6 ms·

It's a very interesting time indeed for the housing market! These next 6-12 months are going to tell us something very big about the economy, crash or no crash.

by gknapp 3y ago

It's a very interesting time indeed for the housing market! These next 6-12 months are going to tell us something very big about the economy, crash or no crash. If anything, however, the Fed has built up an ability to drop rates if things go awry, so there's padding in the cushion if a fall does happen. An interesting stat: We're almost back to our 2022 quantity of _new_ listings in October [1]. That's substantial because we've hovered around 20% below last year's number for just about every other month this year. One of the big stories of real estate is that sellers don't want to sell because they all locked in killer rates on their current homes, and buyers can't afford to buy with home prices AND mortgage rates what they are. So, seeing even a slight increase in new listings (or the lack of a seasonal dropoff) is maybe an early indication of an easing of that stalemate. At the same time, time on market is still really low, which means that sellers are tapping into the high levels of demand that still exist. As a result, overall inventory isn't increasing. All told though, even with those slight indicators, it's still a really tough time to be a buyer, and for the real estate market overall. The best hope that most have is that the dam leaks more, or even breaks on listings, and of course, if prices start to fall meaningfully, folks will want to cash out high, and you might get a proper "crash". I personally don't really see it, but anything can happen, and we'll know soon enough! [1]: https://www.redfin.com/news/data-center/ https://www.redfin.com/news/data-center/ (Disclaimer, I work at Redfin)

