patrick.net

Something different about this housing bubble is that rents are skyrocketing, which didn’t happen in the last one. So when I did my rent vs buy analysis before purchasing our home in TN, it still made sense to buy. Historically, I believe it’s rare or nonexistent to see rents drop significantly at a systemic level. Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Any thoughts on this?

porkchopexpress says

Something different about this housing bubble is that rents are skyrocketing, which didn’t happen in the last one. So when I did my rent vs buy analysis before purchasing our home in TN, it still made sense to buy. Historically, I believe it’s rare or nonexistent to see rents drop significantly at a systemic level. Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Any thoughts on this?

Agree, rent and inflation going up countering the housing crash that should be happening. Rates going up will slow down new buyers but isn't going to do anything to people with lots of equity without a 30+% crash.

porkchopexpress says

Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Yes, as long as population grows and banks don't do fucked up financing to unqualified buyers. Don't think we'll see a housing crash like we did in our lifetimes again.

I don't think people realize how much money banks pissed away foreclosing on people. The banks totally understand what happened. We had a deal where a foreclosure had a contract on it, they didn't want to budge on some inspection issue. Killed the deal. Shitty construction and a pipe blew up during the winter when it was cold. They lost $80k on the eventual sale and more with carry costs (taxes, insurance, etc.).

If housing/employment hits the shitter I think banks will do more forbearance and work with the borrower to keep housing prices up. Remember banks are usually paid back in the first 2-4 years with amortization even during a bust. They're not in the business of land lording, so it's beneficial to not foreclose.

I cant help but wonder if we're going to serve a rash of foreclosures like '08. I think not. Not only are there fewer NINJA loans out there, the morgatge industry hasn't pushed ARMs in over a decade, most SHOULD have locked in a low rate by now. Plus a larger portion of SF homes are held by institutional investors compared with the last time. There should be a moderate uptick as COVID protections expire, but I don't expect nearly the carnage of the prior bubble.

I expect proces to drop a bit, then stabalize similar to 05 to 07. If people can't get top dollar, they won't sell unless they have to. Market will slow but prices will be buoyed by inflation.

The bigger question is when will wages finally rise? At some point the dam breaks and companies have to pay more for talent, it's just a matter of when that occurs. I think by Q3 2024 you'll start seeeing major salary increases among middle class wage earners.

WookieMan says

Yes, as long as population grows and banks don't do fucked up financing to unqualified buyers. Don't think we'll see a housing crash

GreaterNYCDude says

there fewer NINJA loans out there, the morgatge industry hasn't pushed ARMs in over a decade,

That is one way of looking at it.

Another way of looking at it is that since those types of buyers no longer exist there's fewer potential buyers to prop up demand.

B.A.C.A.H. says

Another way of looking at it is that since those types of buyers no longer exist there's fewer potential buyers to prop up demand.

Agreed but I expect that will be balanced out by people who choose not to move and simply stay where they are. If there's less demand but less inventory, market should stay flat for a few years.

https://www.calculatedriskblog.com/

Wow! That was quite the example of 'flipr be fuckt'.

Booger says

Wow, couldn't rent it at $2,00/month but expects someone will buy it for $2,500/month.

From

Bloomberg...

A housing correction will reach from “coast to coast” in the US, but it will fall short of a crash, according to Mark Zandi, chief economist at Moody’s Analytics.

With the Federal Reserve introducing the biggest increase in interest rates in years to combat rising inflation, home prices will likely fall in the housing markets that are most “juiced,” says Zandi. Regions with signs of significant speculation, namely in the Southeast or Mountain West, can expect the pendulum to swing back. Cities and states due for a correction include Phoenix and Tucson in Arizona, the Carolinas, northeast Florida, and above all, Boise — “the most overvalued market in the country,” per Moody’s analysis.

If and when it comes, a drop in housing prices isn’t going to bring much immediate relief to renters, Zandi cautioned. With the supply of starter homes for buyers so limited, and interest rates rising, would-be buyers will have limited options to move from leases to loans. Rising permits and construction for multifamily housing will relieve pressure some, causing rent growth to increase less rapidly.

