I've noticed this anecdotally over the past few weeks in my town. After a couple of years of houses being listed on Thursday, shown over the weekend, in-contract for above asking price the following Tuesday, houses have finally begun to sit on the market for several weeks. And I've seen gasp a couple of asking price reductions. Too soon to tell if this is the beginning of a minor correction or a major bubble burst, but it definitely feels like we've entered a new phase.
I think that was the main reason for higher interest rates -- it makes the monthly payments higher, which pushes down the total home price. But it only works if there is inventory. And inventory only happens when people are in a "forced sell" position, such as needing to relocate for their job (back to office push for example). A lack of inventory typically will also spur on new construction, but even in areas where construction can happen there is the compounding issue of higher timber prices. So with lumber prices coming down, that should relieve the inventory shortage (again, in areas where land isn't too high and new builds are allowed to happen).
The problem I have with this is that regular people that have to mortgage the house don't get any better deal (higher interest == higher monthly payments), but the forced price reduction does give a better deal to anyone who can pay cash (investors for example).
That is just paying extra to lower the principal. How does that help if you have a high principal? You are still paying it.
With a low principal, high interest rate mortgage, refinancing to a lower interest rate reduces the amount you were going to pay, without you having to spend any money.
For example, lots of people that bought in 2015 to 2019 at higher interest rates made out great, they paid a lower price for their house, then refinanced in 2020 to lower their interest costs (and sometimes even got paid to refinance).
Regarding your last point, wouldn't higher interest make housing a less attractive investment since now you need housing to beat the higher returns from bonds?
Yes. The higher the risk free rate goes, the more compelling the return potential must be to attract investment. Easy opportunities to arbitrage dry up.
The main "forced sell" event is that people die. Yet prices are not coming down even in countries with stable or rapidly declining populations. So shortage it isn't.
Most of the planet has below-replacement birth rates currently in a rapidly declining trend. These declining birth rates are not only leading to rapidly declining population, but to exponentially declining population. Right now, most homes that should be for families are inhabited by one or two elderly persons, while almost all real estate worldwide is owned by the elderly or abstractions they control, such as funds etc.
Unless you invent an elixir that makes people live 200 years or if the elderly start burning down their houses out of spite, there will be no housing shortage.
> Most of the planet has below-replacement birth rates currently in a rapidly declining trend.
No, most of the planet has above-replacement birth rates.
The developed world has below-replacement birth rates.
People migrate from the former to the latter, resulting in net population growth in ~nearly country in the world.
There are only a handful of countries experiencing population decline. Japan, Venezuela (Shocker), Russia (Shocker), Ukraine (Also a shocker...), and now that I think of it, almost all of the rest are other former Soviet Block countries. Their populations are declining, because people are actively getting the hell out of them, and nobody wants to/is allowed to move into them.
Have you? Have you considered that the countries at the top of the chart you linked have a lot more people in them, than the countries at the bottom of the chart you linked? Which is why the average # of births per woman, world-wide, is 2.3?
There are exactly 19 countries that had a population decline between 2015 and 2020. 13 of them were former Soviet states. One is a failed state. [2] One isn't even a country, it's a territory of the US, and anyone in it can just buy a plane ticket, and move somewhere better[3]. Three are Western European, and one is Japan. All but two (Italy and Japan) have high numbers of people trying to leave them.
The discussion is about real estate. Look at the world map, most of the world is below replacement levels. Exactly what I said. Even countries like India are just at replacement levels and will soon be below as well.
I'm not going to argue with facts against faith. If you think it's realistic to literally colonize the entire planet with people from but a few countries, then you do. My interpretation is that real estate prices will fall to reach equilibrium.
I'm trying to wrap my head around WTF is happening in my market. Median price this year is $100,000 above last year, and actual monthly sales are same as Oct 22, but half of Oct 21 (Oct being latest full month reporting). By all available data, there are plenty of buyers still, but inventory overall and DOM continues to climb. The weird part to me is that almost every house on market is overpriced - and not just "I feel the price should be lower" but as in, "OMG that would have been overpriced by $$$$$$$ even at the height of the market 18 months ago!" Like the best explanation I can come up with is that sellers feel like they missed out, so they are jacking up prices to absolutely ridiculous levels either out of hubris or desperation. It's a seriously weird time.
Yes, but most home affordability is in terms of monthly payment. These price drops are probably delayed reaction to the interest rate increases from the past few months.
In the 20 or so years I have lived on a small dead-end street with about 16 homes, and where homes that went on the market sold within the first three days and sometimes the first three hours, it has only been in the last 60 days that I have seen a house where the sellers have twice cut the price by greater than 10% each time and the house yet languishes unsold.
This seems temporary, assuming interest rates have topped out. Given the Fed's recent messaging, this seems like the most obvious time in 10+ years to wait out the housing market.
The housing market hasn’t meaningfully changed until I stop seeing every single story 1k sq-ft, 2-3 bedroom 1-2 bath house being listed for over half a goddamn million dollars in a 70k pop city.
I started waiting for the market to crash 10 years ago, and I’m likely going to keep waiting for at least as long, barring a catastrophic economy collapse, which would be even less desirable than the current situation.
I've thought a lot about this, without finding any comprehensive solution.
The housing market suffers from inadequate regulation, allowing speculation and profit-making through the mass purchase of properties and subsequent rental hikes. We need safeguards against such practices; perhaps home ownership shouldn't just be a right but a condition actively safeguarded and championed.
I don’t know, none of the houses I want to buy are in neighborhoods where any substantial portion of the stock is available to rent. Is there evidence of this kind of “profit-making”?
In many first world capitals, it's actually a common investment to buy real estate and not rent it out at all. The running costs are lower, there's no maintenance costs and no one pesters you about miscellaneous issues. All these people do is sit on the homes and wait for them to go up in price while everyone else struggles to find a place to live. Them not renting out reduces supply which further drives up prices. You don't see them up for rent because that's not the business they're in, they're in the buy-hold-sell business instead. It's a good example of ridiculously perverse incentives, and why the regulation needs to be changed to make this a thing of the past.
While I see what you mean, these two phenomena are really two sides of the same coin. If I'd wager a guess, I'd say OP is probably referring to cases such as [0]. Regardless of which mechanism is at play though, the end result is the same, either rising prices through collusion or rising prices through lowered supply. Both also benefit anyone else doing it the other way, so it results in highly lopsided markets.
I disagree. It suffers from overregulation. How is a person possible able to sell their own house without doing some bullshit thing wrong and making an illegal sale?
the root cause is lack of supply, on an incredible scale.
To put in perspective what a program to bring prices down would actually look like, Sweden launched a program in the '70s to build a million homes in ten years, when its population was 8 million. We have not seen homebuilding on that scale in the United States for decades, if ever.
This is the correct answer, full stop. Every other factor is peanuts in comparison. The sheer magnitude of our housing shortage is astonishing: Pre-pandemic, there was something like a ~5 million home deficit. Post-pandemic it grew to ~7 million. This deficit is likely even bigger today.
It's simple supply & demand. We can't reduce demand -- people need shelter. The solution is providing supply. No amount of fiddling with interest rates, corporate real estate investment, or whatever else, will alleviate the housing crisis. (# of houses available) / (# of needy families) << 1. Fix the ratio, or live with the crisis. Everything else is lipstick on a pig.
