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When will housing see its next 30% decrease?


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2023 Sep 12, 9:56pm   794 views  26 comments

by Broadway_Sam   ➕follow (0)   💰tip   ignore  

I am in favor of Patrick bringing back the bubble icon with the needle. I feel like we are near 2008 prices and something has to give. High interest rates along with low inventory in 2023 have replaced shadow inventory of 2008 and discussions on ARM loans of Gram Leach Bliley. When will prices drop 30% similar to 2012 prices and when will rates drop below 4% again so we can have another buying frenzy?

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1   REpro   2023 Sep 12, 11:56pm  

Events are repeated over the time with high dose of similarity. I would expect next frenzy time will be not sooner than 50-60 years from now.
2   WookieMan   2023 Sep 13, 1:30am  

REpro says

Events are repeated over the time with high dose of similarity. I would expect next frenzy time will be not sooner than 50-60 years from now.

So few people are moving. People locked in good rates. Boomers already downsized or have paid off houses or again locked in low rates and it doesn't make sense for them to move. Millennials now the largest generation with purchasing power are in family formation and that means buying houses. If people aren't moving, it's hard for prices to drop as that demo buys up homes when they first hit the market because they're desperate.

Having 3 kids I could never rent. My oldest son has a friend that their parents divorced and he move out of state for two years. The one parent wants to get back to my town and school district. They cannot find ANYTHING, including rentals. 4 new homes were built in 25 years in my town. We're a 30-35 minute easy commute from major suburban employers. I swear unemployment here is basically zero. Every business within 20 miles roughly has help wanted signs up. No one built houses so now there's nothing.

Interest rates would have to get to the 15-20% range and even then I think it would just stall price increases. The floor on the housing market is high and severe events are generally once in a lifetime. We're nearing a ceiling though too where I see price increases slowing. The housing crash was simply legalized mortgage fraud at the end of the day. Good luck getting 30-40% of the loans they were dishing out in the early 2000's now. It's not possible.

We need lots of job losses, super high interest rates, people all a sudden selling, massive building or all of those combined to see a crash again. I'm not seeing any of that in my region besides historically average rates and owners in the past 10 years sitting on 2.5-5% interest rates with no motivation to move. So I tend to agree with Repro. We're looking at decades likely before a significant event outside of war or some government shut down.

Oh and this isn't a generation dig, but Millennials saw their parents, boomers lose their homes. Had to move out of their town, lose their friends. That's not easy when you're 7-18 years old. So I think younger generations are more cautious with housing. Between lenders being better regulated and a lower risk profile on the buyer end, I just don't see problems for now. But I hate predictions. And the fact is you can't stop the train that is inflation. I'm young and I remember 90¢ gas being expensive in high school around '96. Can't time markets, but in 10 years, a house you bought now will 99% be worth more than today. I'd prefer to control my future and not a landlord that could sell at any time, so I choose to own. No issue with renters though. Everyone has different needs and lifestyles.
3   clambo   2023 Sep 13, 5:06am  

One reason that today is not like 2008 is that the largest demographic in the USA is retiring, and escaping the hellhole cities and states like NY, NJ, CT, MA, IL, MI. Some are also even departing CA.
Where they move to is not going to experience a significant drop in prices; they keep coming.
My observation is from Palm Beach and Martin Counties in Florida.
I don't know the housing situation in places like Missouri, Misssissippi, Alabama, Georgia, etc.
My older brother is nuts and is hanging on to living in NYC; it's because of his chubby wife who doesn't want to leave her goofy relatives behind.
4   zzyzzx   2023 Sep 13, 5:41am  

clambo says

My older brother is nuts and is hanging on to living in NYC; it's because of his chubby wife who doesn't want to leave her goofy relatives behind.


This happens A LOT!!!
5   zzyzzx   2023 Sep 13, 5:47am  

clambo says


One reason that today is not like 2008 is that the largest demographic in the USA is retiring, and escaping the hellhole cities and states like NY, NJ, CT, MA, IL, MI. Some are also even departing CA.
Where they move to is not going to experience a significant drop in prices; they keep coming.
My observation is from Palm Beach and Martin Counties in Florida.


True, but places like Florida and Arizona (and probably a few other places) that are already full of elderly people to begin with literally NEED a steady influx of people just to keep the local population numbers from dropping. Pinellas County Florida comes to mind as ground zero for this (I might be a bit biased on this last one since some of my grandparents lived there).
6   zzyzzx   2023 Sep 13, 5:49am  

WookieMan says

Boomers already downsized or have paid off houses or again locked in low rates and it doesn't make sense for them to move.


I bet this is keeping people from relocating to popular retirement destinations as well.
7   Broadway_Sam   2023 Sep 13, 5:14pm  

REpro says

Events are repeated over the time with high dose of similarity. I would expect next frenzy time will be not sooner than 50-60 years from now.