Zandi made the comments at a bipartisan housing policy summit in Washington, D.C., where speakers and participants, including members of Congress, addressed the severe stress in the housing market amid the growing specter of recession. Despite the broad reach of a looming price adjustment, a crash is unlikely, he says, for three reasons:

Housing vacancy rates are at an all-time low. Vacancy rates reached historic highs before the financial crisis more than a decade ago that led to the Great Recession.

The quality of mortgage underwriting is high. Most loans are “plain vanilla” 30-year or 15-year fixed-rate products, with no sign of the subprime or negative amortization activity that precipitated the foreclosure crisis.

While some markets are marked by speculation and flipping, nationwide the evidence for flipping is low.

“I just don’t see the the kind of mortgage defaults and distressed sales that would be necessary for big declines in housing values. That’s when you get crashes, when you have lots of foreclosures and a lot of distressed sales,” Zandi says. “That’s just not going to happen.”

HunterTits says

WTF does the quality of current mortgages have to do with that? NOTHING.

A lot, actually. Poor quality of mortgages was instrumental in driving up property prices in the prior cycle, and then mortgage defaults contributed to the snowball effect on the way down. That's not what's happening today. Prices climbed even higher, but this time it happened without drawing in poor schmucks who couldn't afford the place to begin with. So, when prices initially go down (which they probably will), it shouldn't cause that same chain reaction.

mostly reader says

HunterTits says

WTF does the quality of current mortgages have to do with that? NOTHING.

A lot, actually. Poor quality of mortgages was instrumental in driving up property prices in the prior cycle, and then mortgage defaults contributed to the snowball effect on the way down. That's not what's happening today. Prices climbed even higher, but this time it happened without drawing in poor schmucks who couldn't afford the place to begin with. So, when prices initially go down (which they probably will), it shouldn't cause that same chain reaction.

I would encourage you to watch the "Big Short" if you aren't much for reading. Basically, the movie is based on historical facts, it wasn't ARM or subprime loans that lead the fall in housing prices, it was all the mortgages. Even the 'prime' mortgages, the ones that couldn't go bad, that did. These prime mortgages were graded Aaa by Moody and the like.

My own experience working at a one of the mortgage companies I worked with that dealt with VA ARM loans extensively makes me ponder how the market will turn. VA loans are $0 down. VA loans make up a small amount of the overall mortgage market. This article below is worth a read regarding that...

https://resources.ownup.com/va-loan-data-study-overview

https://nypost.com/2022/06/24/us-housing-market-price-correction-to-hit-coast-to-coast-moodys-economist-warns/

US housing market price correction to hit ‘coast to coast,’ economist warns

1337irr says

While some markets are marked by speculation and flipping, nationwide the evidence for flipping is low.

Yeah the new narrative is, the market only crashes if most of the current homeowners are flippers.

During the financial fraud RE meltdown, folks who could continue to pay their mortgage walked away from an underwater, negative equity home.

1337irr says

I would encourage you to watch the "Big Short"

I saw it, although it was more of "it plays in background while I'm doing something else" type of watching.

IIRC, bad mortgages was exactly the problem. Quality of mortgages was poor, but Moody put lipstick on that pig by grading them AAA. Plus the characters went door to door and discovered whole blocks of unoccupied houses - tell for speculation in unprecedented numbers (IIRC, yet again). Prices coming down caused those bad mortgages to crash, which in turn caused further decline in prices - classical snowball effect.

That's not what we have today, not at least in terms of quality of mortgages. Rise in interest rates may have somewhat of a similar effect because, on top of cost of new ownership, some owners have to refinance. But it won't be the same.

My personal understanding of unhealthy RE market is partially based on number of owners who depend on appreciation and follow-up refinancing to continue paying the bills. They are always there in some numbers, but when those numbers go out of whack - that's a red flag. I'm not seeing it today. But then again, may be it's there and it's just that I don't go out and talk to people as much as I used to.

HunterTits says

WTF does the quality of current mortgages have to do with that? NOTHING.

Please watch the movie The Big Short which explains why subprime mortgages or quality of current mortgages have to do with that. Dr Michael Burry is my hero.

