patrick.net

The government does set interest rates. It can buy up unlimited amounts of mortgage bonds to even push rates into negative territory (as has been done in Europe), and just the threat of it selling a couple trillion dollars of mortgage bonds would push mortgage rates to over 10%. The market is government controlled and it lets insiders know what is going to happen. If anyone gets carried away however, they simply get crushed.

With mortgage rates at over 6%, they are high, having doubled in the past 18 months. Construction has basically stopped because nobody can sell SFH to people requiring a mortgage and make a profit.

Misc says

Rents ain't gonna drop because there is a housing shortage and new construction has basically stopped. Add a few more million illegals and you get what you get. With OER and rent making up about a third of the CPI we need more housing. The FED has fucked themselves.

I see regression as we collectively tighten our belts and as a result, you get more people getting roommates to help pay for home expenses.

That is why if you went to Northern Virginia such as Manassas and Manassas Park, you will see two or three families living in one home.

I used to live in a boarding house and paid $700 a month in Manassas back in 2011 because my job was in Manassas. At least I had my own bedroom and bathroom. It as a 5 bedroom, 4 bathroom home built in the mid 1990s.

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Misc says

With mortgage rates at over 6%, they are high, having doubled in the past 18 months.

Historically the 30-year mortgage rate has trended or tracked about 2 to 3% above the Fed Funds rate.

If current home prices are priced based when the mortgage rate was 3%, then prices should drop about 30% based on a 10% drop for every 1% increase in the 30 year mortgage rate.

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Misc says

The government does set interest rates. It can buy up unlimited amounts of mortgage bonds

I get your point but it's not the government, its non-governmental agencies like the fed, Freddie Mac, etc. And those agencies don't set the rates either but they created artificially high demand which in a debt auction marketplace the bid goes to the lowest bidder.

Yeah I know, everyone wants to be a victim and blame the Big Bad Government.

The Big Bad Government didn't do those things. Fed and agencies' actions were political in response to political imperatives of whomever is in power elected by folks like us, not "the government".

Plenty of blame to go around and cry victim about. However, problems are not solved till we identify the source of the problem which will require a look in the mirror. We've coveted living beyond our means for decades. Politicians were all too happy to pressure entities like the fed to do some smoke and mirrors to keep the gig going for a while. Now we wanna blame everyone except our own selves.

Kind of like we Coastal Californians who live in a natural desert expecting copious amounts of cheap water to keep our lawns lush and top off our swimming pools,

Patrick says

zzyzzx says

Looks like money laundering.

Redfin doesn’t show that sale price. Maybe just a print error?

It is not the price of the house that changes (although it does to a certain extent because of inflation). It costs about the same to build a house from year to year. It is really the price of the land that changes. When you think that historically 80% of the purchase price of a SFH was the house and the other 20% the value of the land with a total price move of 20% you see how 3rd world the US real estate market is.

Ok, Powell said it out loud that the Fed wants house prices to fall.

Since nationally, this has happened only twice in the US's history: once the Great Depression and the second the Global Financial crisis....what could possibly go wrong ??????

https://finance.yahoo.com/news/feds-powell-u-housing-market-194508055.html

HeadSet says

Misc says

everyone is going to know that the government caused the drop because they raised interest rates.

No, the government created the ridiculous run-up in house prices (and other asset prices) by keeping interest rates stupidly and artificially low. What is happening now is just a correction. Saying the government caused a real estate house price crash by raising rates is like a drunk blaming his hangover on the fact he stopped drinking.

True.

Misc says

It is not the price of the house that changes (although it does to a certain extent because of inflation). It costs about the same to build a house from year to year. It is really the price of the land that changes. When you think that historically 80% of the purchase price of a SFH was the house and the other 20% the value of the land with a total price move of 20% you see how 3rd world the US real estate market is.

@Misc I think you might make a fine Georgist!

Misc says

The FED has fucked themselves.

How has the FED fucked themselves when they never experience any consequences? No, we're the ones who get fucked.

GNL says

How has the FED fucked themselves when they never experience any consequences? No, we're the ones who get fucked.

Good point, as the member banks of the Federal Reserve System (Trustmark, Wells Fargo, Bank of America, Citibank, etc.) are too big to fail.

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Booger says

B.A.C.A.H. says

Most homeowners did not over borrow (at fixed rates, bro) to over pay for a crapshack in the past couple

Anyone who bought in the last 2 years overpaid though.

