6 ms·

It is unsustainable. Currently housing is priced as if it was going to increase 10% a year forever (and if that is not the case, you are almost always better of

It is unsustainable. Currently housing is priced as if it was going to increase 10% a year forever (and if that is not the case, you are almost always better off renting right now). There are multiple factors that pushed the prices artificially up since 2020. They will look retrospectively obvious (as the 2008 subprime crisis seem obvious now). I'm usually not in favor of timing the market but I believe we are currently in the single worst time to buy a house in history.

breckenedge 3y ago
Why is it unsustainable? Housing starts are at the lowest since 2019, and people couldn’t afford them if they did build them. People who bought a home before 18mo ago will have very little incentive to sell until interest rates decline, which doesn’t seem to be on the horizon as long as inflation stays higher than 2%.
- 01100011 3y ago
  Multifamily is being built like crazy. Just got back from Sacramento and they were building units for as far as I could see. Same thing in many markets. Go back and read articles from 2006. They said housing prices were fine because we were lacking supply and had underbuilt for years. Then suddenly we had too many houses. Affordability matters appreciation expectations matter. Credit matters. Employment matters. People will always sell. They can only hold off so long.
  - breckenedge 3y ago
    Multi-family is overbuilt in many markets, including here in Dallas. It’s just not the same market as homes. I was around in 2006. We didn’t have too many houses then, we had people granted credit on dubious applications, ARMs bundled up as AAA credit. That’s not going to repeat. And if it does, it’ll be nationwide all at once, rather than market-by-market like last time. Certainly if there is a major jobs crash, then people cannot afford their mortgage. But the government doesn’t like this and they’ll step in again like they always do.
    - 01100011 3y ago
      > I was around in 2006. We didn’t have too many houses then Yes, I was also around in 2006. That seems irrelevant as there is adequate data available regardless of when you were born. > It’s just not the same market as homes. No, it is, at least when people have to make hard choices. There is no law that says each family gets a SFH to themselves. Sure, they may want that, but when SFH becomes unobtainable people make those hard choices. If you have more homes than you have willing and able buyers, you have too many homes. Family formation can be delayed(i.e. live with relatives longer) or families can choose multifamily. I don't recall a mass epidemic of homelessness after 2008 left homes empty, so it seems to me that we have enough places to live, even if those places are not the dwelling of their dreams. I understand there are statistics that say otherwise, and similar statistics were around in 2006 and proved to be wrong, so I have to question the recent statistics. > That’s not going to repeat. I didn't say that. We may see a 2008 style financial crash driven by commercial real estate, but I doubt even that will happen. What will likely happen is that the folks who think prices only go up will be surprised as the pool of buyers opts out of the SFH market while attrition slowly lowers prices. This process may even snowball in some markets as people "race for the exits" when they realize home prices are losing support.
- goalonetwo 3y ago
  Because we got to a point where most people simply cannot afford a house (I have read that the average house on the market cannot be bought by 80% of the households). People are indeed holding on their low rate mortgage and that is the only reason why the prices are currently so high (artificially low supply). This will eventually end. People need to move for job (return to the office anyone?), retirement or other reasons. Some people will lose their job and simply be unable to afford their mortgage. It is only a matter of time before it starts crumbling and the floodgates open. The other side of the coin is that in a perfect market, the obvious arbitrage is to simply rent and invest your money in better performing assets. (we could discuss how in America most people buy blindly without any considerations for the underlying numbers). Finally in every cycle, housing always took multiple months/years to adjust to the conditions. This is due to a slow moving and illiquid market. Owners think they can still get that "pandemic" 1m$ for a fixer upper while the rates went up a couple %. This price anchoring and discovery takes time. You can see this currently happening all over the US. Prices are slowly declining.
  - breckenedge 3y ago
    Case-Shiller just set an all time high. Prices are not declining. https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA
- smileysteve 3y ago
  For 1, demographic shift; we're halfway (8 years) through baby boomer retirements and just at the beginning of baby boomers reaching their average life expectancy. The next 10 years are going to be extremely interesting. Especially if we don't increase immigration, at least for the transition
diogenescynic 3y ago
It took several years for the 2007 financial crisis to really have its full effect on housing—prices fell until about 2012. I bet the same thing is happening now but is happening slower due to all the foreclosure and eviction protections and delays in court since the pandemic. Maybe prices will fall for longer or just flatline for a while since there are so few sellers it drives up prices—but interest rates are going to have an impact. If you couldn’t buy at a 3% mortgage, why will you be able to afford a 7.7% mortgage with prices the same? It’s now more expensive to buy a home in third tier cities than to just get a rent controlled apartment in cities with actual job prospects. Prices will adjust because this is surely not sustainable. I think the car market will soften and turn first and be a leading indicator.
01100011 3y ago
I'm currently holding off despite having a baby on the way, a tech job, and 3/4 of the money saved up. Rates are, barring a crash(which will also hammer home prices) likely staying elevated for another year, possibly more. Those rates also allow me to make thousands per month, risk-free, in interest off my savings. I'm able to rent for $3-4k/month, while mortgage+taxes+insurance+maintenance would set me back around $5k/month. Housing inventory is poor, so if I did buy I'd have to opt for a suboptimal location and/or construction. The one circumstance I could see that would possibly make me regret holding off is financial repression by the fed where rates are held below inflation and houses keep appreciating, but I don't see a big risk to that over the next year. I do expect rates to hold, and maybe even rise, since we're running huge deficits(requiring massive treasury issuance) and going into an election year (where no politician will choose austerity). I think it will eventually drop housing prices. Even in the best case for housing, values will likely stay flat in nominal terms.
- lotsofpulp 3y ago
  >Those rates also allow me to make thousands per month, risk-free, in interest off my savings. If you are in a state with income tax, I would take a minute, even immeasurable, increase in risk by putting it in US Treasuries (like TTTXX at Merrill), resulting in no state income taxes for 95%+ of your return. In case you already are not doing that.
  - plagiarist 3y ago
    You just buy TTTXX and it gives the same state tax advantage as buying the treasuries directly?
    - lotsofpulp 3y ago
      Yes, same with VUSXX (vanguard), FSIXX (fidelity), and UTIXX. There might be a negligible amount subject to state income tax, but I am not exactly sure why.
  - 01100011 3y ago
    I'm in a mix of paper(6 month US T-Bills), and various UST ETFs with durations anywhere from 0-3 months out to 2Y. US T-Bills(aka shorter duration Treasury bonds) are the place to be right now. We're currently seeing a "bear steepener" where the long end(10Y+) sells off(aka rates go up) so investing further out the curve exposes you to significant duration risk. It's anyone's guess if rates go up or down from here, but with the USG running huge deficits(in a booming economy no less) requiring large treasury issuance in parallel with quantitative tightening and rate hikes by the fed, it's not likely that rates will come down anytime soon.
steve_adams_86 3y ago
I’m not happy about timing either. I agree with you. I bought because my kids need something stable and home-like; I suspect in the longer term this will hurt me financially compared to other options. But renting here for an entire family is borderline impossible, and the places I might have had a chance at renting were dumps. I could choose between $5k per month to be sure we won’t face renoviction or ending leases (in a brand new home, too), or around $3750/month to live in a poorly maintained, inefficient, unstable rental situation. I know it’s a huge difference. As a parent I’d almost be willing to pay even more, though. I can’t rely on someone not selling my home from underneath me and then needing to find something else when vacancies are well below 1%. I’ll probably feel some pain from this purchase eventually, but I’m prepared. I can also keep in mind that the alternative downsides of renting were serious and constantly present, with no real upside. Rates are extremely high here.

