Fellow home owners, are you ready for the housing market to crash?
I know I’m supposed to want it to keep going up as a wealth generator or whatever.
But like… I wouldn’t be able to afford the monthly payments if I bought my house right now and it’s scary. Also none of my friends are buying homes, none of them are even renting full places. Just like renting rooms.
I don’t know why you think that’s going to happen. Supply is down and demand is as strong as ever. Policy to make housing more plentiful is woefully lacking.
Just the fact that no one can afford housing any more, and lots of folks bought property to rent out at this super high rate, so to not lose money they have to rent out homes for like 2k+ for small rentals.
So the most likely way, if it all, is all the rental properties are forced to go on market at the same time, and then they don’t get sold so get foreclosed on.
Legislation could also force a lot of homes on the market.
Houses and condos should only be available to be owned by individuals. Ban corporate / hedge fund ownership of everything except high density apartments (that aren’t individually owned).
Ban / cap short term rentals.
Add a tax penalty for individuals after X properties. Ex: if you own more than 3 residential properties, you pay extra taxes.
All of these encourage houses to be occupant owned, while still enabling small scale landlords, because we need both.
I personally would love a crash. I sold my small condo last year in an attempt to upgrade to a house due to getting married and needing more room. I was hoping to time the market, but houses are still out of reach for two middle aged professionals with strong careers, if we ever want to retire.
Edit - to illustrate the problem. In San Diego, where I live, depending on the source, the median home is about $1m.
If you take the estimated monthly cost of leading real estate cites, that’s around $7200/mo.
The median household income in San Diego is $83500.
Legislation could also force a lot of homes on the market.
Gonna stop you right there because the rest of your response is fantasy, if legislation can’t be passed.
Whose gonna propose those bills? Who is going to vote on them? Where are they going to pass? Give me reasonable answers to those questions and we can proceed.
I bought in Honolulu in 2020 after owning in Oregon for 6 years. The average sale price is 1.5 million, median is 1.1 million, and the houses are straight up rotten garbage (I grew up in North County San Diego in a construction family, SD has much higher build quality).
There are basically no homes for sale in Honolulu county right now. Just scanned the numbers this AM. Tear downs are going for 600-800k.
A crash wouldnt bother me, but its basically unbelievable to me. Ultimately all that money printed is going to find its way into inflated durable goods, and (ding ding ding) residential property.
Sorry to let you know this brother (or sister or non-gender conforming individual), but selling that condo might have been a fatal mistake. Its not clear to me based on macro economic and ongoing political conditions that housing prices will ever materially go down. Honolulu has a ban and cap on short term rentals. Didn’t do shit. We’ve got more homeless than ever and rents have gone up 30% since. Add onto that losses of structures due to climate related disasters. California had the Tubbs fire (1k homes?) and then the Paradise fire (11k homes). We just had the Lahaina fire. Those homes aren’t getting rebuilt into affordable housing, I promise.
I’ve done the math. There is no reasonable scenario I can see where housing prices go down substantially over the next 20 years. We’re going to be supply side constrained with ever increasing demand. This is a hold/ buy and hold time.
The math shows that a median income cannot even pay a median mortgage, at 100% of income going to mortgage. Mortgage prices translate to rent prices. Not 1:1, but are directly correlated.
Anyone locked into the before times intetest rates is going to sit pretty if at all possible, because they can’t afford to sell and buy elsewhere without a major downgrade.
And returning to the low interest rates will just kick the can down the road, because it was a large cause of the runaway borrowing that led to real estate inflation.
The only way to really fix this is to force the properties out of the greedy corporate / hedge fund hands that are hoarding property that should be in occupier hands. That’s how a healthy society and economy works.
The pain of this crisis is being felt by many. The more discontent there is, the more pressure there is on politicians to pass legislature to address the problem.
I don’t have an A --> B plan on how to push the legislation through, but social unrest generates pressure to do so.
I live in Orem, a city you probably have never heard of. Population of under 100k, not a rich city by any means. Median individual income of 26k, median household income of 65k.
There are no single family homes for sale under 400k, and all apartment/condos for sale are 300k.
Just picking a random apartment for sale for a little under 300k and doing an estimate of 10% down with current rates is a mortgage of 2.2 k a month on 30 year fixed. So of course whoever buys and rents these out are going to do so at AT LEAST that number.
