6 ms·

The problem with falling prices is that it stalls the market. If you think you could wait an year to get the same house 10% (+ inflation) cheaper, why would you

by jusssi 2y ago

The problem with falling prices is that it stalls the market. If you think you could wait an year to get the same house 10% (+ inflation) cheaper, why would you buy now?

supertrope 2y ago
Because you want to move in this year. Predicting another 2007 is a fool's game. Thanks to our system of mortgages that are implicitly backed by the government, house prices usually only go up. At worse the price just plateaus for a while. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
- vineyardmike 2y ago
  > house prices usually only go up. At worse the price just plateaus From the article: > Home prices have dropped 18% from the pandemic highs seen in May 2022, the most among the 50 largest US metro areas If I lived in Austin, I would wait another year before buying a house even if I wanted to buy one soon. To the parent's point - it might get even cheaper. Watching the "value" of your home drop 18% is emotionally hard for people, even people who don't intend to sell. It's risky if you just bought the house because it could put your loan underwater.
  - itake 2y ago
    My home value has dropped 10% since I purchased it, but I sleep slightly better b/c even if I bought my home at the current market price, I would have a higher mortgage payment than what I do now. Obviously, this isn't ideal and buying a home today at 7% interest rates (with no plans to increase rates further) would be a tough to pill to swallow if your value will drop further.
  - dylan604 2y ago
    Is that "value" real though if nobody will actually pay for it at that "value"? The only thing that is real about that "value" is the property taxes assessed. Also, if you're not actively trying to sell the house, the "value" is meaningless. Unless you're trying to get some sort of loan against the equity, it's just a number on a paper like most of modern finance
    - candiodari 2y ago
      If you have a mortgage, it is so meaningless it can bankrupt you. If you don't have a mortgage, it is money you could spend. What, sadly, a lot of people consider "free money".
      - dylan604 2y ago
        If you took out a loan on a meaningless value where the value is later "corrected" to a more sane "value" that forces one to be underwater is not anyone else's fault but the person taking out the mortgage at the higher "value". Just because someone doesn't have a mortgage doesn't mean they magically have free money. More than likely, they paying rent. Unless you're a zillenial that's moved back in with the parental units, but that's a tangential conversation.
        candiodari 2y ago
        > Just because someone doesn't have a mortgage doesn't mean they magically have free money. I'm talking about people who have paid off their mortgage. They can re-mortgage their house, which would make a large sum available to them right then and there. I've even heard of people doing this when a house gains value: "extend" the mortgage, which gets you the gain of the house value in spendable cash ... (and I definitely agree that's a horrible, terrible, no-good, even potentially financial-system-destroying idea, but people will, 100% certainly, do this)
      - jjav 2y ago
        > If you have a mortgage, it is so meaningless it can bankrupt you. Not sure what this means? Once you have the mortgage, if you can keep paying it you're fine. Whether the house value on paper is higher or lower doesn't make any difference. My house has twice gone down in paper value below what the mortgage balance was at the time. As long as I want to keep living there, that doesn't mean anything.
  - motoxpro 2y ago
    And then interest rates drop, the market clears, housing prices go back up and you just miss timed the market.
- davely 2y ago
  I live in the Bay Area (East Bay) and feel like it presents such an interesting view into this. 2 years ago: “Wow, I can’t believe that house went for 20% above asking!” Now: “Wow, I can’t believe that house went for 20% above asking and has appreciated since 2020.” If you want a house now and can afford it, you will buy it now.
  - reducesuffering 2y ago
    That's a weird starting point. Half of the East Bay SFH have appreciated 30% since 2020, that was a relative low point...
qq66 2y ago
You could say the inverse about sellers.
- ako 2y ago
  Yes, and that only strenghtens the effect: if prices are dropping and they try to sell sooner, there’s more supply, prices drop even more. In a market with increasing prices, if they wait to benefit from increasing prices, supply decreases, and prices rise even more.
deleted 2y ago
[deleted]
hackerlight 2y ago
What exactly is "stalling the market" and why is it a bad thing? The point of housing is to give people access to shelter in a reasonable location near to their family and work.
- vineyardmike 2y ago
  1. Some people who aren't time sensitive but intend to buy may wait to see if prices drop more. 2. Home builders obviously care about the price of houses they may build and sell. If the estimated prices of their future construction drop a lot from previous plans, they may abandon plans to build additional homes. Like all businesses, they buy in bulk, they deal with debt markets, they have multi-year forecasting, etc, and dramatic changes in the market may cause them to reevaluate profitability of future construction. Point 1 may cause further drop in prices, and point 2 may restrict supply from growing.
  - hackerlight 2y ago
    If people are scared to buy because the price might drop even more, that means prices are still too high as a percentage of net worth. 60-80 years ago, nobody thought like this. You bought a place and didn't think twice about it. You wouldn't pay attention to the real estate market because there wasn't any point, housing wasn't 15-20x your annual after-tax income where one small mistake and 5 years of your life is down the drain. This obsession with price is a byproduct of high prices. We need to rip this bandaid off and get it over with. There will be a temporary economic dip due to the wealth effect, but that painful transition only has to happen once.
    - chii 2y ago
      > 60-80 years ago ... didn't think twice about it probably because those who bought at that time were rich, and didnt need a mortgage, or their mortgage was small.
- jusssi 2y ago
  Like stalling a plane: the useful momentum is lost. I.e. no one wants to buy (they wait for lower prices) or sell (facing uncertainity at how long it's going to take, and what price they'll get). Only people desperate to move will buy or sell anything. It's bad because it directly eats into the purpose of housing you stated.
noobermin 2y ago
People who need to move to places and will want to buy a house regardless, not merely wait until the price drops further. Being priced out by your logic also "stalls the market" but no one ever complains about that at least from that sort of argument.
lispisok 2y ago
Because people are throwing a lot money into the rent black hole and even a little equity is an improvement over that and mortgage interest tax deduction can be huge
- formerly_proven 2y ago
  Mortgage interest is tax deductible in the US?!?!!
  - MissTake 2y ago
    “Home mortgage interest. You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.” https://www.irs.gov/publications/p936 https://www.irs.gov/publications/p936
  - extra88 2y ago
    This was my first year paying taxes with a full year's worth of paying a mortgage (which means it's also the year with the most mortgage interest paid). The mortgage deduction didn't matter, the standard deduction was still higher. It used to matter more, before the Trump tax plan significantly increased the standard deduction. The mortgage deduction is bad tax policy but it's hard to get rid of.
deleted 2y ago
[deleted]

