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Everyone refinanced to very low interest rates. If home prices drop and people default then that’s lots of exposure to potential negative equity in all those ho

Everyone refinanced to very low interest rates. If home prices drop and people default then that’s lots of exposure to potential negative equity in all those home loans. I think the bubble is due to extremely high home prices. In my metro area, prices are up 70% since 2020. So a drop of 40% to correct to 2020 levels isn’t unheard of. Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit).

b1c1jones 4y ago
Your metro area is not my metro area, nor is it any other metro area besides your metro area.
- prepend 4y ago
  My metro area is similar to many other metro areas. And I think is a pretty decent reference to average US home prices going up by 45% [0] since 2020. [0] https://www.ceicdata.com/en/indicator/united-states/house-prices-growth https://www.ceicdata.com/en/indicator/united-states/house-pr...
seizethegdgap 4y ago
I started to reply "How many of these loans are sub-prime ARMs though?" and then went and looked for the data myself. I can't tell if these ARMs are risky, but we're seeing an early-2000's-level number of people applying for them. https://www.cnbc.com/2022/05/11/adjustable-rate-mortgage-demand-surges-to-14-year-high-as-homebuyers-try-to-afford-this-pricey-spring-market.html https://www.cnbc.com/2022/05/11/adjustable-rate-mortgage-dem... > “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.” At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008. https://www.mba.org/news-and-research/newsroom/news/2022/07/20/mortgage-applications-decrease-in-latest-mba-weekly-survey https://www.mba.org/news-and-research/newsroom/news/2022/07/... > The adjustable-rate mortgage (ARM) share of activity decreased to 9.5 percent of total applications. https://newslink.mba.org/mba-newslinks/2022/november/mba-newslink-thursday-nov-10-2022/mba-weekly-survey-nov-9-2022-rates-rise-refis-fall-to-22-year-low/ https://newslink.mba.org/mba-newslinks/2022/november/mba-new... > The ARM share of activity increased to 12.0 percent of total applications. Now, my wife and I bought our current house on a 5/1 ARM that was capped at +-1%/year and I think 10% total. We then refi'd in April 2020 and got on a 30 year fixed. I'm not sure if new rules after 2008 require ARMs to have total/yearly caps or not, if they do then a bubble pop will likely hurt a lot less. If they don't, then we're likely 4-5 years out from another crash.
abeppu 4y ago
> Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit). To back up the idea that the price changes are mostly just about mortgage rates changing: - In California, Redfin data shows that the peak for median sale price was in April 2022, at $839,100, and now we're at $706,000 for Feb 2023. Ooh, that looks like a >15% drop in less than a year! - But FreddieMac shows that the average 30y fixed was 5% in mid April '22, and was 6.32% mid last month. The median home with an average mortgage was signing up to pay $4504/mo vs $4379/mo last month. That's a decline of roughly 2.8% So it seems like home buyers today are willing to pay almost as much per month as they were at the price peak, which has drawn prices down. https://www.redfin.com/state/California/housing-market https://www.redfin.com/state/California/housing-market https://www.freddiemac.com/pmms https://www.freddiemac.com/pmms

b1c1jones 4y ago

Your metro area is not my metro area, nor is it any other metro area besides your metro area.

prepend 4y ago
My metro area is similar to many other metro areas. And I think is a pretty decent reference to average US home prices going up by 45% [0] since 2020. [0] https://www.ceicdata.com/en/indicator/united-states/house-prices-growth https://www.ceicdata.com/en/indicator/united-states/house-pr...

seizethegdgap 4y ago

I started to reply "How many of these loans are sub-prime ARMs though?" and then went and looked for the data myself. I can't tell if these ARMs are risky, but we're seeing an early-2000's-level number of people applying for them. https://www.cnbc.com/2022/05/11/adjustable-rate-mortgage-demand-surges-to-14-year-high-as-homebuyers-try-to-afford-this-pricey-spring-market.html https://www.cnbc.com/2022/05/11/adjustable-rate-mortgage-dem... > “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.” At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008. https://www.mba.org/news-and-research/newsroom/news/2022/07/20/mortgage-applications-decrease-in-latest-mba-weekly-survey https://www.mba.org/news-and-research/newsroom/news/2022/07/... > The adjustable-rate mortgage (ARM) share of activity decreased to 9.5 percent of total applications. https://newslink.mba.org/mba-newslinks/2022/november/mba-newslink-thursday-nov-10-2022/mba-weekly-survey-nov-9-2022-rates-rise-refis-fall-to-22-year-low/ https://newslink.mba.org/mba-newslinks/2022/november/mba-new... > The ARM share of activity increased to 12.0 percent of total applications. Now, my wife and I bought our current house on a 5/1 ARM that was capped at +-1%/year and I think 10% total. We then refi'd in April 2020 and got on a 30 year fixed. I'm not sure if new rules after 2008 require ARMs to have total/yearly caps or not, if they do then a bubble pop will likely hurt a lot less. If they don't, then we're likely 4-5 years out from another crash.

abeppu 4y ago

> Personally, I think the price is structural adjustments as people shift to remote work and that makes different houses more valuable (suburbs and exurbs have really increased quite a bit). To back up the idea that the price changes are mostly just about mortgage rates changing: - In California, Redfin data shows that the peak for median sale price was in April 2022, at $839,100, and now we're at $706,000 for Feb 2023. Ooh, that looks like a >15% drop in less than a year! - But FreddieMac shows that the average 30y fixed was 5% in mid April '22, and was 6.32% mid last month. The median home with an average mortgage was signing up to pay $4504/mo vs $4379/mo last month. That's a decline of roughly 2.8% So it seems like home buyers today are willing to pay almost as much per month as they were at the price peak, which has drawn prices down. https://www.redfin.com/state/California/housing-market https://www.redfin.com/state/California/housing-market https://www.freddiemac.com/pmms https://www.freddiemac.com/pmms