Within the USA we could reduce demand by reducing immigration. I don't think we should attempt to resolve the housing shortage that way, and I agree that we should build more housing, but let's at least be clear about the available options.
I think that enforcing internal borders, to prevent internal immigration, like people from Ohio trying to move to California or New York, or letting anyone in or out of Texas, is going to face a very strong uphill battle. But yes, let's be clear that is an option.
There is also over-regulation of the supply. Zoning that makes it difficult to build any thing other than single family homes and corporate apartment buildings surrounded by parking lots. HOA's that require proof of 3x rental as income for each tenant or don't allow multiple tenants per house at all.
It's well established that in high demand areas like CA regulations are excessively burdensome. But go ahead and increase regulations, maybe I can retire earlier as a result!
More likely scenario to solve the affordability issue is 40-50y mortgages, and socialistic handouts by states (like CA is doing).
My vote is to tax/regulate corporate and out-of-state owners. I think landlording should still be an option for everyday middle or lower class people to start a business. But you get cut off after your 2nd or 3rd property, or if you don't reside in the state. Most importantly, though, Blackstone capital should not be able to buy $4bn-worth of single-family homes. If they want to build new urban housing that costs that much, fine. but not allow them to compete at scale with everyday people because they have a tremendous advantage. I think many places would also benefit from a hefty vacancy tax as well.
The only reason investors buy homes is because they're a good investment. If you want to get them out of housing all you need to do is make housing a bad investment. That's done by increasing supply. Investors will always find loopholes to whatever regulation you come up with if it's profitable.
Bring it on. I can't wait to buy a house in the next 6 months. People with money who want desperately out of the renting game don't care at all about 8% interest rates. But the investors and second home buyers sure do. This has been the biggest thing keeping me out of the market since 2020; the time pressure, not the prices. I just refuse to make a massive financial decision on the spot based on a 15 minute open house tour with zero contigencies and huge earnest payments.
> But the investors and second home buyers sure do.
I'm curious about this, because from what I've heard, a lot of investors are incredibly happy with the higher interest rates as they're paying cash for a lot of homes, which has been squeezing real homeowners out of the market since they are able to shortcut by making offers on houses without requiring financing.
They may have lines of credit, but they aren't taking out a mortgage--especially in the same market/rates that are available to homeowners. REITs and other investors will often pay cash, especially when it's a residential unit they look to either rent or flip.
Institutional investors would need to justify to their LPs why whatever they will end up earning beats buying and holding Treasuries instead. The higher rates Treasuries have the tougher it is to make that justification.
Rate cuts are usually done in response to unemployment spiking. It could take things awhile to recover once they start cutting as that likely means the economy has entered a recession.
That being said - it could be the best time to buy, but not for those that lose their job.
This is why nothing is going to "collapse." There are so many people in your position just wanting to buy the second prices start to fall a little. That will prevent any type of serious collapse and it will be more of a minor correction at best.
Will they be able to buy though if they lose their job? Rate cuts usually come with a spike in unemployment, so...
That said I still don't think there will be a collapse unless there is like, worse unemployment than 2008. But - prices could still easily drop 10-15% if this is a more mild recession.
> Existing-home prices are on their seventh consecutive month of growth, […] Average U.S. existing home prices are up by nearly 6% year-to-date and 2.6% year-over-year, which is “well above the median full calendar year increase” in more than three decades of data, […]
> housing affordability has become abysmal for a large portion of millennials and other people of prime homebuying age, “sidelining potential buyers,”
> a prospective homebuyer needs to make $114,627 to afford a home in today’s market, which is a 15% year-over-year increase and the highest annual income on record needed to comfortably buy a home.
… yes, because slight more homes had to lower their price, the cracks are really showing. Were those home lowering to a price point still on a market price curve pointed squarely at the moon, or were these buyers trying to flip a home 2 months after buying it and doing 0 renovations (a listing I have seen more and more often recently) and hoping to get rich quick?
Mortgage rates mostly track the 10y yield, not the federal funds rate. As I understand it, avg US mortgage duration is 9-10y which is why mortgage rates track the US10Y yield.
The Fed doesn’t directly control the 10y yield like they do the federal funds rate
The fed absolutely has control over treasury yields. They're by far the biggest buyer of all the treasuries through their open market operations. By buying more or less they can change the price.
I’m aware that open market operations affect the 10y yield, my point was that the market has more influence over the 10y yield than the federal funds rate.
The historical housing bubble was caused by artificially low interest rates adopted worldwide. Ever-increasing housing prices is bad for people who own homes (higher property taxes, property tax distortions across cities, higher fees when changing houses) and those who don't own any. Low interest rates discourage saving and encourage unproductive speculation and house flipping.
The people benefitting from the status quo are only those who make money off trading and borrowing fees (banks, realtors), and the occasional person who left a high price area to a low price area.
California homeowners pay property tax and the rate goes up either with inflation or 2%. I'm guessing you think it should go up with the market value of the home. Thank god it doesn't or I would have had to sell instead of being able to give my kids a stable home for the past 18 years.
Maybe the price has upward pressure because the tax increases are capped. Fewer home sellers, less supply of homes, high demand, hence higher prices.
Besides, local government expenses have to be covered somehow. It’s just putting it on new homeowners who are not beneficiaries of the capped property tax from years ago.
Governments should not be dictating prices, they should be influencing supply and demand in order to affect prices. Doing it the “easy” way will simply distort supply and demand and the pain will still have to be felt somewhere.
For example, if the goal is lower property taxes, then the solution is lower local government spending / more efficiencies / more population to spread fixed costs over.
California homeowners pay property tax on the "assessed value", i.e. of the home. This value generally starts at the purchase price and then goes up with the lower of either inflation or 2%. The tax rate is the same for everyone but will be on different values. The rate is 1%, going to the State of California, and usually additional, but lesser, local taxes.
You're obtusely ignoring the commenter's point, and I suspect you know it.
You've got the mechanics a bit wrong, but the point is that your property tax, in real dollars, goes down YoY, as it cannot do anything but that due to Prop 13. In particular, it cannot even track the real dollar (let alone increase).
This is a well-known issue and underlying cause of a number of CA's political problems, biggest of which being the housing crisis. It's further well-reported how two identical homes, in the same neighborhood, can have vastly different property tax rates, with one paying very little, and one paying a lot, because the latter is owned by someone younger such as a millennial. These are the simple mechanics of Prop 13.
I'm glad you were able to raise your kids, but my generation is being screwed out of that, as we cannot break into the housing market, cannot get affordable healthcare, and cannot get meaningful real wage growth. My affordability limit as a SWE is something like $4k/mo, and homes in my market are ~$6k/mo. Either I do like the OP suggests — pay way above affordable and take on the huge risks that come with that — or I continue to rent and cannot get into a starter home from which I might start a family.
Until the recently the inflation rate was really low so my property tax did track the real dollar. In fact my house lost value for the first three years.
The problem with prop 13 is that it also covers commercial property. This is a serious loss to our tax base with no good reason.
easy loans plus not enough building are the reason can't afford a home, not prop 13. The average length of homeownership in CA is less than five years. They turn over.
>Thank god it doesn't or I would have had to sell instead of being able to give my kids a stable home for the past 18 years.
No, you wouldn't. You could have taken out a HELOC for a tiny portion of your appreciation over those years to pay your fair share of taxes, the way people do in literally every other state.