by jusssi 2y ago

The problem with falling prices is that it stalls the market. If you think you could wait an year to get the same house 10% (+ inflation) cheaper, why would you buy now?

supertrope 2y ago

Because you want to move in this year. Predicting another 2007 is a fool's game. Thanks to our system of mortgages that are implicitly backed by the government, house prices usually only go up. At worse the price just plateaus for a while. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS

vineyardmike 2y ago
> house prices usually only go up. At worse the price just plateaus From the article: > Home prices have dropped 18% from the pandemic highs seen in May 2022, the most among the 50 largest US metro areas If I lived in Austin, I would wait another year before buying a house even if I wanted to buy one soon. To the parent's point - it might get even cheaper. Watching the "value" of your home drop 18% is emotionally hard for people, even people who don't intend to sell. It's risky if you just bought the house because it could put your loan underwater.
- itake 2y ago
  My home value has dropped 10% since I purchased it, but I sleep slightly better b/c even if I bought my home at the current market price, I would have a higher mortgage payment than what I do now. Obviously, this isn't ideal and buying a home today at 7% interest rates (with no plans to increase rates further) would be a tough to pill to swallow if your value will drop further.
- dylan604 2y ago
  Is that "value" real though if nobody will actually pay for it at that "value"? The only thing that is real about that "value" is the property taxes assessed. Also, if you're not actively trying to sell the house, the "value" is meaningless. Unless you're trying to get some sort of loan against the equity, it's just a number on a paper like most of modern finance
  - candiodari 2y ago
    If you have a mortgage, it is so meaningless it can bankrupt you. If you don't have a mortgage, it is money you could spend. What, sadly, a lot of people consider "free money".
    - dylan604 2y ago
      If you took out a loan on a meaningless value where the value is later "corrected" to a more sane "value" that forces one to be underwater is not anyone else's fault but the person taking out the mortgage at the higher "value". Just because someone doesn't have a mortgage doesn't mean they magically have free money. More than likely, they paying rent. Unless you're a zillenial that's moved back in with the parental units, but that's a tangential conversation.
      - candiodari 2y ago
        > Just because someone doesn't have a mortgage doesn't mean they magically have free money. I'm talking about people who have paid off their mortgage. They can re-mortgage their house, which would make a large sum available to them right then and there. I've even heard of people doing this when a house gains value: "extend" the mortgage, which gets you the gain of the house value in spendable cash ... (and I definitely agree that's a horrible, terrible, no-good, even potentially financial-system-destroying idea, but people will, 100% certainly, do this)
    - jjav 2y ago
      > If you have a mortgage, it is so meaningless it can bankrupt you. Not sure what this means? Once you have the mortgage, if you can keep paying it you're fine. Whether the house value on paper is higher or lower doesn't make any difference. My house has twice gone down in paper value below what the mortgage balance was at the time. As long as I want to keep living there, that doesn't mean anything.
- motoxpro 2y ago
  And then interest rates drop, the market clears, housing prices go back up and you just miss timed the market.
davely 2y ago
I live in the Bay Area (East Bay) and feel like it presents such an interesting view into this. 2 years ago: “Wow, I can’t believe that house went for 20% above asking!” Now: “Wow, I can’t believe that house went for 20% above asking and has appreciated since 2020.” If you want a house now and can afford it, you will buy it now.
- reducesuffering 2y ago
  That's a weird starting point. Half of the East Bay SFH have appreciated 30% since 2020, that was a relative low point...