dehrmann 3y ago
> it's still a really tough time to be a buyer The fact that I heard this exact same statement when interest rates were at 30-year lows really goes to show how constrained the supply is.
- roenxi 3y ago
  I doubt low interest rates help buyers all that much. If there are 3 properties on the market and 4 buyers, it doesn't matter what interest rates are, the 3 highest-earning buyers are going to get the houses and one will miss out. The amount of money borrowed might go up and down, but there is a physical balance equation that must be satisfied which doesn't care about the financial situation. In theory, low interest rates will reallocate resources from other sectors of the economy to housing, causing more to be built. In practice I don't know how big a factor this is though - I'm used to there being regulatory restrictions that prevent new housing being built in high-demand areas. But that might be an Australia thing. Regardless it'd lag interest rate changes by a few years because it takes time to organise new construction.
  - thfuran 3y ago
    Assuming that prices adjust to keep total payments constant, high interest rates actually help buyers* since the mortgage interest is tax deductible. *As long as you ignore the value of equity
    - bonton89 3y ago
      You can also pay a house off early much faster if the payment component is more interest than principle.
  - pharmakom 3y ago
    Yeah people are constrained by how much they can pay off each month. Either that’s higher prices with lower interest or lower prices with higher interest.
  - surgical_fire 3y ago
    Low interest rates don't help the buyer. It helps the seller. Whatever benefits the buyer would have had are reaped by the seller with a higher price.
    - MattPalmer1086 3y ago
      But most sellers, unless downsizing, will also be paying more for their next house.
- solumunus 3y ago
  Low interest rates have been terrible for buyers.. Low interest rates are a huge part of why there is such a massive bubble in the first place.
  - dehrmann 3y ago
    The drove up prices, making the down payment side harder. Higher interest rates should bring down the sales price, making down payments go further, but we're only halfway seeing that. My thinking is because the shortage masks that, but people married to their underwater 3% fixed-rate mortgages also does (for now). Ironically, this seems to be driving homebuilders to build more.
omgwtfbyobbq 3y ago
I'm guessing we'll see a weird mix of the following with the fed adjusting policy to keep everything together. -80s inflation (higher interest rates hurting real property value, especially in higher value coastal metros) -90s stagflation (a significant decline in national real property values masked by some inflation) -50s postwar economic expansion (economics/warfare in EMEA keeping demand for US energy, agriculture, and products high even with higher inflation hurting asset valuations)
rubyn00bie 3y ago
I believe that many people are starting to fear that their lower rate mortgage exceeds the value of their house. While, in the long run, they’ll likely be fine but the near term may be 10-15 years of stagnant or declining home values. It’s also looking like the Fed is very intent on keeping rates higher for longer, and/or possibly hiking them again, further increasing the burden on buyers. It’s not looking good for sellers or buyers for at least the next 18 months. I suspect a crash in the housing market will occur but we haven’t had enough time to see foreclosures pick up to start the cascade downward.
- consp 3y ago
  Looking at how homes are insanely overpriced (worse here than in the US) that is not a bad thing. The only sane market at this point is +1M houses which is simply rediculous.
huytersd 3y ago
It’s a great time to be a buyer if you’re buying all cash
- saiya-jin 3y ago
  ... which almost nobody can afford not only due to prices growing to absurd levels
sfjailbird 3y ago
> sellers don't want to sell because they all locked in killer rates on their current homes What happens is that house prices drop way below what they paid, and ends up equalizing their monthly payments with what someone who buys at the higher-rate-but-lower-price is paying. Except these people are locked into their current arrangement, since they cannot sell at a price that would cover the debt. Some can ride this out over a number of years, some will end up taking a big hit because, for one reason or another (divorce, child birth, etc.) they have to sell and move. If you're old enough you will have seen this play out before.
keep_reading 3y ago
You're being overly optimistic because you work in real estate and people are blowing rainbows up your ass. If there's a crash, JPow lowering the rate would prevent the housing value correction from taking effect and nothing good would come of it. There MUST be a crash. Look at all the people who are sitting in homes worth many times more than they bought it. Significantly higher value than a few years ago. Do you think these people are doing well as a result? No! They can barely afford their insurance! People want the house values high and their insurance dirt cheap, but it's not possible. The housing values have to drop a good 80% for people to be able to afford their homes long term again and for the insurance companies to stop pulling out.
- rcarr 3y ago
  I want the market to crash and correct as much as the next guy but thinking house prices are going to drop 80% is pure fantasy land. What's more likely to happen: - Big corporations and billionaires hoover up the properties forcing more and more people to rent in the long term (you will own nothing and be happy) - Companies are finally forced to raise worker wages which, through a variety of means, they have managed to suppress for decades. The latter is what should happen but the former is what is more likely to happen, with all the evil that entails.
  - keep_reading 3y ago
    Companies would not be able to raise wages fast enough to keep people in their homes
    - rcarr 3y ago
      Exactly. They've been getting away with it for close to 50 years at this point so the pain of getting them to where they should be if the profits had been shared fairly and not routed to investors and the C-Suite is absolutely massive. It would take a good few years (probably a decade) to get there, and a lot of companies that only exist because of that worker exploitation would go under, but overall it would end up being a good thing. If wage growth had kept pace like it should all these years, I'd wager the current property prices would actually make sense.
taylodl 3y ago
The problem is the Fed is using the only tool they have, the federal funds rate, to control the housing market. Yes, it has the effect of cooling the market but it doesn't solve the actual problem, actually it exacerbates it: there aren't enough housing units where they're needed. That's a supply problem. It's the insufficient supply that's the root cause of housing prices rising. The irony is raising the federal funds rate makes it more expensive to build housing so it tends to cool down construction and thus further constraining supply. What have we actually accomplished? Locking people out of home ownership. But the Fed only has one tool and they're using it to the best of their ability.
- dragonwriter 3y ago
  > The problem is the Fed is using the only tool they have, the federal funds rate, to control the housing market. No, they aren't, they are using it to control aggregate consumer prices and employment, their actual mission. There are institutions with finer grained powers whose job is to manage the economy on a more fine-grained level (Congress at the federal level, plus states generally more locally), and the problem, insofar as there is one, with the management of the housing market is their (in)action, not the Fed.
  - mcny 3y ago
    This is why we the millennials and more importantly gen z must vote and actively and loudly participate in the political process. Right now, the government is preventing wages from going up in a (futile) attempt to keep prices low for retirees and soon to be retirees who are on fixed income. This is NOT what we want. We want wages to go up as corporate profits go up.
    - nojvek 3y ago
      I want prices to come down, I want affordability to go up . Who cares if wages go up and prices go up even faster. The question is not what is the price of a house, but how many hours does a median wage worker need to work to afford their house, their car, their utilities, education, healthcare e.t.c US is slowly becoming a zero sum game as the growth shrinks to ~1%. We need to increase the pie.
jeo123 3y ago
I don't it will crash. Democratic party tends to go socialism...in this case they are bailout-ish them Rep. In this case they will quietly bail large properties and banks to ensure it wont crash...just drag and stagnant like Evergrande and others in China. It seems to work over there. As long as people willing to go thru a wasted decade like Japanese did, it won't crash.