Funny I never thought my neighbors weren't paying their fair share when I bought in. Figured the rule has been there since the 70s and applies to everyone equally (well except I'm over 55 and can now keep my current tax basis to the next house I buy)
I'll pay taxes on the appreciation when I sell so the government will get theirs.
Should I also only carry a variable rate mortgage so that I pay whatever a new home buyer pays?
Should the government spend whatever they take in even if their costs haven't increased with home values?
Sorry home ownership is not affordable. It hasn't been in California since the late 90s. I threw 20 years of savings at mine so I could have a reasonable mortgage. I actually would be better off financially if I had put that money in the stock market.
Now with remote work, you don't have to live near a work center, opening tons of location possibilities. I wish that happened before I bought.
Late to the party here, but yeah 100% I believe in property tax like more or less every other state has done.
The way California has done property tax is hilariously bad, commercial properties get no cost basis step up forever? until recently People can inherit property with infinite value without a reassessment? come on. Imo prop 13 is at the root of most of the state's problems.
The reason people lobby for prop 13, particularly older property owners who vote, is because of the appreciation you mentioned.
That should not be happening in the first place, because the state should not systemically under-build housing. The government policies which cause that underbuilding are lobbied for by the same demographic that enjoys the benefits of prop 13. If it's for personal preference in lifestyle or a quest for artificially increasing home value it doesn't matter there's no reason to create an aristocracy in California.
We need to change those policies so we can build enough housing supply to meet demand, and treat housing like a commodity good that it is. Instead of this absurd game where we underbuild on purpose and patch over the issues to the best of our ability for the benefit of a relatively small supply of homeowners who bare none of the social costs.
> The people benefitting from the status quo are only those who make money off trading and borrowing fees (banks, realtors), and the occasional person who left a high price area to a low price area.
I think that second category should also include retirees who downsize from their empty nest SFH to a cheaper, smaller condo, which is something that I think happens way more than occasionally.
These people don't benefit so much from the high interest rates because they sell at high prices and buy at high prices too. Just check how much condos are going for in desirable areas in Florida.
A retiree with an empty nest SFH, looking at inflation and the rising cost of goods, and the future of living on a fixed income, might choose to cash out their equity with a HELC, use that to buy the smaller cheaper condo, and rent out their SFH instead. More work, but more money, and hey, you're retired, what else are you going to do?
> Ever-increasing housing prices is bad for people who own homes
On the contrary, ever-increasing housing prices have allowed generations of home-owners to reap immense amounts of tax-free income by borrowing against their real estate. For large parts of the population, having a job is not the way they make a living. Borrowing money is how they make a living, having a job and even a career is just the ticket they need to be able to borrow as much money as possible. In many countries the majority of the population make a living by borrowing, while only a few by working.
The only people who actually make a living by working are the idiots, and that's why they remain broke their entire lives and have nothing to give their children after they pass away. Usually they don't even have children.
This system works as long as there's more money to borrow to keep real estate value going up and more idiots born to work for a living. And when the jig is over, all debts of the real estate owners will be forgiven, while the rest will be sent off to die in some war.
GenAI is going to keep the economy good while interest rates stay high probably forever, meaning that housing availability won't actually drop significantly. We should not expect house prices to go down more than a trickle.
Does anyone else remember when the top upvoted HN comment on the leaked FTX balance sheet article was “I work in the crypto industry and FTX is going to be fine…”? Because I remember that.
Jokes aside, I would like a list of reasons why people could own homes build out of grunt work 100 years ago but cant today with all the truly marvelous technology.
Besides choking in the red tape stuff like: wood is expensive if you don't plant trees. Long ago people planted the trees (where the house was to be build) when the baby was born.
Unless the housing supply increases this will just be a temporary thing. As long as people are able to make their mortgage payments they typically won't sell their homes at a loss (even if their equity is negative). Some people will always be forced to sell due to life events and that's what will set current market comps. Since mortgage rates have recently spiked upwards people who need a mortgage to buy a home can afford less, so they either aren't buying or are buying a smaller/worse home than they would've previously.
But since most people aren't forced to sell, the available supply will shrink, which will push up prices eventually, until people can sell at a profit again. The rising rates also make it harder for developers to get loans, and lower prices make development projects riskier, compounding the supply problem.
There should just be a pandemic or something that puts a lot of people out of work so that they have to sell at low prices so that large real estate companies can buy their houses and then rent them back to them. They can even have a reverse rental program that allows people to stay in their homes through the hard times and instead pay rent to the new owners.
I'm afraid I don't follow that. House-sellers are generally also house-buyers. They move out of one place into another. It's neutral with respect to supply.
If there's a glut of people owning houses but not living in them and not successfully renting them, then that does reduce supply, but they're also suffering opportunity cost. If they're willing to throw away money like that I don't think increasing supply would help -- they'd just buy up the new houses as well.
If someone sells a house for less than they purchased it their equity available to purchase another house decreases. Since mortgage rates have increased that means they can only afford a smaller/worse house (because they have less money to make a down payment with). So why would they sell in that situation unless they need to? People sell when their homes have appreciated because they have positive equity and can get a new mortgage, so they can buy a better home by rolling their existing equity into the new home as a down payment (they also don't pay capital gains when doing this and the interest on the new mortgage is deductible, making it attractive from a tax perspective).
Edit: I think I see where the confusion is. You are right that the literal supply of houses doesn't increase or decrease unless people stop/start renting or new homes are built. But the supply of houses available for purchase depends on whether people want to list them right now or not. Which is influenced by current prices because most people won't sell at a loss unless they have to.
In response to your edit, what you’re still missing is that a household that decides not to sell (and thus withhold inventory from the market) is also a household that is not entering the market on the demand side.
So, to a first order approximation, there is no change to ratio of supply to demand. The absolute level or supply is irrelevant. The absolute level of demand is also irrelevant. What matters is the amount of supply relative to demand.
It does not matter to the overall supply and demand picture if someone “can’t afford to sell” because they also can’t afford to buy. People who do have to sell will get fewer offers, and so people who are still in the market to buy have less competition.
What really matters is how many renters are converting to buyers, how many owners are dying or moving to nursing homes, and how many investors are buying or selling rental units. Higher interest rates tend to have little effect on mortality, but do discourage first-time homeowners and investors.
Yes I understand all that. My point is that both supply and demand are low right now because you can't trade up in this market unless you can pay cash. But low supply eventually leads to increasing demand which pushes prices back up. It leads to increasing demand because it takes about a year to build a new house and it's likely that developers will start fewer homes in the upcoming year due to increased rates, which mean they can't make their required profit unless prices go up.
I also understand that current sales will sell for less because there is less demand. That's why I mentioned that sales comps will be pegged to the few transactions that occur. But you have to look at the number of transactions, not just the most recent prices. In real estate you have a price cycle but also a volume cycle. Fewer transactions occur at low prices because sellers don't want to sell when prices are low. The exception would be if many people are forced to sell because they can't make their mortgage payments, but that doesn't appear likely at the moment.
I mean, you could sell for less than you purchased (say you put 20% down) and buy a new home with 5% or 10% down.. so you take a haircut and increase your mortgage. People may do this if they have to move for a job.
House sellers are generally those who have gone to meet the saints. They move from one place into another yes, but where they go they don't play any part in the housing market – I hope!
Depends on life stage and other circumstances. They may be moving in with someone else, for example - anything from marriage to getting roommates to moving back in with the parents.