There was good buys in 2001 and 2008…it will come back so I am sure I won’t be sitting on the sidelines 50 years. Your comment doesn’t help those of us who are serious about Capitalism.
8   Broadway_Sam   2023 Sep 13, 5:15pm  

clambo says

One reason that today is not like 2008 is that the largest demographic in the USA is retiring, and escaping the hellhole cities and states like NY, NJ, CT, MA, IL, MI. Some are also even departing CA.
Where they move to is not going to experience a significant drop in prices; they keep coming.
My observation is from Palm Beach and Martin Counties in Florida.
I don't know the housing situation in places like Missouri, Misssissippi, Alabama, Georgia, etc.
My older brother is nuts and is hanging on to living in NYC; it's because of his chubby wife who doesn't want to leave her goofy relatives behind.


So basically middle America is up for grabs but the coasts won’t reset if I am reading through your response correctly.
9   Broadway_Sam   2023 Sep 13, 5:16pm  

zzyzzx says

clambo says



One reason that today is not like 2008 is that the largest demographic in the USA is retiring, and escaping the hellhole cities and states like NY, NJ, CT, MA, IL, MI. Some are also even departing CA.
Where they move to is not going to experience a significant drop in prices; they keep coming.
My observation is from Palm Beach and Martin Counties in Florida.


True, but places like Florida and Arizona (and probably a few other places) that are already full of elderly people to begin with literally NEED a steady influx of people just to keep the local population numbers from dropping. Pinellas County Florida comes to mind as ground zero for this (I might be a bit biased on this last one since some of my grandparents lived there).


Florida is overpriced right now with 600k homes at 8%
10   GNL   2023 Sep 13, 6:31pm  

Broadway_Sam says

Your comment doesn’t help those of us who are serious about Capitalism.

Or the free market. Hahaha. I laugh because it exists in name only.
11   WookieMan   2023 Sep 13, 9:09pm  

Broadway_Sam says

So basically middle America is up for grabs but the coasts won’t reset if I am reading through your response correctly.

I think the coasts are going to have it the worst to be honest. Not crash style, but I've referenced floor and ceiling with market prices. Coastal areas are at their ceilings and the floor is much lower than flyover country. I could see parts of CA and the East Coast losing 10%. I don't see much in the midwest losing even close to 5% if at all. Might be biased on my end, but I'm not seeing it here in IL and WI which are the markets I still have some knowledge of. They generally mirror the rest of flyover country if not determine it.
12   AmericanKulak   2023 Sep 13, 9:12pm  

Broadway_Sam says


Florida is overpriced right now with 600k homes at 8%

I'm loving watching the 1961 Space Program 3-bed ranches, only 3 beds because they covered the one car garage, go for $25k less than the brand new Lanar and DR Horton 3-bedroom, 2.5 baths with 400 more sq ft under air and 2 car garages. Now granted the 1961s are on a fifth or quarter of an acre and the news are less than that... but the 2 car garage, dedicated laundry room, USB ports in the wall in every room, new roof, new HVAC, properly sized vents for every room, builder covers closing costs and offers 5.5-6% builder financing the first 2 years, etc. vs. parking in driveway during a Florida Thunderstorm kinda offsets that.

Those homeloaners are stubbornly holding out! Though a few pull-off-the-markets and relisted 5% cheaper a few weeks later.

We'll see when snowbird season begins again if reality sets in.

The country might vary but ~15 year boom/bust cycle is pure Florida and has been for decade after decade.
13   Broadway_Sam   2023 Sep 14, 7:29am  

WookieMan says

Broadway_Sam says


So basically middle America is up for grabs but the coasts won’t reset if I am reading through your response correctly.

I think the coasts are going to have it the worst to be honest. Not crash style, but I've referenced floor and ceiling with market prices. Coastal areas are at their ceilings and the floor is much lower than flyover country. I could see parts of CA and the East Coast losing 10%. I don't see much in the midwest losing even close to 5% if at all. Might be biased on my end, but I'm not seeing it here in IL and WI which are the markets I still have some knowledge of. They generally mirror the rest of flyover country if not determine it.


10% is the equivalent of a 800k home dropping to 720k…with 8% interest most families will have to downsize to a 2 bedroom at 500k.

I am loading up on cashing for the next bubble burst, may be another 7-10 years but I am no fool.

800k homes need to drop to 650k before I jump in.
14   clambo   2023 Sep 14, 9:17am  

Florida is too popular with the demographic with the money to buy for the desirable areas to drop significantly.
15   The_Deplorable   2023 Dec 2, 8:38pm  

The Alan Greenspan housing bubble is still with us...


16   REpro   2023 Dec 2, 10:35pm  

Look into future of housing in wide, wide-open eyes.
According to worldometers.info worldwide population is growing at 6 million per month netto (new large city every month), about 72 million per year. The highest growth is in middle east and Africa. Now think for a moment, those areas are not so promising land for young people. Sooner or later, they will find the way how to reach European and American land, so we actually see every day. Those people at some point will need housing, rental or own with emphasize on owning. Most cities will look like Hong Kong. Where would you like to be?
17   AD   2023 Dec 2, 11:58pm  

clambo says

Florida is too popular with the demographic with the money to buy for the desirable areas to drop significantly.


As long as Florida housing is less than the housing in New York, New Jersey, Connecticut, etc then the migration rate will remain steady.