by gknapp 3y ago

dehrmann 3y ago

> it's still a really tough time to be a buyer The fact that I heard this exact same statement when interest rates were at 30-year lows really goes to show how constrained the supply is.

roenxi 3y ago
I doubt low interest rates help buyers all that much. If there are 3 properties on the market and 4 buyers, it doesn't matter what interest rates are, the 3 highest-earning buyers are going to get the houses and one will miss out. The amount of money borrowed might go up and down, but there is a physical balance equation that must be satisfied which doesn't care about the financial situation. In theory, low interest rates will reallocate resources from other sectors of the economy to housing, causing more to be built. In practice I don't know how big a factor this is though - I'm used to there being regulatory restrictions that prevent new housing being built in high-demand areas. But that might be an Australia thing. Regardless it'd lag interest rate changes by a few years because it takes time to organise new construction.
- thfuran 3y ago
  Assuming that prices adjust to keep total payments constant, high interest rates actually help buyers* since the mortgage interest is tax deductible. *As long as you ignore the value of equity
  - bonton89 3y ago
    You can also pay a house off early much faster if the payment component is more interest than principle.
- pharmakom 3y ago
  Yeah people are constrained by how much they can pay off each month. Either that’s higher prices with lower interest or lower prices with higher interest.
- surgical_fire 3y ago
  Low interest rates don't help the buyer. It helps the seller. Whatever benefits the buyer would have had are reaped by the seller with a higher price.
  - MattPalmer1086 3y ago
    But most sellers, unless downsizing, will also be paying more for their next house.
solumunus 3y ago
Low interest rates have been terrible for buyers.. Low interest rates are a huge part of why there is such a massive bubble in the first place.
- dehrmann 3y ago
  The drove up prices, making the down payment side harder. Higher interest rates should bring down the sales price, making down payments go further, but we're only halfway seeing that. My thinking is because the shortage masks that, but people married to their underwater 3% fixed-rate mortgages also does (for now). Ironically, this seems to be driving homebuilders to build more.

omgwtfbyobbq 3y ago

I'm guessing we'll see a weird mix of the following with the fed adjusting policy to keep everything together. -80s inflation (higher interest rates hurting real property value, especially in higher value coastal metros) -90s stagflation (a significant decline in national real property values masked by some inflation) -50s postwar economic expansion (economics/warfare in EMEA keeping demand for US energy, agriculture, and products high even with higher inflation hurting asset valuations)

rubyn00bie 3y ago

I believe that many people are starting to fear that their lower rate mortgage exceeds the value of their house. While, in the long run, they’ll likely be fine but the near term may be 10-15 years of stagnant or declining home values. It’s also looking like the Fed is very intent on keeping rates higher for longer, and/or possibly hiking them again, further increasing the burden on buyers. It’s not looking good for sellers or buyers for at least the next 18 months. I suspect a crash in the housing market will occur but we haven’t had enough time to see foreclosures pick up to start the cascade downward.

consp 3y ago
Looking at how homes are insanely overpriced (worse here than in the US) that is not a bad thing. The only sane market at this point is +1M houses which is simply rediculous.