I wonder if there is a difference, as far as housing market fluctuations go, between an aging person who passes away and leaves their home to their heirs and one who sells their home before they pass away in order to fund their retirement/healthcare.
Obviously the outcome for the family is very different and worth examining, but for the moment I'm considering the broader impact on the housing market.
I live in a place that has received awards as a retirement destination, IE: we have people in the scenario you describe... I don't really see a difference in these outcomes in terms of inventory. One observation I'd make is that many people who stay in their homes to the end often don't have the means (money, health, etc) to maintain their homes, meaning those homes are often in worse shape and thus a lower valuation. Often too if you think of a "last home" it is either going to be a "downsize" or it's a "dream home" neither of which may be appropriate for all segments of the market. This segmentation is something that gets overlooked when we talk about supply side problems. I have lots of houses available in my market, but they may not be the square footage or condition that all buyers are willing to accept.
> Unless the housing supply increases this will just be a temporary thing
I'll go a half-step further and say that unless this is a result of broad actions that have made home-building less costly, it will be temporary. Whenever house prices go down, home-builders become less incentivized to build new homes, and so less homes get built, and prices go up again. This will happen unless the price drop was a result of houses becoming easier to build
Selling at a loss is dependent on your cost basis, and fortunately most owners didn’t buy within the last few years of dramatically overinflated prices.
>Unless the housing supply increases this will just be a temporary thing.
The housing supply will increase dramatically in the next decade, not by building but by attrition.
More than 55% of all homes in America are owned by Silent Gens or Boomers[0]. That figure includes non-SFHs, of SFHs I've read they own >70% of (lost my source unfortunately). They are going to start dying of en masse within the next decade. That means A LOT of SFH are going to hit the market, all around the same time.
The share of millenials and genzers who are financially fit to even purchase a home are going to be far less than the amount of people who are dying.
For the non-believers, it's all written in the demographics. Unless we import a shit load of migrants who can also afford expensive real estate, or we print money so that institutions can buy these properties, the prices are going to sink like crazy.
Well their kids could live in them, or sell it and buy a different house to live in. Forecasting what the effect of that supply will be on prices seems hard to me. Housing units per capita is lower than it was 20 years ago[0] and I think if you could find a longer time series you would see the pattern continue back many decades. That timeseries also includes all housing, not just SFH. I think if you just looked at SFH the decline would be more dramatic.
Unlikely. There's a very high likelihood the house will have to be sold, either to pay off debts of the deceased (or bereaved), or because the children already have their own lives going, or because they don't want to assume the tax burden, or simply because each child wants their share to do with as they please.
>or sell it and buy a different house to live
This is what's going to happen. All of these property will be sold. A very small percentage will be assumed by the children because of the all issues mentioned above.
1) Not 55% from your article. Youngest boomer is 59. That's about middle of the 55-64. So split the difference, it's 43.8%. Millenials are larger than boomers. Gen X is larger than Silent generation. If your thesis of them not being able to buy when they die off is correct, well, see #2 and #4 below.
2) People that inherit don't have to sell. Many will simply rent as it could be tax advantageous. Or they move in.
3) Construction costs (labor, materials) will inflate minimizing new supply.
4) The Fed has no choice but to bring rates back down and keep printing. National debt is $33T which is crazy but unfunded liabilities are 211T! We're well on our way to paying 1T in annual interest. 65% of spending is mandatory. Debt historically % of GDP is 46.9%. End of 2022 - 97%. [1]. Interest rates cannot remain historically elevated and the only way out of the debt load is to print print print. This helps assets and affordability (debt service) for investors and the genx, millenials to acquire. The US and world got drunk off a cheap dollar.
So I disagree on the macro of your thesis. Certainly some areas will be affected though with boomer/silent passings but that will be due to a demographic change in demand, gen x and younger not desiring those areas for numerous reasons.
I'll be holding assets as inflation continues, and probably rips again in the near future. It will be traditional inflation (actual economy) or inflation in the financial economy (stocks, assets). One or both have to rip from inflation. There's no way out of the debt load.
>> They are going to start dying of en masse within the next decade. That means A LOT of SFH are going to hit the market, all around the same time.
80% of the silent generation is already dead along with 33% of the baby boomers. Between them, around 8,000 people die every day, and that has been going on for quite a while.
When do you expect this to start having an effect on prices?
> The share of millenials and genzers who are financially fit to even purchase a home are going to be far less than the amount of people who are dying.
I don't understand this sentence.
The number of houses that get sold or transferred to living people is of course exactly the same as the number of houses vacated by people who died. It can't be anything else since houses don't evaporate when the owner dies.
> Just because you die doesn't mean your house is paid off or you don't have some kind of reverse mortgage on it.
That doesn't change anything with respect to the existence of the house. Someone might take a loss (the heir or a bank) but no matter, the house continues to exist and someone else will end up owning it.
> Just the yearly taxes on my home would be a significant burden to many.
If nobody can afford it that just means the price (and thus tax) will drop until someone can.
> Unless we import a shit load of migrants who can also afford expensive real estate, or we print money so that institutions can buy these properties, the prices are going to sink like crazy.
Likely the powers that be will print money to hand over to institutions to gobble up real estate who will then rent out the properties to the incoming mass migration wave into the US. Most of these new arrivals have a almost zero percent chance of becoming home owners with the current pricing and wage suppression going on.
It seems to me various real estate investment groups have essentially unlimited lines of credit to buy up properties. On the commercial side they seemingly can ride out many of their units being empty for YEARS.
It won't matter for Millennials trying to buy their first homes.
I'm seeing single-family houses going for $310k that should be going for maybe 2/3rds of that on a good day. Typically they're flipped houses.
If you were to bring down the value of every single-family home in the US, that means accepting about 2/3rds the value of each of these mortgages, along with all of the securitized derivatives of them. That's a 2007-2009-level crash, which the banks just won't tolerate.
The far more likely play is that large regional, national, or international investors wait for the price to drop a little more and use what is basically an infinite pile of money to buy them up for speculation or rental stock, which will keep this problem going.
> I'm seeing single-family houses going for $310k that should be going for maybe 2/3rds of that on a good day.
I've been hearing a lot of "should be" talk like that recently - like folks complaining that people are paying $50k for a normal SUV that "should be" $30k or whatever.
What are we basing "should be" on? Some affordability metric? Our gut feeling about what a comparable thing cost a few years ago?
If I sold my house and someone told me I should have sold it for 2/3 of what I sold it for, I think I'd sit in stunned silence for a moment and then just laugh.
I'm guessing that is the case. Condos next door that cost $210k before covid now in the exact same spot three years alter asking for $630k is probably making people ask questions about the market.
It's a 60+ year-old single-family, single-garage home within eye (and more importantly, ear) shot of a major interstate highway next to the home of a man who has a number of city code violations due to the state of his property (think rank weeds, cracked paint, tires in the yard, etc.) in a major Midwestern city where the average household income is ~$56,000.
When you consider who this kind of housing was built for - younger married couples with two children - the problem becomes apparent. You can't cover COL, costs of raising children, a mortgage on a $310k house at 7% interest, an auto loan note at the same, and student loan debt on $56k household income. Wages are stagnant, so something has to go. Typically, it's the idea of children or the idea of owning a house. This has implications for the economy 20 years from now. There won't be as many consumers and workers to participate in the market, and those that do exist are likely to have access to less generational wealth because their parents were more likely to rent than to own. Neither bodes well for economic growth or stability. That's what I mean by "should cost" - a value that allows for a seller to sell a home at a reasonable price to a party that wishes to carry out the life stage activities that provide for future economic growth.
