patrick.net

https://www.nytimes.com/2022/06/23/realestate/owning-renting-disparity.html

Cost of Owning a Home Surges Above the Cost of Renting One

ad says

I calculated on a previous post that an approximately 30% price drop is needed based on a the 30 year mortgage rate increasing from around 2.75% to 6%. That means the COVID pandemic price increase will be wiped out and we return to early 2020 price levels for housing.

Did your calculations include the massive increase in the money supply?

It's different this time.

Eman says

Once layoffs pick up steam, we’ll see a bigger price drop.

That. In addition, I don't see any IPOs in the pipeline. It may be relevant because IPOs produce new millionaires who feed the demand in Bay Area.

To be frank, I keep hearing about layoffs in high-tech but anekdotaly I don't see it (yet?).

Onvacation says

Did your calculations include the massive increase in the money supply?

How much of it is already spent by the "do nothing and get paid because pandemic" folks? Does anyone know how to estimate that?

Meanwhile, serious delinquencies — mortgages that are 90 or more days past due but not yet in foreclosure — saw strong improvement, falling another 7% from April. But even after 21 consecutive months of improvement, the population of seriously delinquent homeowners is still 45% higher than it was prior to the pandemic, Black Knight said.

https://nationalmortgageprofessional.com/news/black-knight-past-due-mortgages-fall-3rd-straight-record-low-may#:~:text=According%20to%20Black%20Knight's%20%22first,from%20this%20time%20last%20year.

*We did have a ban on foreclosures during the pandemic.

HunterTits says

Housing prices are not the same as housing payments...and the role interest rates plays in that.

I agree. A large majority of homes are bought with a mortgage. When you buy a home, you are really buying a monthly payment (mortgage, property tax, property insurance, and HOA fee).

I posted before on Patnet that house prices need to drop 30% based on 30 year mortgage rate increasing from 2.8% to 6%. The Federal Reserve wants to wipe out housing price gains accrued from mid 2020 to early 2022. They already wiped out most of the gains for the stock market.

.

HunterTits says

Eman says

1) This is a point some people can’t grasp.

Housing prices are not the same as housing payments...and the role interest rates plays in that.

From a monthly payment POV, you’re correct. However, history suggests otherwise. Let’s see how it will play out this time.

mostly reader says

Eman says

Once layoffs pick up steam, we’ll see a bigger price drop.

That. In addition, I don't see any IPOs in the pipeline. It may be relevant because IPOs produce new millionaires who feed the demand in Bay Area.

To be frank, I keep hearing about layoffs in high-tech but anekdotaly I don't see it (yet?).

You’re right. No massive layoffs…..yet. If no massive layoffs, no big drop in real estate prices. This is what history suggests.

ad says

HunterTits says

Housing prices are not the same as housing payments...and the role interest rates plays in that.

I agree. A large majority of homes are bought with a mortgage. When you buy a home, you are really buying a monthly payment (mortgage, property tax, property insurance, and HOA fee).

I posted before on Patnet that house prices need to drop 30% based on 30 year mortgage rate increasing from 2.8% to 6%. The Federal Reserve wants to wipe out housing price gains accrued from mid 2020 to early 2022. They already wiped out most of the gains for the stock market.

.

Can you share with us some data on when this actually happened? I’d love to learn. Common sense is one thing, but reality is another.

Eman says

some data

If I want to buy a starter home for $500,000 at a 30 year mortgage rate of 3%, then my monthly payment is $2108. The bank determined I can afford that monthly payment.

Now with the rate at 6%, my monthly mortgage is $2998. Right now the rate is 5.81% (source: https://www.freddiemac.com/pmms)

The home price would have to come down to $360,000 in order for the monthly payment to be near $2108 (for the 6% rate).

That means a drop of $140,000 (from $500,000 to $360,000 or 28%).

That is why I am figuring housing prices need to come down about 30%.

I think in a way the Fed is doing this to bring housing prices back to just above 2020 levels. They’ll keep rates steady for a while and then make adjustments as necessary.

For the ones who bought at 3% interest rate for a mortgage in 2020 to 2021, I don’t think this matters much if they plan on staying in their homes for at least 7 years.
/

Eman says

actually happened

S&P 500 peaked to 3381 in February 2020.

It is now at 3900 after dropping from 4818.

It recently bottomed to 3636 (a 24.5% drop) and this bottom is within 10% of the February 2020 peak. That drop to 3636 wiped out a majority of the COVID pandemic gains.

.

ad says

That is why I am figuring housing prices need to come down about 30%.