With JUST taxes taken out of 65k bringing it down to 45k, the mortgage/rent alone would be well over half the median house hold income for these things. But of course there would be HOA, withdrawals for 401k, withdrawals for medical care, etc. Meaning it would probably be closer to 70% of median household net just to pay mortgage on the cheapest apartment for sale.
And of course we can repeat this exercise for just about any city and get the same result. It’s scary.
Howdy neighbor! Fingers crossed it comes down, I know parts of SLC are becoming a nightmare to rent. So hopefully you have a safe and cheaper place to live.
Fun part about Orem is that all of those houses for 400-600 were built in the 80s and haven’t been updated since then.
So then you start looking at houses in at least Saratoga or Spanish fork. I landed in Springville and I bought 3 years ago before the market got as bad as it did.
If the market crashes hard enough these huge corporations that have been sucking up all the single family homes will probably start unloading them at lower and lower prices to pay their creditors. It could be good for people who want to buy. Couple that with the coming crash of corporate office space and it could be quite an interesting time.
The real truck is going to be coming up with legal/constitutional bans on corporate ownership of single family houses.
Houses are not wealth generating. They are a long term investment. So long that the value of the dollar declines so much that it makes you think that your wealth has increased. At best, buying a house is a hedge against inflation.
Buy a house when you feel like its a good decision for you and your family. Until that day just save your money and stack sats.
A house is a home for many. For others, a house is an investment. Betting on the value of your house to increase is the same as betting on the devaluation of the dollar. A house holds its value but doesnt increase. A house degrades and cost money to keep in good, usable shape. The reason you can sell a house for more than you paid for it is the value of the dollar.
I was lucky to be in a position to buy shortly after the 2008 crash, so another crash would erase a good chunk of equity (but I see most of it as fantasy equity anyway) but otherwise I’ll be fine. I was in DevOps/SysOps for a real estate tech company at that time (and until recently) so I got to see the weird market moves in real time.
Nationwide we’ve already seen about a 4% drop from the end of the 2022 sales season (Memorial Day - Labor Day) to the end of the 2023 season. That decrease is actually as bad the height of the 2008 crisis but the drops were most felt in the most overpriced markets. This allowed the rest of the nation buffer against it so it’s not having a big effect on main economy metrics (like the consumer confidence index).
Basically the bubble deflated considerably without popping, which is overall a guard against a (really bad) crash. Of course 1/3rd of China’s economy is their housing market and it’s on the verge of collapse… I don’t know what that will do to the US but it won’t be good.
The cascade of failures is a few steps further along. We had a total of about a 12% market decline in 2008 before enough dept bundles turned toxic for Bear Stearns and ANB to become insolvent. Those potential chickens are still in their eggs.
Wouldn’t mind some new neighbors, not planning on selling, not going to contribute to the landlord crisis, I say let it burn.
My house is like 25% paid off, I don’t care if it loses 90% of it’s “value” I’ll keep paying the bills. Rather everyone have affordable housing than some extra cash in my bank account.
The only way this benefits a home owner is if they can live somewhere else for cheap or free. If you can’t do that selling is pointless.
Once things come down then I could potentially afford a second home on my income. Additionally people less financially fortunate can afford the first house (or at least see their ridiculous rent prices drop).
It will be unfortunate for people who bought at an inflated rate so naturally those people won’t be so crash happy but that’s just the nature of it. If you are someone in such a situation then selling now and paying high rent elsewhere may be a wise decision. Not that prediciting a crash is a simple task.
The reason everything went to shit in the 00s (I think? Time has no meaning) is because of banks and predatory lending. We are increasingly seeing that with the current interest rates and house prices but there is a big difference.
When the market crashed then? The banks were stuck with a shit ton of houses nobody wanted.
Now? Plenty of people have been saving up and will gladly buy the houses at a slight discount. And real estate firms and increasingly corporate hellscapes will buy them at slightly lower discounts.
That is more or less what we saw over the few years of “the good old days”. House prices kept exploding and pricing more and more people out. But those people continued to save and would then start trying to buy a smaller house or take advantage of a better interest rate and so forth.
As for those interest rates:
Yeah, it is fucking insane right now and I am REAL glad I got in while the getting was good. And this is a big issue in me waiting to get an EV.