I'm looking out the window of my real estate office toward a neighborhood a lot like what you are describing - except our median income is abut $20K less and we aren't in the midwest. Those houses here would be within the same range you are talking about, and it's just basic supply+demand, plus the replacement cost. What does that same house cost today to build? It may not seem fair, but that's why even the "affordable" suburban tract housing in my area starts in the high-300s.
I wouldn't describe it as a matter of fairness, thinking deeper about it.
We're really just mortgaging quarterly earnings for those with major residential real estate holdings (like pension funds paying out to those born during the Baby Boom) with future economic growth at this point. When asked if they'd rather have sustainable growth that will see them able to put food on their tables 20 years from now or make the line go up over the next 90 days, capital has chosen the latter. That _will_ have a consequence down the line, and it won't be a good one.
The other user brought up that the cost to build a home has gone up substantially, and this response seems more like an addendum onto what you were already saying rather than a response to that. Just fyi. I think there is inherent truth to what you're saying as well, in that business decisions more often than not seem driven by the dangling carrot of short term profits. But there can be a multitude of reasons why the cost of a house is just out of reach to what we used to consider the "average middle class American."
Ah, I think I get you now - you are talking more about issues of wealth or opportunity inequality, IE: structural problems, where perhaps the housing is really a symptom as much as a cause. It's a rubber-hits-the-road view of what's happening overall.
Ultimately, while it is certainly a problem that housing is this expensive, the deeper, more structural problem is that incomes are still this low. It's been 40 years now since incomes started stagnating compared to productivity; anyone who thinks this wasn't going to have serious negative effects on society and the economy had really better wake up, because we're already seeing those effects.
Homes 'should' be affordable to the people who live there. I.e. I would hope the median housing costs are no more than a third of the median take home pay for the average resident. Now, I'm not going to sit here and advocate for price fixing, but you can do a few things.
1. Ban AirBnB short term rentals by people who do not own and live in the house.
2. Ban foreign ownership of real estate. A nations laws are there for the benefit of its people, not some random billionaire from china looking for a place to park his money.
3. Much more relaxed zoning, preferably at a national level, or at the very least, at state level. Something akin to Japan where multi-tenant residential housing is permitted in all but a few zones.
If all of the above were in place, I'd have no problem with houses going for 'whatever the market will bear'. Sadly our housing market is captured by people with vested interests in making home ownership unaffordable for most.
These are popular ideas in many places, but here are just some things to consider:
1a) If you town bans short-term rentals but the next town over doesn't, then guess what - the investors just migrate and you haven't actually changed much.
1b) Highest and best use is a really important concept. There are properties that make for not great permanent dwellings but are great short-term rentals. When you put artificial restrictions in place, it doesn't actually help supply.
2) There is so much money here in the US that even banning foreign ownership doesn't matter much. I live in a tourist / second-home market and it's people from the region who are buying up the investments.
3a) My community went to relaxed zoning years ahead of the state. Helped a little, but not as much as everyone hoped. Turns out that it is still expensive to build multi-family, ADUs, etc and not a fit for every life need.
3b) While zoning changes are good, I continue to hammer on income / jobs as a bigger factor in many markets. Don't come at me with SFO or some other example - every market is going to be different. But in places like mine, the make up of the economy is a bigger factor to affordability than zoning or these other changes. Fixing the whole regional economy is not a simple problem and it doesn't campaign well in political stump speeches like "fix zoning" does.
> 1a) If you town bans short-term rentals but the next town over doesn't, then guess what - the investors just migrate and you haven't actually changed much.
On the contrary: you've changed the housing supply in your town. Sure, some of the money will go to the next town over, but if you're running your town as if it's a business you deserve to end up with a hollow wasteland.
> 2) There is so much money here in the US that even banning foreign ownership doesn't matter much. I live in a tourist / second-home market and it's people from the region who are buying up the investments.
Given what I've heard about the amount of properties being bought up by Chinese investors (which tracks with what else I know about the market and how China has been progressing in recent years, so I have no reason to doubt it), I think it unlikely that, were they all to be forced out of the market, domestic investors would be able to simply fill the vacuum with no net change. Investment dollars chasing real estate may be far more plentiful than is healthy, but they are not infinite.
>On the contrary: you've changed the housing supply in your town.
Obvs every market is going to have its nuances and differences... in my area, the largest city banned new STR a few years ago - and absolutely nothing changed. Ironically, the smaller city next door that didn't ban is growing and thriving on multiple levels in ways the town that banned is not. Likewise, because the county (and next county over as well, which is just a few mile away) didn't ban, all it really meant was that city that put in place a ban received less tourism tax revenue while all the other entities benefitted.
The other nuance I was trying to communicate - we had a lot of housing built during the war to support the training base. They are great little houses for a weekend visit, but they stink as permanent dwellings. This is a part of the supply / inventory problem I don't hear discussed enough. For example, if you have a ton of 4000 square foot houses ($$$$) but your buyers are all first-time / first-upgrade types ($$), you've still got an inventory problem.
But see, the thing about flipped houses is that the people who own them don't actually want them. They want to sell them. For as much as they can get, sure, but also to sell them in a timely fashion.
So I don't see flippers as being the big deterrent to prices falling. If they haven't caved yet, they will in a few months.
> If you were to bring down the value of every single-family home in the US, that means accepting about 2/3rds the value of each of these mortgages, along with all of the securitized derivatives of them. That's a 2007-2009-level crash, which the banks just won't tolerate.
And how, specifically, do you think the banks are preventing this? Not just "it's a conspiracy - we all know it". OK, maybe so. What's the mechanism?
They want to sell them _at a profit_ and if the market doesn't cool enough, they'll be able to do that no matter what, at the expense of the future economic activity of the people who can afford it.
As for the second point, simple. They just refuse to renegotiate loans. Same as 2007-2009. They've gotten far pickier about who it is they loan out to, too, so it's less likely to result in the foreclosure of the home than it was during that time period. The flip side of that is that there's a shrinking pool of families that can afford to take that sort of cost on.
How many times have I heard that, but they keep calling it till it really collapses. What you should look for is if a certain mid sized bank gets into deep shit because they are left holding a big bag of failed mortgages
Banks don’t typically hold mortgages. They sell them off. Mostly to Fannie and Freddie but also as securities.
Those securities defaulting are a trailing indicator of price as you need a mortgage to be underwater (or mass economic failure) for a mortgage to fail.
In my neighborhood the houses currently on Zillow do show price cuts, but honestly all these houses have significant issues. The move in ready houses are sold the weekend they go on sale or even before that.
Almost all folk discussion of the recent housing boom will include the words "Blackrock" or "Wall Street", but investors with less than 100 units own the overwhelming majority of the 24% of houses purchased by investors [1]. The 2017 tax cuts introduced several provisions favorable to real estate investors that in my opinion accelerated the blow-up when mortgage rates were cut to well below the inflation rate during the pandemic, already a massive stimulus. Bonus depreciation allowed you to buy a used, already depreciated rental property and deduct its entire value from your taxable income in the first year [2]. Theoretically you have to pay this back when you sell, but not if you exchange it for another property (1031). This is being phased down and will be only 60% starting in January. Second, pass-through deduction allowed buyers of rental property to deduct the rent from their W2 income up to 20% of their gross income, as long as you declare that you spent a certain amount of time managing the property [3]. This is due to expire in 2025. Third, large parts of the US were designated as "opportunity zones" where gains are tax free if held for 10 years and improvements are made [4].