Even Colorado, I noticed Californians moving there and buying homes at 1/2 the price of the sales price of their Californian homes. That was one main reason for housing prices to increase in Colorado towns like Salida and Woodland Park.

.

,
18   Broadway_Sam   2023 Dec 7, 1:18pm  

REpro says

Events are repeated over the time with high dose of similarity. I would expect next frenzy time will be not sooner than 50-60 years from now.

ok tucker the funny sucker
19   SunnyvaleCA   2023 Dec 7, 2:32pm  

AmericanKulak says


1961 Space Program 3-bed ranches [...] go for $25k less than the brand new Lanar and DR Horton 3-bedroom

That's the price "compression" we are seeing out here in the desirable parts of silicon valley.

For the old "low-end" houses, prices are being pushed higher, as there are a lot of people desperately trying to buy anything they can afford.

New houses face multiple forces all acting together to limit how high the high end can go:
• Limit on government-blessed mortgage amounts means buyers get a worse rate if they exceed that limit.
• New houses are often built in places that were empty lots. Those lots were empty because they were undesirable (edge lot adjacent to an 8-lane highway, for example). Therefore, these new houses might be very nice, but the dirt they sit on is worth less than the low-end houses.
• New developments with many houses built simultaneously: Built with much less land per house. Are built in empty areas near highway, mass transit, industrial, or other nuisance. By California decree they are built along with condos for the subsidised "low income" so that your $$$ house has a continuous stream of people you were trying to leave behind by moving out of a condo in the first place.

but the 2 car garage
People are coming to realize that cars need to be kept locked up inside when not in use — especially at night. Nextdoor.com is rife with posts about brazen catalytic converter theft and smashed windows for cars parked in private driveways overnight. The garage doesn't add to the marketing "square footage," but is becoming a must-have. As California policies are forcing large apartment complexes into the nice areas, even the nice areas will become danger zones at night for parked cars.
20   SunnyvaleCA   2023 Dec 7, 2:53pm  

WookieMan says

Interest rates would have to get to the 15-20% range and even then I think it would just stall price increases.

WookieMan, thanks for your long and thoughtful post. While I agree with what you write, I just wanted to comment on the specific part I quoted with respect to crazy Silicon Valley. Out here it's common for someone to buy a house for at least 5x their yearly income. That would equate to a $2.5MM house (very average price in my neighborhood) being bought by someone with $400k to $500k yearly income. The thinking is (if you can call it "thinking" at all) that since prices always go up, you might as well buy the most expensive thing you can possibly afford because the bigger the "investment" up front means the more windfall profits made when you sell and flee the area.

The problem happens when interest rates go to 15-20%. At 20% interest payment, someone buying a house will be paying all of their income for the interest on the loan. That obviously can't happen. So, around here, the interest rate that crashes the housing market has to be quite a bit lower. I'd even suggest that 7% would be sufficient except for the fact that we're also facing 4-5% general inflation. Maybe the rough formula is mortgage rate exceeding inflation plus 5%.
21   GNL   2023 Dec 7, 3:01pm  

We'll see what happens this spring but, I'm pretty sure we are moving closer and closer to "you will own nothing and be happy" except for the "you'll be happy" part. We will start to see the homeownership rate fall and probably for a long time.
22   RC2006   2023 Dec 7, 4:40pm  

Is there any sort of chart that uses ounces of gold instead of dollars for housing the last 20-50 yesrs?
23   RWSGFY   2023 Dec 7, 5:28pm  

GNL says

We'll see what happens this spring but, I'm pretty sure we are moving closer and closer to "you will own nothing and be happy" except for the "you'll be happy" part.


Based on what?
24   AmericanKulak   2023 Dec 7, 5:40pm  

SunnyvaleCA says


People are coming to realize that cars need to be kept locked up inside when not in use

Fortunately, with elected Sheriffs, and we have some tough ones, that isn't a major problem at least in suburban Florida. Around Miami and Orlando it's a thing, but not in most of Suburban Florida.

Sadly, with each passing year, Orange County (Orlando) becomes more and more blue and "Diverse", but Brevard is +19 Trump/Republican.
25   SunnyvaleCA   2023 Dec 7, 5:44pm  

RC2006 says

Is there any sort of chart that uses ounces of gold instead of dollars for housing the last 20-50 yesrs?

I like https://silverprice.org/silver-price-history.html . Yes, the name is "silver" but they have all the data on gold as well. Here's a chart of gold priced in USD.

26   SunnyvaleCA   2023 Dec 7, 6:01pm  

that uses ounces of gold instead of dollars for housing the last 20-50 yesrs

Amazing to see that gold was under $400/ozt between 1994 and 2004. From that price, gold has increased 5x. I bought my shack in 2004 and have seen 3x increase, which some people would consider poor compared to gold. But, as an "investment," the shack has worked out better because I got government-pushed low cost financing for my shack, giving me a wonderful return on that 20% down payment followed tax-deductible "margin" payments until I paid it off when interest rates looked to be rising in the 2010s. Plus, the property taxes I pay are less than the cost of renting.

The S&P 500 has undergone about a 5x increase from 2004 also, but at least if you own that basket of stock you would be getting dividends, too.

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