I agree as I have seen one "luxury" apartment building going up after another over the last 2 years in my zip code and county.

.

Al_Sharpton_for_President says

depend on appreciation and follow-up refinancing to continue paying the bills

So they take out a home equity line of credit or loan when their home appreciates a lot (in order to pay bills or maintain their consumer lifestyles) ? And they refinance also every few years ?

.

mostly reader says

But then again, may be it's there and it's just that I don't go out and talk to people as much as I used to.

Yeah, I'm a gadabout. I'm also slightly bearish on housing in general since I graduated in 2008 and I'm on patrick.net. For what it's worth, I have been involved in a few real estate meet-up groups in Austin, TX. The events I have been to give me the impression that a lot of people are flipping houses haphazardly. One realtor I know bought a contract at market value for 25 houses in the Austin-area and prices are dropping.

It's just nice to see prices dropping while you have some cash in the bank.

1337irr says

It's just nice to see prices dropping while you have some cash in the bank.

There's a time to cast away stones and there's time to gather stones together.

If I could go back in time and advice the younger version of myself, "observe and follow long term financial trends" would be close to the top of the list.

mostly reader says

There's a time to cast away stones and there's time to gather stones together.

with kings and counselors of the earth who rebuilt ruins for themselves, or with princes who had gold, who filled their houses with silver.

https://www.barrons.com/articles/housing-market-slowdown-prices-sellers-buyers-anxious-51656106338

Flipping houses is at its highest point since 2005 with Reventure Consulting's metrics.

https://www.youtube.com/watch?v=_2L6jZc7J60&list=RDCMUCVTQunGrE3p7Oq8Owao5y_Q&start_radio=1

1337irr says

It's just nice to see prices dropping while you have some cash in the bank.

yep, cash in a checking or savings account increases in value during deflation

those who have cash will be in a good position as asset (housing, stocks, etc) prices crash

Looks like the crash is on the way at many places in CA and else where in US where cities with heavy Tech, Finance, Real estate companies particularly not making any profits but operating on cheap debt. Almost free money at record zero interest from fed and fake pandemic promoted by current admin that should loose productivity end-up creating massive bubble again.
https://youtu.be/xTLGPy-OgF8
https://youtu.be/HSC4xILV_E8
Correction is due and is always good thing when it happens.

ad says

those who have cash will be in a good position as asset (housing, stocks, etc) prices crash

I certainly hope so.

Active listings on the MLS up 21% compared to last year. Finally!

Got this update from a realtor yesterday my our San Jose market. SFH inventory is up over 30% YoY, but it’s not as bad as it sounds. Definitely the higher rates have put a dent on the buyers’ enthusiasm as they qualify for less. Once layoffs pick up steam, we’ll see a bigger price drop. Otherwise, the drop shouldn’t be too bad.

Blue says

Looks like the crash is on the way at many places in CA and else where in US where cities with heavy Tech, Finance, Real estate companies particularly not making any profits but operating on cheap debt

I look back and see lots of large capitalization stocks like Disney, Amazon, AMD, Facebook, etc all down at least 30% when the S&P 500 was at its recent all time high and 52 week high of 4818.

I wonder if the coal companies like Consul (CEIX) will fare well based on increase in coal exports to Europe.

https://www.trains.com/trn/news-reviews/news-wire/u-s-coal-export-outlook-remains-strong-as-germany-looks-to-burn-more-coal-analysis/

.

I wonder if we will see a 30% housing correction from the high.

porkchopexpress says

Something different about this housing bubble is that rents are skyrocketing, which didn’t happen in the last one. So when I did my rent vs buy analysis before purchasing our home in TN, it still made sense to buy. Historically, I believe it’s rare or nonexistent to see rents drop significantly at a systemic level. Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Any thoughts on this?

Do rents ever drop ? I guess they do such as landlords will advertise the first month rent is free.

I suspect when there are advertisements like first month rent free then we know there is a reduction in rental demand, and there is pricing pressure on landlords.

.

1337irr says

I wonder if we will see a 30% housing correction from the high.

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.

.