patrick.net

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.

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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 ?

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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/

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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.

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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.

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Housing rises with inflation. Unless people are desperate to sell, e.g. they can't service their mortgage due to mass layoffs none of this is going to happen. Inventory is still very low. I suspect a moderate increase in 2022/3, around or perhaps below inflation. Wine Country still hovering at highs with some price reductions amid higher summer inventory. To get anywhere close to 10- 20% discount you need to offer all cash

Stock market needs to keep tanking for any meaningful correction in housing but while I consider last week a bear Markey and short covering rally Friday entailed more buying than expected

ad says

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.

Rents dropped bigly after the dotcom bust in the early 2000’s. I believe the data showed a 28% drop in rents. However, rents didn’t budge much during the global financial crisis 2008, and they shot up around 2011-2012 all the way till the pandemic.

There was some pressure on landlords during the pandemic, but business seems back to normal now. In fact, rents are still hot. Not sure where we are heading next, but the big boys believe rents should continue to rise as more people opt for renting vs buying due to higher rates and job uncertainty.

Plus I suspect xiden will unleash the ppt to keep old white leftoid retards voting for him if dems want to retain even the slimmest chance in the upcoming elections to win despite cheating

mell says

1) Housing rises with inflation.

2) To get anywhere close to 10- 20% discount you need to offer all cash

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

2) One can offer all cash, but there’s no guarantee s/he’ll get the 10-20% discount at the moment. We recently got a couple all cash offers on our flip wanting 15-20% off. We accepted one with 30% down and no contingencies.

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

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.

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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.

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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.
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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.

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