All this, combined with consumer stimulus, increased remote work, major swings in domestic migration and household composition [5], and you have red-hot housing prices.
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Non paywalled article: https://finance.yahoo.com/news/housing-market-starting-crack...
The problem I have with this is that regular people that have to mortgage the house don't get any better deal (higher interest == higher monthly payments), but the forced price reduction does give a better deal to anyone who can pay cash (investors for example).
You can't renegotiate your high-principal, low-interest mortgage later. (Well, you can, if rates go up, but why would you want to?)
With a low principal, high interest rate mortgage, refinancing to a lower interest rate reduces the amount you were going to pay, without you having to spend any money.
For example, lots of people that bought in 2015 to 2019 at higher interest rates made out great, they paid a lower price for their house, then refinanced in 2020 to lower their interest costs (and sometimes even got paid to refinance).
Unless you invent an elixir that makes people live 200 years or if the elderly start burning down their houses out of spite, there will be no housing shortage.
No, most of the planet has above-replacement birth rates.
The developed world has below-replacement birth rates.
People migrate from the former to the latter, resulting in net population growth in ~nearly country in the world.
There are only a handful of countries experiencing population decline. Japan, Venezuela (Shocker), Russia (Shocker), Ukraine (Also a shocker...), and now that I think of it, almost all of the rest are other former Soviet Block countries. Their populations are declining, because people are actively getting the hell out of them, and nobody wants to/is allowed to move into them.
https://data.worldbank.org/indicator/SP.DYN.TFRT.IN
Have you? Have you considered that the countries at the top of the chart you linked have a lot more people in them, than the countries at the bottom of the chart you linked? Which is why the average # of births per woman, world-wide, is 2.3?
There are exactly 19 countries that had a population decline between 2015 and 2020. 13 of them were former Soviet states. One is a failed state. [2] One isn't even a country, it's a territory of the US, and anyone in it can just buy a plane ticket, and move somewhere better[3]. Three are Western European, and one is Japan. All but two (Italy and Japan) have high numbers of people trying to leave them.
[1] https://en.wikipedia.org/wiki/Population_decline#Contemporar...
[2] Or so I hear on the news.
[3] For some definitions of better, that include 'Having electricity at some point within 11 months of a hurricane making landfall.'
Real estate doesn't care how people got into your country, it just cares that they did.
Still not building enough, and the market always cools in winter.
Big Tech isn’t killing the internet. All the Ferengi that went into engagement farming are with their clickbait.
The housing market hasn’t meaningfully changed until I stop seeing every single story 1k sq-ft, 2-3 bedroom 1-2 bath house being listed for over half a goddamn million dollars in a 70k pop city.
I started waiting for the market to crash 10 years ago, and I’m likely going to keep waiting for at least as long, barring a catastrophic economy collapse, which would be even less desirable than the current situation.
(Not disputing just no experience personally).
[0] https://www.axios.com/2023/11/02/dc-housing-rent-antitrust-l...
To put in perspective what a program to bring prices down would actually look like, Sweden launched a program in the '70s to build a million homes in ten years, when its population was 8 million. We have not seen homebuilding on that scale in the United States for decades, if ever.
It's simple supply & demand. We can't reduce demand -- people need shelter. The solution is providing supply. No amount of fiddling with interest rates, corporate real estate investment, or whatever else, will alleviate the housing crisis. (# of houses available) / (# of needy families) << 1. Fix the ratio, or live with the crisis. Everything else is lipstick on a pig.
More likely scenario to solve the affordability issue is 40-50y mortgages, and socialistic handouts by states (like CA is doing).
I'm curious about this, because from what I've heard, a lot of investors are incredibly happy with the higher interest rates as they're paying cash for a lot of homes, which has been squeezing real homeowners out of the market since they are able to shortcut by making offers on houses without requiring financing.
I have multiple friends who received cash offers from investment companies when selling their homes. It's fairly common and well known.
"We buy houses" companies are everywhere. It's their entire strategy.
That being said - it could be the best time to buy, but not for those that lose their job.
That said I still don't think there will be a collapse unless there is like, worse unemployment than 2008. But - prices could still easily drop 10-15% if this is a more mild recession.
> housing affordability has become abysmal for a large portion of millennials and other people of prime homebuying age, “sidelining potential buyers,”
> a prospective homebuyer needs to make $114,627 to afford a home in today’s market, which is a 15% year-over-year increase and the highest annual income on record needed to comfortably buy a home.
… yes, because slight more homes had to lower their price, the cracks are really showing. Were those home lowering to a price point still on a market price curve pointed squarely at the moon, or were these buyers trying to flip a home 2 months after buying it and doing 0 renovations (a listing I have seen more and more often recently) and hoping to get rich quick?
https://www.cnbc.com/2023/11/08/mortgage-rates-plunge-and-de...
The Fed doesn’t directly control the 10y yield like they do the federal funds rate
The historical housing bubble was caused by artificially low interest rates adopted worldwide. Ever-increasing housing prices is bad for people who own homes (higher property taxes, property tax distortions across cities, higher fees when changing houses) and those who don't own any. Low interest rates discourage saving and encourage unproductive speculation and house flipping.
The people benefitting from the status quo are only those who make money off trading and borrowing fees (banks, realtors), and the occasional person who left a high price area to a low price area.
California homeowners insulated from property tax due to prop 13.
Besides, local government expenses have to be covered somehow. It’s just putting it on new homeowners who are not beneficiaries of the capped property tax from years ago.
Governments should not be dictating prices, they should be influencing supply and demand in order to affect prices. Doing it the “easy” way will simply distort supply and demand and the pain will still have to be felt somewhere.
For example, if the goal is lower property taxes, then the solution is lower local government spending / more efficiencies / more population to spread fixed costs over.
You've got the mechanics a bit wrong, but the point is that your property tax, in real dollars, goes down YoY, as it cannot do anything but that due to Prop 13. In particular, it cannot even track the real dollar (let alone increase).
This is a well-known issue and underlying cause of a number of CA's political problems, biggest of which being the housing crisis. It's further well-reported how two identical homes, in the same neighborhood, can have vastly different property tax rates, with one paying very little, and one paying a lot, because the latter is owned by someone younger such as a millennial. These are the simple mechanics of Prop 13.
I'm glad you were able to raise your kids, but my generation is being screwed out of that, as we cannot break into the housing market, cannot get affordable healthcare, and cannot get meaningful real wage growth. My affordability limit as a SWE is something like $4k/mo, and homes in my market are ~$6k/mo. Either I do like the OP suggests — pay way above affordable and take on the huge risks that come with that — or I continue to rent and cannot get into a starter home from which I might start a family.
The problem with prop 13 is that it also covers commercial property. This is a serious loss to our tax base with no good reason.
easy loans plus not enough building are the reason can't afford a home, not prop 13. The average length of homeownership in CA is less than five years. They turn over.
No, you wouldn't. You could have taken out a HELOC for a tiny portion of your appreciation over those years to pay your fair share of taxes, the way people do in literally every other state.
Glad you got yours, though.
