4 ms·
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 wi
by 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 agoActually 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...
- JumpCrisscross 4y ago> flippers particularly hold more housing stock than they did in 05-08 by wide margin (per this source) The article says flipping is at an all-time high. That implied inventory held, but it doesn’t directly make that claim.
- ianai 4y agoHis graph shows it. Linked source https://fortune.com/2022/10/10/home-flippers-are-in-trouble-again/ https://fortune.com/2022/10/10/home-flippers-are-in-trouble-...
- JumpCrisscross 4y ago> Developers are more likely than individual owners to be able to wait out a downturn -- they're more likely to be well-capitalized Source? I thought developers tended to be leveraged.
- marcus0x62 4y agoNot only more leveraged, but with significantly more dangerous debt terms (construction loans that need to be refinanced after 12 - 18 months and, in the multi family space, interest-only ARMs — remember those? - are common.)
- Valgrim 4y agoSo the outcome will be half-finished houses, or rushed with cheap materials?
- midnitewarrior 4y agoAfter 2008, I read a story about the first (and only) person to buy a home in a half-built neighborhood. He was fully moved in before the crash. There were abandoned construction sites and empty home there when the developer went bankrupt. He mowed the yards all around him to keep the wildlife away from his home. He was in despair, understanding he could not sell him home to anyone. I assume someone acquired the neighborhood a few years later and completed the project, but it must have been 5 years before any developer started resuming construction at a minimum.