5 ms·

It's unfortunate how much people need to sacrifice to afford housing. And I dont know how else to read this except -- home prices will go down.

PKop 3y ago
That and/or rates
- game_the0ry 3y ago
  Why would the fed cut rates?
  - PKop 3y ago
    Short answer for why they would is the economy broadly can't sustain rates this high. But I think it's worth considering there are many that subscribe to the theory the Fed has almost no control over long term rates (mortgage rates being one type of these), which are set by the market alone based on inflation + growth expectations. [0] I think it is inevitable that issues like this thread and others whereby many businesses and individuals cannot cope with debt service (see record high credit card delinquency rates) [1] and inflation, along with near record low unemployment means economy will hit a brick wall and prices and rates will fall, regardless of what the Fed wants or does or says. This is already part of the reason long rates have been underneath short rates, as market has been pricing a slowdown for a while, and Fed wasn't able to set long rates above where they put short. Additionally, to the degree Fed can influence long rates at all, some would argue raising short rates very high very fast (yes of course to counter inflation) itself can depress long term growth thereby beyond some threshold lowering longer term rates if market expects lower growth. [0] https://medium.com/the-investors-handbook/why-the-fed-doesnt-control-long-term-interest-rates-5a132979419 https://medium.com/the-investors-handbook/why-the-fed-doesnt... [1] https://archive.is/s14dY https://archive.is/s14dY
    - game_the0ry 3y ago
      > Short answer for why they would is the economy broadly can't sustain rates this high. I disagree, but... Putting aside the fed and the degree they can set interest rates at the long end of the yield curve - what you are saying is that rates will go down bc the economy can't sustain the debt (in your words - "economy will hit a brick wall and prices and rates will fall"). In other words, there would be a recession bc interest rates are too high. By the time that recession hits, people will be losing job - people sell assets (houses + stocks) when they lose their jobs. In the event that the fed lowers rates, it will be bc of a recession, not to prevent one. By then, the damage is done.
      - PKop 3y ago
        Yea that's why I mentioned unemployment being so low now, nowhere to go but up, and once it does that will exacerbate recession. I do think Fed will lower because of recession yes. The damage will be done yes. It sounds like you do agree.
jncfhnb 3y ago
Seems like a terrible bet
- tigeroil 3y ago
  Indeed. Everyone I've spoken to seems to be convinced that clearly, something has to change, house prices must drop, but the reality is, there's too many people for too few houses, and unless that changes housing will always continue to become more expensive.
  - game_the0ry 3y ago
    > but the reality is, there's too many people for too few houses Not really... There are 2 big things that are skewing the housing market now: 1. In any given market, all-cash investors make up about 20-30% of the demand. [1] They will buy at almost any price. Even though they make a small percent of existing owners (iirc, its like 1-3%), they make an 20-30% portion of demand right now. 2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, its a shortage of homes for sale. Now imagine those 2 dynamics flipped the other way - what happens to prices then? Also food for thought - every market boom/bust cycle was caused speculative demand. What happens when 20-30% of demand goes away? More food for thought - the folks that feel like they are locked out of the market and have been screwed (the young) are growing increasingly resentful. How will they vote? [1] https://www.corelogic.com/intelligence/us-home-investor-share-reached-new-high-q4-2023/ https://www.corelogic.com/intelligence/us-home-investor-shar... [2] https://tradingeconomics.com/united-states/total-housing-inventory#:~:text=Total%20Housing%20Inventory%20in%20the%20United%20States%20averaged%202263.12%20Thousands,source%3A%20National%20Association%20of%20Realtors https://tradingeconomics.com/united-states/total-housing-inv...
    - jncfhnb 3y ago
      If interest rates plummet and people start purchasing houses that they can only afford due to cheap loans, I would expect home prices to… rise. As they did before.
acover 3y ago
It can always get worse. Lots of counties live with price to income ratio of 20. The USA is 6.
- game_the0ry 3y ago
  Indeed, I see you're point. We americans have been living beyond or means and much better relative to the rest of the world, and the world is starting to equalize. Makes sense.