huytersd 3y ago

It’s a great time to be a buyer if you’re buying all cash

saiya-jin 3y ago
... which almost nobody can afford not only due to prices growing to absurd levels

sfjailbird 3y ago

> sellers don't want to sell because they all locked in killer rates on their current homes What happens is that house prices drop way below what they paid, and ends up equalizing their monthly payments with what someone who buys at the higher-rate-but-lower-price is paying. Except these people are locked into their current arrangement, since they cannot sell at a price that would cover the debt. Some can ride this out over a number of years, some will end up taking a big hit because, for one reason or another (divorce, child birth, etc.) they have to sell and move. If you're old enough you will have seen this play out before.

keep_reading 3y ago

You're being overly optimistic because you work in real estate and people are blowing rainbows up your ass. If there's a crash, JPow lowering the rate would prevent the housing value correction from taking effect and nothing good would come of it. There MUST be a crash. Look at all the people who are sitting in homes worth many times more than they bought it. Significantly higher value than a few years ago. Do you think these people are doing well as a result? No! They can barely afford their insurance! People want the house values high and their insurance dirt cheap, but it's not possible. The housing values have to drop a good 80% for people to be able to afford their homes long term again and for the insurance companies to stop pulling out.

rcarr 3y ago
I want the market to crash and correct as much as the next guy but thinking house prices are going to drop 80% is pure fantasy land. What's more likely to happen: - Big corporations and billionaires hoover up the properties forcing more and more people to rent in the long term (you will own nothing and be happy) - Companies are finally forced to raise worker wages which, through a variety of means, they have managed to suppress for decades. The latter is what should happen but the former is what is more likely to happen, with all the evil that entails.
- keep_reading 3y ago
  Companies would not be able to raise wages fast enough to keep people in their homes
  - rcarr 3y ago
    Exactly. They've been getting away with it for close to 50 years at this point so the pain of getting them to where they should be if the profits had been shared fairly and not routed to investors and the C-Suite is absolutely massive. It would take a good few years (probably a decade) to get there, and a lot of companies that only exist because of that worker exploitation would go under, but overall it would end up being a good thing. If wage growth had kept pace like it should all these years, I'd wager the current property prices would actually make sense.

taylodl 3y ago

The problem is the Fed is using the only tool they have, the federal funds rate, to control the housing market. Yes, it has the effect of cooling the market but it doesn't solve the actual problem, actually it exacerbates it: there aren't enough housing units where they're needed. That's a supply problem. It's the insufficient supply that's the root cause of housing prices rising. The irony is raising the federal funds rate makes it more expensive to build housing so it tends to cool down construction and thus further constraining supply. What have we actually accomplished? Locking people out of home ownership. But the Fed only has one tool and they're using it to the best of their ability.

dragonwriter 3y ago
> The problem is the Fed is using the only tool they have, the federal funds rate, to control the housing market. No, they aren't, they are using it to control aggregate consumer prices and employment, their actual mission. There are institutions with finer grained powers whose job is to manage the economy on a more fine-grained level (Congress at the federal level, plus states generally more locally), and the problem, insofar as there is one, with the management of the housing market is their (in)action, not the Fed.
- mcny 3y ago
  This is why we the millennials and more importantly gen z must vote and actively and loudly participate in the political process. Right now, the government is preventing wages from going up in a (futile) attempt to keep prices low for retirees and soon to be retirees who are on fixed income. This is NOT what we want. We want wages to go up as corporate profits go up.
  - nojvek 3y ago
    I want prices to come down, I want affordability to go up . Who cares if wages go up and prices go up even faster. The question is not what is the price of a house, but how many hours does a median wage worker need to work to afford their house, their car, their utilities, education, healthcare e.t.c US is slowly becoming a zero sum game as the growth shrinks to ~1%. We need to increase the pie.

jeo123 3y ago

I don't it will crash. Democratic party tends to go socialism...in this case they are bailout-ish them Rep. In this case they will quietly bail large properties and banks to ensure it wont crash...just drag and stagnant like Evergrande and others in China. It seems to work over there. As long as people willing to go thru a wasted decade like Japanese did, it won't crash.