breckenedge 3y ago

Why is it unsustainable? Housing starts are at the lowest since 2019, and people couldn’t afford them if they did build them. People who bought a home before 18mo ago will have very little incentive to sell until interest rates decline, which doesn’t seem to be on the horizon as long as inflation stays higher than 2%.

01100011 3y ago
Multifamily is being built like crazy. Just got back from Sacramento and they were building units for as far as I could see. Same thing in many markets. Go back and read articles from 2006. They said housing prices were fine because we were lacking supply and had underbuilt for years. Then suddenly we had too many houses. Affordability matters appreciation expectations matter. Credit matters. Employment matters. People will always sell. They can only hold off so long.
- breckenedge 3y ago
  Multi-family is overbuilt in many markets, including here in Dallas. It’s just not the same market as homes. I was around in 2006. We didn’t have too many houses then, we had people granted credit on dubious applications, ARMs bundled up as AAA credit. That’s not going to repeat. And if it does, it’ll be nationwide all at once, rather than market-by-market like last time. Certainly if there is a major jobs crash, then people cannot afford their mortgage. But the government doesn’t like this and they’ll step in again like they always do.
  - 01100011 3y ago
    > I was around in 2006. We didn’t have too many houses then Yes, I was also around in 2006. That seems irrelevant as there is adequate data available regardless of when you were born. > It’s just not the same market as homes. No, it is, at least when people have to make hard choices. There is no law that says each family gets a SFH to themselves. Sure, they may want that, but when SFH becomes unobtainable people make those hard choices. If you have more homes than you have willing and able buyers, you have too many homes. Family formation can be delayed(i.e. live with relatives longer) or families can choose multifamily. I don't recall a mass epidemic of homelessness after 2008 left homes empty, so it seems to me that we have enough places to live, even if those places are not the dwelling of their dreams. I understand there are statistics that say otherwise, and similar statistics were around in 2006 and proved to be wrong, so I have to question the recent statistics. > That’s not going to repeat. I didn't say that. We may see a 2008 style financial crash driven by commercial real estate, but I doubt even that will happen. What will likely happen is that the folks who think prices only go up will be surprised as the pool of buyers opts out of the SFH market while attrition slowly lowers prices. This process may even snowball in some markets as people "race for the exits" when they realize home prices are losing support.
goalonetwo 3y ago
Because we got to a point where most people simply cannot afford a house (I have read that the average house on the market cannot be bought by 80% of the households). People are indeed holding on their low rate mortgage and that is the only reason why the prices are currently so high (artificially low supply). This will eventually end. People need to move for job (return to the office anyone?), retirement or other reasons. Some people will lose their job and simply be unable to afford their mortgage. It is only a matter of time before it starts crumbling and the floodgates open. The other side of the coin is that in a perfect market, the obvious arbitrage is to simply rent and invest your money in better performing assets. (we could discuss how in America most people buy blindly without any considerations for the underlying numbers). Finally in every cycle, housing always took multiple months/years to adjust to the conditions. This is due to a slow moving and illiquid market. Owners think they can still get that "pandemic" 1m$ for a fixer upper while the rates went up a couple %. This price anchoring and discovery takes time. You can see this currently happening all over the US. Prices are slowly declining.
- breckenedge 3y ago
  Case-Shiller just set an all time high. Prices are not declining. https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA
smileysteve 3y ago
For 1, demographic shift; we're halfway (8 years) through baby boomer retirements and just at the beginning of baby boomers reaching their average life expectancy. The next 10 years are going to be extremely interesting. Especially if we don't increase immigration, at least for the transition

