patrick.net

WookieMan says

Interest rates will go to 3% and housing will jump another 10%. Who's next?

it likely will steady around 5.6%

about 2% above the rate set when prices peaked around March 2022

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WookieMan says

I get the jokes guys. But for the first time on this site I am actually offended.

I'm gonna defend WookieMan. He seems like a good dude. He's posted in various spots all he's been through with his family drama. He's stepped up big time.

Yes he left the door open, and admittedly I chuckled at a couple of the replies but do we really need to eat our own?

As for housing, rates down slightly (just under 6%), prices up nominally (5%).

You can't squeeze any more blood out of this stone unless real wages go up (not going to happen) or NINJA loans come back. First timers can't get into the market. That bottlenecks everything and limits appreciation. It's even worse than 20 years ago when this blog first started, and it was bad then.

GreaterNYCDude says

You can't squeeze any more blood out of this stone

Yep. I remember our bank telling us the price to income ratio should be no more than 5 when the 30 year mortgage rate is around 3%.

The latest ratio (Sept 2023) is around 7.5 :-/
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Between 1965 and 2000 the home price to income ratio steadied around 4.5

After 2000, it started to increase and remained a lot higher.

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Perhaps this may cause building starts to still remain low.

^^^^^^^^^^^^^^^^^^^^^^^^^^

https://www.businessinsider.com/housing-market-outlook-mortgage-home-prices-supply-boomers-2008-crash-2023-12

Home prices will fall as 'silver tsunami' of baby boomers to unload fresh housing supply, top Wall Street forecaster says

"Another major demographic trend you see is the aging of America, what's called the 'silver tsunami', is 10,000 people a day turning 65, and by 2030, the entire baby boomer generation will be over 65," Whitney told Yahoo Finance on Thursday. "That'll be 20% of the US population."

That trend will help bring prices down, as more homes on the market will soften the impact of housing demand, which is a big change compared to the past few years during which a massive supply crunch has helped push housing prices to all-time highs.

ad says

Between 1965 and 2000 the home price to income ratio steadied around 4.5

After 2000, it started to increase and remained a lot higher.

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Interesting looking at that chart above. I did research during the housing crash, and the home price to income ratio hit 4.5 for our market in February 2009. I told my wife this is the bottom of the housing market. Let me quit my job and give this a try for 3-5 years. If it works out, we’ll be set.

Since, I bought something every year until 2019. There were years I bought 4-5 properties. There were still a lot of skeptics on Patnet especially that Thomas Wrong guy.

During the downturn, SFace bought a handful of houses in Hercules. Iwog bought like 10 properties in Concord and a 2/2 condo in Walnut Creek for $145k. Hindsight is 20/20 of course.

With respect to the aging of America demographic trend, I had a chat with 3 of my neighbors, and this is specifically to the Bay Area. One couple, the daughter and her family will take over their house when they kick the can. The same with the 2nd neighbor. The 3rd neighbor, who is retired, said his daughter will take over grandma’s house when she’s gone. Grandma is 93 now. They will help her buyout uncle’s share. All in all, looks like everyone will keep their low property tax basis. I don’t see a mass of inventory in this landlocked Bay Area. However, rent to own ratio is still way out of whack at the moment.

Eman says

America demographic trend

comes down to ratio of homes to households

also based on how many households live in one home ... so it is about standard of living as well as far as how people live in housing...

I know someone on Long Island, NY that has his home as three housing units under one roof.. its been like that since the 1970s...

he lives in main unit and the other two units (each at least 2 bedrooms/1 bath) are rented ... one rented unit is upstairs and the other is in attached or side unit...

...

If you talk to the workers here, some of them commute 1-1.5 hours one way, each day, to work. For some who works 2-3 days/week (partially work from home/office), they rent a room here and commute home when their work obligation is over. Their homes are about 2 hours away without traffic.

If home prices are “soft” here, I see folks will be moving closer to the Bay Area. Areas going to be impacted are likely farther from the job centers.

Eman says

With respect to the aging of America demographic trend, I had a chat with 3 of my neighbors, and this is specifically to the Bay Area. One couple, the daughter and her family will take over their house when they kick the can. The same with the 2nd neighbor. The 3rd neighbor, who is retired, said his daughter will take over grandma’s house when she’s gone. Grandma is 93 now. They will help her buyout uncle’s share. All in all, looks like everyone will keep their low property tax basis. I don’t see a mass of inventory in this landlocked Bay Area. However, rent to own ratio is still way out of whack at the moment.

I think (not know) people are going to keep their properties in their family. As long as building doesn't pick up, at least in none hipster areas, I can't see prices dropping for the foreseeable future. Kids won't buy new houses they will just take over mom and dads place. And I think that's outside of CA and prop 13 as well.

The transfer of property has changed since 2006 and the low interest rates. Loss of training trades people, so building is generally none existent in most places. Where you build or rehab now it's not cheap and won't pick up. So inventory won't pick up. Most kids now don't even know how to operate a jig saw or miter saw. They know how to operate Fortnight.