How could you say stuff like this? I sold this flip for $1.325M 2 years ago. Comps show it’s still worth over $1.7M. Yeah, I paid $640k for it.

https://redf.in/ElcieL

This buyer did alright too. Yeah, I paid $355k for this flip. 😅

https://redf.in/PdOp3m

This buyer did alright too. Yeah, I paid $340k for this flip. 😅

https://redf.in/YES9V5

This buyer is holding up alright. The saving grace is that they all locked in really low mortgage rate. Hope they can weather this storm and come out on the other side. Yeah, I paid $510k for this flip.

My underwriting is 50-60% ARV. If anything higher, let others do it. Not worth the time and efforts.

https://redf.in/jWmLcQ

Eman says

The saving grace is that they all locked in really low mortgage rate.

I wonder in the current climate if an assumable mortgage like a VA mortgage is a positive selling point is someone wants to sell a home now.

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ad says

Eman says

The saving grace is that they all locked in really low mortgage rate.

I wonder in the current climate if an assumable mortgage like a VA mortgage is a positive selling point is someone wants to sell a home now.

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I know for a fact that there are assumable loans in the commercial space.

Don’t know about residential. VA is for veterans right? Unless you’re selling from one veteran to the next, I’m not sure VA would want to assume the loan to someone who is not a veteran, but it’s only my guess.

Assumable loans are so valuable right now especially those loans in the low 3%. 1031 exchange buyers would love to pay 1 point and assume these loans in the current market environment. You’ve just given me an idea. Thank you. 🙏

Eman says

Don’t know about residential. VA is for veterans right? Unless you’re selling from one veteran to the next, I’m not sure VA would want to assume the loan to someone who is not a veteran, but it’s only my guess.

Veteran Affairs mortgages are assumable, and they can be assumed by non-veteran homebuyers who qualify for the loan.

My wife and I have a 3% VA mortgage on a townhome we bought in 2016. We paid around $188,000 and now have about $160,000 remaining balance. The recent sales were about $300,000 for the identical townhomes in our community. But I figure the price will bottom from $300,000 to $220,000 if the 30-year mortgage rate steadies to 6%.

We could offer an assumable mortgage on that $160,000 balance. So if they buy at $240,000 then they would have to finance at 6% the remaining balance of $240,000 minus $160,000, or $80,000. Two-thirds of the loan ($160,000) is at 3% and one-third is at 6%, so the effective mortgage rate is 2% + 2% or 4%.

That effective rate of 4% is what we could market to any potential home buyers who qualify to assume the VA mortgage balance of $160,000.

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September 21, 2022 speech Q&A:

Existing home sales have fallen for seven months straight, mortgage are the highest since 2008, yet mortgage demand increased and housing prices are still elevated. You mentioned plans to reset the market. Could you elaborate on what you mean, and what you think it will take to get there?

>> CHAIRMAN POWELL: When I say reset, I’m not looking at a particular specific set of data or anything. What I’m really saying is that we’ve had a time of a red hot housing market all over the country where famously houses were selling to the first buyer at 10% above the ask before even seeing the house, that kind of thing.

So, there was a big imbalance between supply and demand. Housing prices were going up at an unsustainablely fast level. The deceleration should help bring prices more closely in line with rents and other housing market fundamentals. And that’s a good thing. For the longer term, what we need is supply and demand to get better aligned so housing prices go up reasonably and people can afford houses again.

In the housing market, we have to go through a correction to get back to that place. There are also longer-run issues with the housing market. It’s difficult to find lots now close enough to cities and things like that, so builders are having a hard time getting zoning in lots, and workers and materials. From a business cycle standpoint, this difficult correction should put the housing market back into better balance.

https://macenews.com/transcript-fed-chair-powells-post-fomc-qa/

The only way the Fed can make house prices go down is by causing a recession with mass layoffs. Raising the interest rates just slows sales a little as homeowners will just sit in their existing homes with 3% mortgage rates rather then buy a new house and take on a 6%+ loan.

Only mass layoffs forcing homeowners to sell is going to move the needle. Is that really what the fed wants?

ad says

Veteran Affairs mortgages are assumable, and they can be assumed by non-veteran homebuyers who qualify for the loan.

I believe this to be true. My buddy has bought I think 4 homes VA loan wise. He was able to offload them very easily. One of them to a couple 3 blocks away from me. I don't know if it was assumed or not though. Might be out in Montana again in October and ask him.