PKop 3y ago

That and/or rates

game_the0ry 3y ago
Why would the fed cut rates?
- PKop 3y ago
  Short answer for why they would is the economy broadly can't sustain rates this high. But I think it's worth considering there are many that subscribe to the theory the Fed has almost no control over long term rates (mortgage rates being one type of these), which are set by the market alone based on inflation + growth expectations. [0] I think it is inevitable that issues like this thread and others whereby many businesses and individuals cannot cope with debt service (see record high credit card delinquency rates) [1] and inflation, along with near record low unemployment means economy will hit a brick wall and prices and rates will fall, regardless of what the Fed wants or does or says. This is already part of the reason long rates have been underneath short rates, as market has been pricing a slowdown for a while, and Fed wasn't able to set long rates above where they put short. Additionally, to the degree Fed can influence long rates at all, some would argue raising short rates very high very fast (yes of course to counter inflation) itself can depress long term growth thereby beyond some threshold lowering longer term rates if market expects lower growth. [0] https://medium.com/the-investors-handbook/why-the-fed-doesnt-control-long-term-interest-rates-5a132979419 https://medium.com/the-investors-handbook/why-the-fed-doesnt... [1] https://archive.is/s14dY https://archive.is/s14dY
  - game_the0ry 3y ago
    > Short answer for why they would is the economy broadly can't sustain rates this high. I disagree, but... Putting aside the fed and the degree they can set interest rates at the long end of the yield curve - what you are saying is that rates will go down bc the economy can't sustain the debt (in your words - "economy will hit a brick wall and prices and rates will fall"). In other words, there would be a recession bc interest rates are too high. By the time that recession hits, people will be losing job - people sell assets (houses + stocks) when they lose their jobs. In the event that the fed lowers rates, it will be bc of a recession, not to prevent one. By then, the damage is done.
    - PKop 3y ago
      Yea that's why I mentioned unemployment being so low now, nowhere to go but up, and once it does that will exacerbate recession. I do think Fed will lower because of recession yes. The damage will be done yes. It sounds like you do agree.

jncfhnb 3y ago

Seems like a terrible bet

tigeroil 3y ago
Indeed. Everyone I've spoken to seems to be convinced that clearly, something has to change, house prices must drop, but the reality is, there's too many people for too few houses, and unless that changes housing will always continue to become more expensive.
- game_the0ry 3y ago
  > but the reality is, there's too many people for too few houses Not really... There are 2 big things that are skewing the housing market now: 1. In any given market, all-cash investors make up about 20-30% of the demand. [1] They will buy at almost any price. Even though they make a small percent of existing owners (iirc, its like 1-3%), they make an 20-30% portion of demand right now. 2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, its a shortage of homes for sale. Now imagine those 2 dynamics flipped the other way - what happens to prices then? Also food for thought - every market boom/bust cycle was caused speculative demand. What happens when 20-30% of demand goes away? More food for thought - the folks that feel like they are locked out of the market and have been screwed (the young) are growing increasingly resentful. How will they vote? [1] https://www.corelogic.com/intelligence/us-home-investor-share-reached-new-high-q4-2023/ https://www.corelogic.com/intelligence/us-home-investor-shar... [2] https://tradingeconomics.com/united-states/total-housing-inventory#:~:text=Total%20Housing%20Inventory%20in%20the%20United%20States%20averaged%202263.12%20Thousands,source%3A%20National%20Association%20of%20Realtors https://tradingeconomics.com/united-states/total-housing-inv...
  - jncfhnb 3y ago
    If interest rates plummet and people start purchasing houses that they can only afford due to cheap loans, I would expect home prices to… rise. As they did before.

acover 3y ago

It can always get worse. Lots of counties live with price to income ratio of 20. The USA is 6.

game_the0ry 3y ago
Indeed, I see you're point. We americans have been living beyond or means and much better relative to the rest of the world, and the world is starting to equalize. Makes sense.