diogenescynic 3y ago

It took several years for the 2007 financial crisis to really have its full effect on housing—prices fell until about 2012. I bet the same thing is happening now but is happening slower due to all the foreclosure and eviction protections and delays in court since the pandemic. Maybe prices will fall for longer or just flatline for a while since there are so few sellers it drives up prices—but interest rates are going to have an impact. If you couldn’t buy at a 3% mortgage, why will you be able to afford a 7.7% mortgage with prices the same? It’s now more expensive to buy a home in third tier cities than to just get a rent controlled apartment in cities with actual job prospects. Prices will adjust because this is surely not sustainable. I think the car market will soften and turn first and be a leading indicator.

01100011 3y ago

I'm currently holding off despite having a baby on the way, a tech job, and 3/4 of the money saved up. Rates are, barring a crash(which will also hammer home prices) likely staying elevated for another year, possibly more. Those rates also allow me to make thousands per month, risk-free, in interest off my savings. I'm able to rent for $3-4k/month, while mortgage+taxes+insurance+maintenance would set me back around $5k/month. Housing inventory is poor, so if I did buy I'd have to opt for a suboptimal location and/or construction. The one circumstance I could see that would possibly make me regret holding off is financial repression by the fed where rates are held below inflation and houses keep appreciating, but I don't see a big risk to that over the next year. I do expect rates to hold, and maybe even rise, since we're running huge deficits(requiring massive treasury issuance) and going into an election year (where no politician will choose austerity). I think it will eventually drop housing prices. Even in the best case for housing, values will likely stay flat in nominal terms.

lotsofpulp 3y ago
>Those rates also allow me to make thousands per month, risk-free, in interest off my savings. If you are in a state with income tax, I would take a minute, even immeasurable, increase in risk by putting it in US Treasuries (like TTTXX at Merrill), resulting in no state income taxes for 95%+ of your return. In case you already are not doing that.
- plagiarist 3y ago
  You just buy TTTXX and it gives the same state tax advantage as buying the treasuries directly?
  - lotsofpulp 3y ago
    Yes, same with VUSXX (vanguard), FSIXX (fidelity), and UTIXX. There might be a negligible amount subject to state income tax, but I am not exactly sure why.
- 01100011 3y ago
  I'm in a mix of paper(6 month US T-Bills), and various UST ETFs with durations anywhere from 0-3 months out to 2Y. US T-Bills(aka shorter duration Treasury bonds) are the place to be right now. We're currently seeing a "bear steepener" where the long end(10Y+) sells off(aka rates go up) so investing further out the curve exposes you to significant duration risk. It's anyone's guess if rates go up or down from here, but with the USG running huge deficits(in a booming economy no less) requiring large treasury issuance in parallel with quantitative tightening and rate hikes by the fed, it's not likely that rates will come down anytime soon.

steve_adams_86 3y ago

I’m not happy about timing either. I agree with you. I bought because my kids need something stable and home-like; I suspect in the longer term this will hurt me financially compared to other options. But renting here for an entire family is borderline impossible, and the places I might have had a chance at renting were dumps. I could choose between $5k per month to be sure we won’t face renoviction or ending leases (in a brand new home, too), or around $3750/month to live in a poorly maintained, inefficient, unstable rental situation. I know it’s a huge difference. As a parent I’d almost be willing to pay even more, though. I can’t rely on someone not selling my home from underneath me and then needing to find something else when vacancies are well below 1%. I’ll probably feel some pain from this purchase eventually, but I’m prepared. I can also keep in mind that the alternative downsides of renting were serious and constantly present, with no real upside. Rates are extremely high here.