Don't most things overcorrect?

Eman says

If we have the right products price, they’ll still sell in any market.

My friend is now refinancing to get out of his private money lender's terms after dropping the price of his house. So, that's good and bad.

Nuff said...

ad says

Eman says

actually happened

S&P 500 peaked to 3381 in February 2020.

It is now at 3900 after dropping from 4818.

It recently bottomed to 3636 (a 24.5% drop) and this bottom is within 10% of the February 2020 peak. That drop to 3636 wiped out a majority of the COVID pandemic gains.

By these metrics, SPX dropped 52% during the dotcom year. Real estate prices dropped like 10% in the Bay Area. Elsewhere of the nation didn’t feel much of it.

During the global financial crisis 2008, SPX dropped 57% while real estate dropped 34%.

Is it reasonable to use the above metrics to extrapolate the potential drop in housing prices rather than simply using the monthly payments?

Eman says

Is it reasonable to use the above metrics to extrapolate the potential drop in housing prices

I am not sure about the correlation but housing was not inflated in the dotcom era. It was inflated in 2007 and is inflated now.

Housing just started to be treated more and more as a speculative asset and cash machine (i.e., home equity loans, etc) around 2003

........

B.A.C.A.H. says

If we have the right products price, they’ll still sell in any market.

exactly as far as supply and demand as well as price discovery

it comes down to good value and affordability

i guess for stocks that means price to earnings to growth ratio (PEG), etc.

for housing that means the housing costs is not more than 38% of monthly income or that the landlord buying it can make at least an annual ROI of 8%

..

Booger says

Don't most things overcorrect?

yes they do ... they always over correct and their is a slaughter with blood on the streets (or wall street) ...that is due to the herd mentality and panic selling ...

HunterTits says

Redfin Investor Purchases by zip code:

https://www.redfin.com/news/data-center/new-construction/

20% of home buyers were investors for 1st quarter 2022 according to the above redfin website

that does not surprise me ...we'll see how well those investors fare as long term and vacation/short term landlords

HunterTits says

Redfin Investor Purchases by zip code:

https://www.redfin.com/news/data-center/new-construction/

Interesting investors didn’t slow down in buying properties through the housing bust, and they bought more through the 2010’s.

zzyzzx says

In the same area: https://www.zillow.com/homedetails/6803-E-Main-St-UNIT-3317-Scottsdale-AZ-85251/82387358_zpid/ - 2.4M for 1,497sq.f condo with >1K HOA
And there I was, thinking that Bay Area is expensive.

mostly reader says

zzyzzx says

In the same area: https://www.zillow.com/homedetails/6803-E-Main-St-UNIT-3317-Scottsdale-AZ-85251/82387358_zpid/ - 2.4M for 1,497sq.f condo with >1K HOA
And there I was, thinking that Bay Area is expensive.

The Bay Area is becoming cheap...?

1337irr says

The Bay Area is becoming cheap...?

I noticed it few years back that it's not growing as fast as other parts of the country. Now those other parts are catching up apparently. To the point that "people moving out due to remote work" no longer explains it. Bay Area politics is another variable.

Eman says

Interesting investors didn’t slow down in buying properties through the housing bust, and they bought more through the 2010’s.

a lot of the investors back in 2009 to 2013 were sharks or bottom feeders...buying for $110,000 a townhome that sold for $275,000 three or four years prior ....

this time around the investors likely used stock market and/or crypto gains, as well as the equity from their homes, to buy second homes to rent out on Air nB, or to rent out long term .... i wonder what percentage of homes bought by investors were made with equity in their other homes ....

...

Hold my beer!

Take this place in pseudo-fortress 95138 in San Jose asking 1.7mil...

https://www.redfin.com/CA/San-Jose/7398-Basking-Ridge-Ave-95138/home/12178639

Looks like a nice place, but super tiny lot. This is also the house where there was a rotting orange in the driveway during the open house. The even more rotted orange has now oozed to the curb area. Apparently picking up rotting fruit from the property is not a modern realtor's job.

https://www.cbsnews.com/news/home-listings-surge-ease-inventory-shortage

Home listings surge as rising mortgage rates push some buyers to sidelines

Homeowners thinking about listing their properties need to be aware of the new competition in the housing market, and keep tabs on local pricing trends. "They need to make sure the asking price doesn't get too high, or too high ahead of the market," Hale said.

Just looked up my house on Zillow, it dropped 5% in 1 month. Good (since it's not just my house but rather a reflection of market conditions). I look forward to correction.