qq66 2y ago

You could say the inverse about sellers.

ako 2y ago
Yes, and that only strenghtens the effect: if prices are dropping and they try to sell sooner, there’s more supply, prices drop even more. In a market with increasing prices, if they wait to benefit from increasing prices, supply decreases, and prices rise even more.

deleted 2y ago

[deleted]

hackerlight 2y ago

What exactly is "stalling the market" and why is it a bad thing? The point of housing is to give people access to shelter in a reasonable location near to their family and work.

vineyardmike 2y ago
1. Some people who aren't time sensitive but intend to buy may wait to see if prices drop more. 2. Home builders obviously care about the price of houses they may build and sell. If the estimated prices of their future construction drop a lot from previous plans, they may abandon plans to build additional homes. Like all businesses, they buy in bulk, they deal with debt markets, they have multi-year forecasting, etc, and dramatic changes in the market may cause them to reevaluate profitability of future construction. Point 1 may cause further drop in prices, and point 2 may restrict supply from growing.
- hackerlight 2y ago
  If people are scared to buy because the price might drop even more, that means prices are still too high as a percentage of net worth. 60-80 years ago, nobody thought like this. You bought a place and didn't think twice about it. You wouldn't pay attention to the real estate market because there wasn't any point, housing wasn't 15-20x your annual after-tax income where one small mistake and 5 years of your life is down the drain. This obsession with price is a byproduct of high prices. We need to rip this bandaid off and get it over with. There will be a temporary economic dip due to the wealth effect, but that painful transition only has to happen once.
  - chii 2y ago
    > 60-80 years ago ... didn't think twice about it probably because those who bought at that time were rich, and didnt need a mortgage, or their mortgage was small.
jusssi 2y ago
Like stalling a plane: the useful momentum is lost. I.e. no one wants to buy (they wait for lower prices) or sell (facing uncertainity at how long it's going to take, and what price they'll get). Only people desperate to move will buy or sell anything. It's bad because it directly eats into the purpose of housing you stated.

noobermin 2y ago

People who need to move to places and will want to buy a house regardless, not merely wait until the price drops further. Being priced out by your logic also "stalls the market" but no one ever complains about that at least from that sort of argument.

lispisok 2y ago

Because people are throwing a lot money into the rent black hole and even a little equity is an improvement over that and mortgage interest tax deduction can be huge

formerly_proven 2y ago
Mortgage interest is tax deductible in the US?!?!!
- MissTake 2y ago
  “Home mortgage interest. You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.” https://www.irs.gov/publications/p936 https://www.irs.gov/publications/p936
- extra88 2y ago
  This was my first year paying taxes with a full year's worth of paying a mortgage (which means it's also the year with the most mortgage interest paid). The mortgage deduction didn't matter, the standard deduction was still higher. It used to matter more, before the Trump tax plan significantly increased the standard deduction. The mortgage deduction is bad tax policy but it's hard to get rid of.

deleted 2y ago

[deleted]