I'm pushing the trades and get some business acumen for my kids/nephew. I think college is dead outside of legit STEM degrees. The rest is a waste of time unless you really, really want to be a teacher... said no one after the fact.

I agree. I don’t share the same view as the housing analysts.

Going into trade is not a bad idea. Make decent income without going to college. Locally, plumbers and electricians are billing at $155-$185/hour. 1.5x rate for OT, and 2x for Sunday and holidays.

Own the biz, scale up and have a few tradesmen work for you. Get connection with a few property management companies are the work flow is constant.

WookieMan says

Loss of training trades people, so building is generally none existent in most places.

I see manufacturing "modular homes" at a factory as one current trend. It makes it easier and quicker to build a wood frame home.

This Colorado "modular homes" company has been addressing the housing shortage: https://www.fadingwestdevelopment.com/howwebuild

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https://www.newsweek.com/california-homeowner-price-cut-joshua-tree-market-crash-1855604

California Homeowner Cuts Price Nearly in Half in 'Brutal' Market
Dec 26, 2023

The housing market has proven to be a tough terrain in Joshua Tree, California, evidenced by a house that sold for $340,000 in December after being purchased for $600,000 in 2021, marking a $240,000 loss.

Initially listed at $625,000 in early 2023, the home, situated east of Los Angeles in the Mojave Desert, saw multiple price reductions over the year, finally settling at $340,000 in December, a 47.3 percent decrease from its 2021 purchase price. The drop in value reflects a "brutal" housing market in Joshua Tree, according to a vacation rental investor on X, the social media platform formerly known as Twitter.

Patrick says

Joshua Tree, California

https://www.zillow.com/home-values/35723/joshua-tree-ca/

The average Joshua Tree home value is $378,718, down 12.4% over the past year.

https://www.zillow.com/rental-manager/market-trends/joshua-tree-ca/

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ad says

I see manufacturing "modular homes" at a factory as one current trend. It makes it easier and quicker to build a wood frame home.

This Colorado "modular homes" company

Many ADUs are manufactured housing, too.

WookieMan says

I'm pushing the trades and get some business acumen for my kids/nephew.

I agree. I met a young cousin's boyfriend over Christmas. He's 21 and rudderless. He said he "tried" HVAC and "didn't like it". I couldn't help but tell him that I thought he was making a mistake by giving it up.

GNL says

WookieMan says

I'm pushing the trades and get some business acumen for my kids/nephew.

I agree. I met a young cousin's boyfriend over Christmas. He's 21 and rudderless. He said he "tried" HVAC and "didn't like it". I couldn't help but tell him that I thought he was making a mistake by giving it up.

The goal should be to be the boss is what I'm telling my boys. You can live your life, travel, do what you want. BUT you have to know the industry. It's dirty and hard hours at first. Once you know the business and industry you'll know who to hire. Your job becomes wining and dining people to get business. Easier said than done, but that's business. Harvard ain't gonna teach you that and you gotta have the gumption to get through the tough years. Hopefully he'll reconsider. We all need AC and heat.

Get your business going. You hire an accountant. You hire out marketing. You hire experienced HVAC techs. You sit back and personally network as much as you can. Mail and websites work, but it's you as the person that sells your business and then preforming on the jobs. People throw too much money at the other shit and don't realize even in todays fucked up reality that personal relationships will make you the most money.

WookieMan says

The goal should be to be the boss

100%. I know 2 millionaires who are millionaires purely because they own their own business. One owns a cleaning business and the other one owns a real estate photography business.

I actually know many more than 2 millionaires but I was trying to "scrape the barrel" on the blue collar scale of services that can, and do, produce wealth if you own the business.

Respecting the aging of America, there's a few way this ends, none of it good.

At some point the trillions of "wealth" held by boomers will turn over. Like it or not, in 6 short years ALL of the baby boomers will be 65+

https://www.census.gov/library/stories/2019/12/by-2030-all-baby-boomers-will-be-age-65-or-older.html

With little money to be made on the "front end" (Melenials / Gen Z buying an and Gen X trading up) banks will try and make up for it on the back end.

How?

1) Big money buys out boomers SF and condos and convert then to rentals.

2) Banks start pushing reverse mortgages to the AARP crowd (again) as a hedge against "long term care expenses"

3) Gen X finally inherits they either sell or rent out there properties... But it's hard to compete with instatutionalized money borrowing at the fed rate.

Unless incomes rise substantially, or we become like the Waltons and have multiple families living under one roof, there isn't enough income to support those trying to get in, and without new buyers the carousel stops and prices fall barring intervention from the outside.

It will take a few years before we see it since lending standards were tightened, and those with a good rate have far less incentive to trade up, which will limit both supply and demand, but we're certainly beyond peak prices 2.0.

The only wildcard is immigration, both legal and "undocumented".

HONEST ANSWER

To unfreeze the housing market, there must be excess inventory. The housing market has been having low inventory due to affordability and existing owners don’t sell as they can’t afford the new mortgage payments if they move.

History suggests housing prices drop gradually over a few years if the economy is weak. For housing prices to drop fast, distressed sales must exist.