But… the real insanity was the past few years. Check any website that tracks rates over time. The late 10s and early 20s were an anomaly. The current rates are a lot closer to the historic rates.
Which just gets back to pricing and… again, companies and people with inheritances will keep paying that.
Agree, there won’t be any crash due to financial reasons. But in certain parts of the world it will become very difficult to keep living due to the climate and those areas will have their value decreased. I am from the South of Europe and here in some cities (even historically densely populated ones) the heat is unbearable for a quarter of the year or more.
I can’t speak for the european market, but in the US we are already seeing how this plays out.
Insurance and mortgage companies increasingly are not interacting with Florida (and to a lesser extent California). Which means the people with houses there are just fucked if there is a disaster. Maybe they can sell for a massive loss to someone even dumber than them but… yeah
And when it all goes to shit? The banks will bleed them for every penny and then move on.
What's your opinion of the fall out of the commercial real estate crash due to more WFH and the other effects? Certainly there is more commercial real estate than ever before to the point some is being rezoned due to lack of demand.
Mostly just a matter of stalling until the housing crisis gets bad enough that people want to remove those pesky laws about living spaces needing windows and proper insulation and so forth. Then we’ll see retrofitting
The building codes are written in blood. Most things that are required in construction are the basic amount of safety required. They are not that restrictive.
The interest on my mortgage is fixed for the next 10 years, so I’m more than OK with a crash. In fact, I hope it crashes hard so those who own properties as investments burn.
Meh I don’t care. We bought a couple years ago when rates were super lower but prices were high. Our mortgage is less than rent would be and we’re not going anywhere for a long time. I think of the house as a place to live, not an investment really. Like a car. It serves a purpose and I’ll use it until I can’t anymore.
Doing extra payments when you have a 2% loan is just throwing money away. Savings accounts rates are minimum 4% right now - put your extra payments there if you’re super risk adverse. If you’re less risk adverse, buy mutual funds that match the market.
Saving accounts pay out less then 2% here and we are taxed on the amout that is held in our saving account so it is more beneficial to downplay the mortgage.
Even with the extra payments we are still going to do ETF
You point out the Catch-22 that a lot of people miss on this stuff. They get so fixated on increasing their property values because they want to screw someone over when they finally sell their house…not stopping to think that the same thing is about to happen to them when they go to buy one. Not to mention, higher property values means higher property taxes (in some places, anyway).
Yeah like it’s cool my 200k town home I bought 4 years ago is now selling for 400k (neighbor just sold for that much).
Except that means that the 350k home I was thinking might be a nice upgrade one day, is 700k.
Like I’m way more screwed over now unless I intend to like sell my home then move to the middle of nowhere. All that higher value means is property taxes like you said. But of course renters are the most screwed.
If it makes you feel good, I’d say congrats. I’ve never owned a condo and it has different considerations than a home. I sold my first house in March 2021 after I bought our current house in 2020. Both felt like some of the smartest, best times moves. I actually do wish I would have bought a more expensive house in 2020, but we’re likely buying more land in the next 2-5 years. Not holding some kind of property right now (again, idk about condos), feels like leaving stupid money on the table.
This was actually my thought process when I got divorced. It probably would have been prudent in many ways to downsize to a condo, since it’s just me, however I could afford to buy my ex out of the house and any percent gains will be off a much higher base. I’m hoping that when I do eventually downsize, that my equity will be higher than if I had a paid off condo. In your example, doubling prices gained $200k inequity for the condo owner, vs $350k gain for the house owner (of course it’s more complicated when you factor in the mortgage)
… so yeah, it would suck for the housing market to crash, or stay down
I have like 15 years left on a 30 year fixed rate. I’d like to move closer to where I work, but I don’t want another 30 year loan and a 15 year would currently be a much higher interest rate, so I’m stuck with my house until it’s close to being paid off. Doesn’t really matter what homes are costing when you have to buy another after selling. Expensive houses only help people who own multiple homes and aren’t replacing what they sell.
A bad crash can make you owe more than you can get for the house, which can make it impossible for you to move without losing money. If you lose your job or have to relocate involuntarily, property being cheaper elsewhere isn’t much consolation if you are under water on your existing loan.
I’m trying to fix up a few things then get it re-appraised so I can get PMI taken off my mortgage. After that I don’t really care, I plan to live here for awhile so if the value goes down in the short term I’m not too bothered.
Add comment