I'll pay taxes on the appreciation when I sell so the government will get theirs.
Should I also only carry a variable rate mortgage so that I pay whatever a new home buyer pays?
Should the government spend whatever they take in even if their costs haven't increased with home values?
Sorry home ownership is not affordable. It hasn't been in California since the late 90s. I threw 20 years of savings at mine so I could have a reasonable mortgage. I actually would be better off financially if I had put that money in the stock market.
Now with remote work, you don't have to live near a work center, opening tons of location possibilities. I wish that happened before I bought.
The way California has done property tax is hilariously bad, commercial properties get no cost basis step up forever? until recently People can inherit property with infinite value without a reassessment? come on. Imo prop 13 is at the root of most of the state's problems.
The reason people lobby for prop 13, particularly older property owners who vote, is because of the appreciation you mentioned.
That should not be happening in the first place, because the state should not systemically under-build housing. The government policies which cause that underbuilding are lobbied for by the same demographic that enjoys the benefits of prop 13. If it's for personal preference in lifestyle or a quest for artificially increasing home value it doesn't matter there's no reason to create an aristocracy in California.
We need to change those policies so we can build enough housing supply to meet demand, and treat housing like a commodity good that it is. Instead of this absurd game where we underbuild on purpose and patch over the issues to the best of our ability for the benefit of a relatively small supply of homeowners who bare none of the social costs.
I think that second category should also include retirees who downsize from their empty nest SFH to a cheaper, smaller condo, which is something that I think happens way more than occasionally.
End result is, no new SFH on the market.
On the contrary, ever-increasing housing prices have allowed generations of home-owners to reap immense amounts of tax-free income by borrowing against their real estate. For large parts of the population, having a job is not the way they make a living. Borrowing money is how they make a living, having a job and even a career is just the ticket they need to be able to borrow as much money as possible. In many countries the majority of the population make a living by borrowing, while only a few by working.
The only people who actually make a living by working are the idiots, and that's why they remain broke their entire lives and have nothing to give their children after they pass away. Usually they don't even have children.
This system works as long as there's more money to borrow to keep real estate value going up and more idiots born to work for a living. And when the jig is over, all debts of the real estate owners will be forgiven, while the rest will be sent off to die in some war.
Does anyone else remember when the top upvoted HN comment on the leaked FTX balance sheet article was “I work in the crypto industry and FTX is going to be fine…”? Because I remember that.
Jokes aside, I would like a list of reasons why people could own homes build out of grunt work 100 years ago but cant today with all the truly marvelous technology.
Besides choking in the red tape stuff like: wood is expensive if you don't plant trees. Long ago people planted the trees (where the house was to be build) when the baby was born.
But since most people aren't forced to sell, the available supply will shrink, which will push up prices eventually, until people can sell at a profit again. The rising rates also make it harder for developers to get loans, and lower prices make development projects riskier, compounding the supply problem.
If there's a glut of people owning houses but not living in them and not successfully renting them, then that does reduce supply, but they're also suffering opportunity cost. If they're willing to throw away money like that I don't think increasing supply would help -- they'd just buy up the new houses as well.
Edit: I think I see where the confusion is. You are right that the literal supply of houses doesn't increase or decrease unless people stop/start renting or new homes are built. But the supply of houses available for purchase depends on whether people want to list them right now or not. Which is influenced by current prices because most people won't sell at a loss unless they have to.
So, to a first order approximation, there is no change to ratio of supply to demand. The absolute level or supply is irrelevant. The absolute level of demand is also irrelevant. What matters is the amount of supply relative to demand.
It does not matter to the overall supply and demand picture if someone “can’t afford to sell” because they also can’t afford to buy. People who do have to sell will get fewer offers, and so people who are still in the market to buy have less competition.
What really matters is how many renters are converting to buyers, how many owners are dying or moving to nursing homes, and how many investors are buying or selling rental units. Higher interest rates tend to have little effect on mortality, but do discourage first-time homeowners and investors.
I also understand that current sales will sell for less because there is less demand. That's why I mentioned that sales comps will be pegged to the few transactions that occur. But you have to look at the number of transactions, not just the most recent prices. In real estate you have a price cycle but also a volume cycle. Fewer transactions occur at low prices because sellers don't want to sell when prices are low. The exception would be if many people are forced to sell because they can't make their mortgage payments, but that doesn't appear likely at the moment.
House sellers are generally those who have gone to meet the saints. They move from one place into another yes, but where they go they don't play any part in the housing market – I hope!
What else to do with an inherited house than either live in it or sell it?
Obviously the outcome for the family is very different and worth examining, but for the moment I'm considering the broader impact on the housing market.
I'll go a half-step further and say that unless this is a result of broad actions that have made home-building less costly, it will be temporary. Whenever house prices go down, home-builders become less incentivized to build new homes, and so less homes get built, and prices go up again. This will happen unless the price drop was a result of houses becoming easier to build
The housing supply will increase dramatically in the next decade, not by building but by attrition.
More than 55% of all homes in America are owned by Silent Gens or Boomers[0]. That figure includes non-SFHs, of SFHs I've read they own >70% of (lost my source unfortunately). They are going to start dying of en masse within the next decade. That means A LOT of SFH are going to hit the market, all around the same time.
The share of millenials and genzers who are financially fit to even purchase a home are going to be far less than the amount of people who are dying.
For the non-believers, it's all written in the demographics. Unless we import a shit load of migrants who can also afford expensive real estate, or we print money so that institutions can buy these properties, the prices are going to sink like crazy.
[0]https://ipropertymanagement.com/research/homeownership-rate-...
[0]: https://fred.stlouisfed.org/graph/?g=j9kH
Unlikely. There's a very high likelihood the house will have to be sold, either to pay off debts of the deceased (or bereaved), or because the children already have their own lives going, or because they don't want to assume the tax burden, or simply because each child wants their share to do with as they please.
>or sell it and buy a different house to live
This is what's going to happen. All of these property will be sold. A very small percentage will be assumed by the children because of the all issues mentioned above.
1) Not 55% from your article. Youngest boomer is 59. That's about middle of the 55-64. So split the difference, it's 43.8%. Millenials are larger than boomers. Gen X is larger than Silent generation. If your thesis of them not being able to buy when they die off is correct, well, see #2 and #4 below.
2) People that inherit don't have to sell. Many will simply rent as it could be tax advantageous. Or they move in.
3) Construction costs (labor, materials) will inflate minimizing new supply.
4) The Fed has no choice but to bring rates back down and keep printing. National debt is $33T which is crazy but unfunded liabilities are 211T! We're well on our way to paying 1T in annual interest. 65% of spending is mandatory. Debt historically % of GDP is 46.9%. End of 2022 - 97%. [1]. Interest rates cannot remain historically elevated and the only way out of the debt load is to print print print. This helps assets and affordability (debt service) for investors and the genx, millenials to acquire. The US and world got drunk off a cheap dollar.
So I disagree on the macro of your thesis. Certainly some areas will be affected though with boomer/silent passings but that will be due to a demographic change in demand, gen x and younger not desiring those areas for numerous reasons.
I'll be holding assets as inflation continues, and probably rips again in the near future. It will be traditional inflation (actual economy) or inflation in the financial economy (stocks, assets). One or both have to rip from inflation. There's no way out of the debt load.
[1] https://www.cbo.gov/publication/58888
80% of the silent generation is already dead along with 33% of the baby boomers. Between them, around 8,000 people die every day, and that has been going on for quite a while.