It is the best perk of being military. Fuck the free college. As long as you have income it's zero down minus closing costs. It was a slam dunk when we had those clients when I was in RE. Not huge money, but he's made at least $150-200k buying and selling his primary homes (tax free). He's a bachelor, so it's easy for him to up and move and works remotely. Not a bad life. Probably lonely though. He's not super social.

WookieMan says

Not huge money, but he's made at least $150-200k buying and selling his primary homes (tax free).

Let's see him do that in a rising interest rate environment. LMAO, everyone is a genius in a dropping interest rate environment. Comical.

https://www.reddit.com/r/REBubble/comments/xkpcx2/listing_agent_just_called_to_tell_me_that_our/

Listing Agent Just Called to Tell Me that Our Offer is Embarrassingly Low

Resubmit next week, 10k less, and add a line at the end stating all rejections must be signed as proof the sellers were made aware of it. Include a CMA showing the price of a 2br.

pudil says

The only way the Fed can make house prices go down is by causing a recession with mass layoffs. Raising the interest rates just slows sales a little as homeowners will just sit in their existing homes with 3% mortgage rates rather then buy a new house and take on a 6%+ loan.

It will correct as the boomers start to die off. They were the largest demographic in the United States until recently. The housing market will move to glut over time. We would have already gone to this if it wasn't for the massive illegal imigration.

https://www.npr.org/2022/09/21/1124272098/home-prices-see-biggest-drop-in-9-years-thanks-to-higher-mortgage-rates

Home prices see biggest drop in 9 years, thanks to higher mortgage rates

Eman says

VA is for veterans right? Unless you’re selling from one veteran to the next, I’m not sure VA would want to assume the loan to someone who is not a veteran, but it’s only my guess.

The VA loan can be assumed by anyone with income qualifications. It is designed to help a veteran sell his house when he relocates. However, VA loan limits may be too low for the California market you guys play in.

WookieMan says

My buddy has bought I think 4 homes VA loan wise.

I presume he assumed loans from veteran sellers, which anyone can do. However, when you do, that takes away the selling veteran's eligibility for another VA loan until that loan is paid off. A veteran can use his eligibility for only have one VA loan at a time (with rare exceptions, like two very low value loans). If a veteran assumes another veteran's VA loan, the buyer can substitute his VA eligibility. That would be a bargaining chip, and works best if the loan is bellow current rates. I myself have assumed VA loans but did not use my own eligibility.

HeadSet says

The VA loan can be assumed by anyone with income qualifications. It is designed to help a veteran sell his house when he relocates. However, VA loan limits may be too low for the California market you guys play in.

Believe they adjust based on location like FHA. Either way you could still assume it and find a lender okay being a 2nd lien. Hard, but not impossible.

If you HAVE to get something, there's a way. The home I'm sitting in was purchased with no means of being able to buy it. I found a way after having the all cash offer accepted. Margin loan from the MIL that we paid the interest on for about 18 months $220/mo. Refi'd and we paid her back. Kind of wish we kept it going and paid off principle as we had the cash. Monthly nut PITI was maybe $500. Needed to pay off bills though from updates/repairs otherwise we'd have been paying 22% interest on CC's for work done. $1,200/mo still ain't bad all in for my house with an in ground pool. Fenced yard. Wife has a green thumb and I keep the lawn looking good. People ask to buy our home out of no where.

HeadSet says

I presume he assumed loans from veteran sellers

He could own 2 at a time. Not sure if the rules have changed. Rent one out and live in the other (technically). Both have to be primary at first for purchase and then move to the next. He just bought a house out in Montana (he lives there) that I crashed a week or so ago. He's down to one house now. But yeah, for a middle class bachelor he's done decent on housing tax free cap gains.

zzyzzx says

Resubmit next week, 10k less, and add a line at the end stating all rejections must be signed as proof the sellers were made aware of it.

It's a nice thought, but the whole point of being a realtor is to block all direct communication between buyer and seller. That's so that the realtor can "lose" bids that don't benefit him to the maximum amount personally.

Every buyer should always send a copy of his bid to the owners directly, though I'm sure buyer's agents have rules against that as well.

Added image to original post to make it easier to see in thread lists.

Patrick says

the whole point of being a realtor

Ahem, bro, it's ®ealtor, - got it?

https://www.realestateconsulting.com/speedy-escape-from-housing-market-slump-unlikely/

And that is what the $600,000 home is now worth.