As of now, no excess inventory, no distressed sales. For people who buy due to their life circumstances, they’ll suck it up and buy. People, who can’t afford to buy, or don’t want to pay the huge premium of ownership over renting, they’ll continue to rent.

No one has a crystal ball. If they did, they’d be so rich. Everyone has a choice. They’ll make the decision to buy or rent based on their life circumstances and priorities.

Eman says

The housing market has been having low inventory due to affordability and existing owners don’t sell as they can’t afford the new mortgage payments if they move.

I read that it costs at least $100,000 before even the shovel hits the dirt to build a single family home in California.

The costs to develop are getting way out of hand, and a lot of that is not due to the cost of land.

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ad says

Eman says

The housing market has been having low inventory due to affordability and existing owners don’t sell as they can’t afford the new mortgage payments if they move.

I read that it costs at least $100,000 before even the shovel hits the dirt to build a single family home in California.

The costs to develop are getting way out of hand, and a lot of that is not due to the cost of land.

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It’s true. The cost of designing, engineering, city permits and fees is easily $100k before we break ground to build a house. Also, the city requires us to install fire sprinklers, build on-site water reservoir to absorb certain amount of water run-off, etc… these requirements were over a decade ago. Not sure what else the cities require now like net zero electricity BS, etc….Basically, all the requirements make the cost to build extremely expensive.

Eman says

The cost of designing, engineering, city permits and fees is easily $100k before we break ground to build a house.

Basically, all the requirements make the cost to build extremely expensive.

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yes, due to California building code and zoning

in Florida, the builders leverage economies of scale as far as fixed costs and the state is a lot more pro residential development

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ad says

It’s interesting how the top markets are always the cheap/underperforming markets while the expensive markets are always the outperforming markets.

housing prices primarily peaked in early 2022... income increased in 2022 and 2023...hopefully hope prices stay the same and income increases in 2024...

three years of income increases (2022-2024) and a 30 year mortgage rate of 5.5% will mean home prices will not need to decrease as much as far as mortgage affordability standards...

ad says

Eman says

The cost of designing, engineering, city permits and fees is easily $100k before we break ground to build a house.

Basically, all the requirements make the cost to build extremely expensive.

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yes, due to California building code and zoning

in Florida, the builders leverage economies of scale as far as fixed costs and the state is a lot more pro residential development

,,,

All of this is why you won’t see Actual affordable housing built in CA ever again….

California’s largest home insurer will raise rates by an average of 20% this year.

https://www.msn.com/en-us/money/insurance/california-s-largest-home-insurer-to-hike-rates-this-year/ar-AA1mnqi3

https://ottawa.ctvnews.ca/home-prices-in-carleton-place-drop-significantly-1.6718571

Carleton Place homes sold for $400,000 under original selling price

https://www.reddit.com/r/RealEstate/comments/192s3xt/appraisal_came_in_47k_lower_than_contract_price/

Appraisal came in 47K lower than contract price. How does this happen??

zzyzzx says

https://ottawa.ctvnews.ca/home-prices-in-carleton-place-drop-significantly-1.6718571

Carleton Place homes sold for $400,000 under original selling price

Jan of last year a new law in Canada came into effect that restricts real estate foreigners can buy.

This is the result.

30-year fixed mortgage rate is below 6% for the Bay Area now. I guess lenders anticipate the Fed is done with the rate hikes and will cut rate soon.

Marco Cooper, 3154198

Coastal Sun Realty LLCEman says

30-year fixed mortgage rate is below 6% for the Bay Area now. I guess lenders anticipate the Fed is done with the rate hikes and will cut rate soon.

My forecast still is that the 30 year rate will settle around 5.5% for 2024, and about 1.5% above the 10 Yr Treasury.

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Eman says

30-year fixed mortgage rate is below 6% for the Bay Area now.

To be fair, that 5.875% rate requires you pay 0.25 points up front. An APR "as low as" 5.992% is breaking the 6.0 barrier by the barest of margins.

SunnyvaleCA says

Eman says

30-year fixed mortgage rate is below 6% for the Bay Area now.

To be fair, that 5.875% rate requires you pay 0.25 points up front. An APR "as low as" 5.992% is breaking the 6.0 barrier by the barest of margins.

What I would do is get 2 discount points costs along with other closing costs rolled into my VA mortgage. If we buy this year and the 30 yr rate is 5.5%, then we'll buy 4 discount points to get to a 4.5% rate.
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In the current environment, I’m not sure it’s prudent to buy down rate as history suggests there’s a higher chance of interest rate dropping in the coming years rather than rising. Paying 4 points is a lot of money to buy down 1%

SunnyvaleCA says

Eman says

30-year fixed mortgage rate is below 6% for the Bay Area now.

To be fair, that 5.875% rate requires you pay 0.25 points up front. An APR "as low as" 5.992% is breaking the 6.0 barrier by the barest of margins.

Rates were floating around 7.5% and higher just a couple months ago. The Fed hasn’t done anything, and rates fell 150 bps since. I just want to share the dynamic of interest rates. This should provide some tailwind to hold up the housing prices.

A recession is likely needed to see significant housing price drop at this point.