When do you expect this to start having an effect on prices?
I don't understand this sentence.
The number of houses that get sold or transferred to living people is of course exactly the same as the number of houses vacated by people who died. It can't be anything else since houses don't evaporate when the owner dies.
Just the yearly taxes on my home would be a significant burden to many.
That doesn't change anything with respect to the existence of the house. Someone might take a loss (the heir or a bank) but no matter, the house continues to exist and someone else will end up owning it.
> Just the yearly taxes on my home would be a significant burden to many.
If nobody can afford it that just means the price (and thus tax) will drop until someone can.
Likely the powers that be will print money to hand over to institutions to gobble up real estate who will then rent out the properties to the incoming mass migration wave into the US. Most of these new arrivals have a almost zero percent chance of becoming home owners with the current pricing and wage suppression going on.
It seems to me various real estate investment groups have essentially unlimited lines of credit to buy up properties. On the commercial side they seemingly can ride out many of their units being empty for YEARS.
I'm seeing single-family houses going for $310k that should be going for maybe 2/3rds of that on a good day. Typically they're flipped houses.
If you were to bring down the value of every single-family home in the US, that means accepting about 2/3rds the value of each of these mortgages, along with all of the securitized derivatives of them. That's a 2007-2009-level crash, which the banks just won't tolerate.
The far more likely play is that large regional, national, or international investors wait for the price to drop a little more and use what is basically an infinite pile of money to buy them up for speculation or rental stock, which will keep this problem going.
I've been hearing a lot of "should be" talk like that recently - like folks complaining that people are paying $50k for a normal SUV that "should be" $30k or whatever.
What are we basing "should be" on? Some affordability metric? Our gut feeling about what a comparable thing cost a few years ago?
If I sold my house and someone told me I should have sold it for 2/3 of what I sold it for, I think I'd sit in stunned silence for a moment and then just laugh.
When you consider who this kind of housing was built for - younger married couples with two children - the problem becomes apparent. You can't cover COL, costs of raising children, a mortgage on a $310k house at 7% interest, an auto loan note at the same, and student loan debt on $56k household income. Wages are stagnant, so something has to go. Typically, it's the idea of children or the idea of owning a house. This has implications for the economy 20 years from now. There won't be as many consumers and workers to participate in the market, and those that do exist are likely to have access to less generational wealth because their parents were more likely to rent than to own. Neither bodes well for economic growth or stability. That's what I mean by "should cost" - a value that allows for a seller to sell a home at a reasonable price to a party that wishes to carry out the life stage activities that provide for future economic growth.
We're really just mortgaging quarterly earnings for those with major residential real estate holdings (like pension funds paying out to those born during the Baby Boom) with future economic growth at this point. When asked if they'd rather have sustainable growth that will see them able to put food on their tables 20 years from now or make the line go up over the next 90 days, capital has chosen the latter. That _will_ have a consequence down the line, and it won't be a good one.
1. Ban AirBnB short term rentals by people who do not own and live in the house.
2. Ban foreign ownership of real estate. A nations laws are there for the benefit of its people, not some random billionaire from china looking for a place to park his money.
3. Much more relaxed zoning, preferably at a national level, or at the very least, at state level. Something akin to Japan where multi-tenant residential housing is permitted in all but a few zones.
If all of the above were in place, I'd have no problem with houses going for 'whatever the market will bear'. Sadly our housing market is captured by people with vested interests in making home ownership unaffordable for most.
1a) If you town bans short-term rentals but the next town over doesn't, then guess what - the investors just migrate and you haven't actually changed much.
1b) Highest and best use is a really important concept. There are properties that make for not great permanent dwellings but are great short-term rentals. When you put artificial restrictions in place, it doesn't actually help supply.
2) There is so much money here in the US that even banning foreign ownership doesn't matter much. I live in a tourist / second-home market and it's people from the region who are buying up the investments.
3a) My community went to relaxed zoning years ahead of the state. Helped a little, but not as much as everyone hoped. Turns out that it is still expensive to build multi-family, ADUs, etc and not a fit for every life need.
3b) While zoning changes are good, I continue to hammer on income / jobs as a bigger factor in many markets. Don't come at me with SFO or some other example - every market is going to be different. But in places like mine, the make up of the economy is a bigger factor to affordability than zoning or these other changes. Fixing the whole regional economy is not a simple problem and it doesn't campaign well in political stump speeches like "fix zoning" does.
On the contrary: you've changed the housing supply in your town. Sure, some of the money will go to the next town over, but if you're running your town as if it's a business you deserve to end up with a hollow wasteland.
> 2) There is so much money here in the US that even banning foreign ownership doesn't matter much. I live in a tourist / second-home market and it's people from the region who are buying up the investments.
Given what I've heard about the amount of properties being bought up by Chinese investors (which tracks with what else I know about the market and how China has been progressing in recent years, so I have no reason to doubt it), I think it unlikely that, were they all to be forced out of the market, domestic investors would be able to simply fill the vacuum with no net change. Investment dollars chasing real estate may be far more plentiful than is healthy, but they are not infinite.
Obvs every market is going to have its nuances and differences... in my area, the largest city banned new STR a few years ago - and absolutely nothing changed. Ironically, the smaller city next door that didn't ban is growing and thriving on multiple levels in ways the town that banned is not. Likewise, because the county (and next county over as well, which is just a few mile away) didn't ban, all it really meant was that city that put in place a ban received less tourism tax revenue while all the other entities benefitted.
The other nuance I was trying to communicate - we had a lot of housing built during the war to support the training base. They are great little houses for a weekend visit, but they stink as permanent dwellings. This is a part of the supply / inventory problem I don't hear discussed enough. For example, if you have a ton of 4000 square foot houses ($$$$) but your buyers are all first-time / first-upgrade types ($$), you've still got an inventory problem.
So I don't see flippers as being the big deterrent to prices falling. If they haven't caved yet, they will in a few months.
> If you were to bring down the value of every single-family home in the US, that means accepting about 2/3rds the value of each of these mortgages, along with all of the securitized derivatives of them. That's a 2007-2009-level crash, which the banks just won't tolerate.
And how, specifically, do you think the banks are preventing this? Not just "it's a conspiracy - we all know it". OK, maybe so. What's the mechanism?
As for the second point, simple. They just refuse to renegotiate loans. Same as 2007-2009. They've gotten far pickier about who it is they loan out to, too, so it's less likely to result in the foreclosure of the home than it was during that time period. The flip side of that is that there's a shrinking pool of families that can afford to take that sort of cost on.
https://www.zillow.com/homedetails/36-1st-St-Mc-Gill-NV-8931...
Those securities defaulting are a trailing indicator of price as you need a mortgage to be underwater (or mass economic failure) for a mortgage to fail.
All this, combined with consumer stimulus, increased remote work, major swings in domestic migration and household composition [5], and you have red-hot housing prices.
[1] https://scrippsnews.com/stories/corporate-investors-are-purc... [2] https://tax.thomsonreuters.com/en/glossary/bonus-depreciatio... [3] https://www.bakertilly.com/insights/new-regulations-provide-... [4] https://www.nar.realtor/qualified-opportunity-zones [5] https://www.federalreserve.gov/econres/notes/feds-notes/the-...
We’re nowhere near that. Only chance of this happening in the near term is sharp increase unemployment.