards infinity. If a corporate entity can take out a 1,000 year loan it can make a profit buying a single home for one billion dollars. This is why the economic models created to understand supply and demand for manufacturing pins in a factory eventually unravel when discussing land.