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Comment by ryandrake | Hacker News Reader

Residential crash is potentially already upon us, at least in the outskirts (East Bay for me). We've had our house on the market for over a month now, and nobody else in the neighborhood is selling either. Big changes from only 3 months ago, when sellers were closing in days.

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I'd argue that a "crash" isn't really a "crash" if it comes after a 50% increase in 2 years.

Anything short of a 20% correction is simply a reversion.

If prices shot up 100% in 1 year, and then were down 3% in two months - no one would be talking about a crash.

I generally have the same rule of thumb; not a crash until down 50% from peak. But housing is leveraged. It’s not like stock where few people have margin accounts, a 20% reversion sends most people who bought recently underwater. Plus the size of the real estate market is much bigger than the stock market. The flow-on reverse wealth effect will feel like a stock crash to many people.

But notably its only people who bought recently. I purchased 5 years ago, and our home's price would have to go down by half for us to get back to even, then a bit further to be truly underwater. And that's with us having put down only 5% -- anyone putting 10-20% down would have more buffer still. Someone who purchased 2 years ago might have less of a buffer, but still perhaps 20-30%. Our neighbors who purchased 7 years ago can lose ~70% and still be ok.

Not meant to downplay how awful it can be for some folks, just meant for perspective.

For the USA specifically, does being underwater actually matter as long as you can afford the repayment? It's my understanding that most mortgages are fixed for 30 years so your interest rates won't be changing?

Of course it matters, losing wealth matters even if it’s not ‘crystallized’ by selling. Your options are much more limited. Fixed low rates are only helpful so long as you can maintain sufficient income which in a severe recession becomes more difficult. Additionally if the property continues to depreciate it may be wise to cut one’s losses go bankrupt and start over. Historically those who held on were bailed out in short order by the inflation of subsequent bigger bubble. The size of this recession may get too big to bail out so we could enter new territory. Or maybe we kick the can down the road again, I don’t know, but it’s a risk.

It makes it difficult to move

A 20% reversion is back to early 2021 prices..

Given the long history of ever increasing housing prices people have become accustomed to treating asset price inflation on property as income. Why work a 9-5 when your house can make your money (and your banks money) go to work for you. A lot of that money is spent - it's very difficult to un-spend it for a downturn. Plus a chunk of the recent nominal price inflation is due to general inflation and regressing to the same price 2 years ago is a loss in absolute real terms. Plus going forward people who could assume a $100K yearly increase in wealth from a property have lost that $100K in 'income' and must make up the shortfall from elsewhere. It's a huge marginal difference. Then there is the erosion of the tax base; governments make a percentage of the capital gains on nominal inflation as kind of a wealth tax. During a deflationary period this money disappears and can take a very long time to come back. The shortfall again must be made up for by further taxing the taxpayers or by borrowing with the expectation that the same taxpayers will pay it off later. These are the same taxpayers who lost their $100K in 'income' so they're not exactly flush with money.

In China for decades, the average house appreciated more in one year than the average person made after taxes in a life-time.

>a 20% reversion sends most people who bought recently underwater.

Does this matter as long as the owners can pay the mortgage?

Most Americans move every 7 years. Being locked into a home means fewer economic opportunities.

> Most Americans move every 7 years

No, most don't. That’s the average, not the mode (and even moreso not a fact about the majority.)

Particularly, poor and socially disadvantaged people are forced to move a lot more, and average income and, even moreso, rich people, especially from advantaged backgrounds, move significantly less.

Well, it's going to be a crash when all of our 401(k) and pension money that was shuffled into the "always increasing" real estate market last year disappears.

This is a pointless semantic argument.

Turns out prices have to go down when the fed doubles rates. By my math, a 30% correction is needed to make up the difference in terms of monthly affordability - meaning a $500k house at 6% is the same as a $750k house at 3%.

Are those numbers reversed?

Should it be a $750k house at 3% is a $500k house at 6%?

Yes, you are correct. I mistyped.

Yeah, but a lot of people are willing to bet that rates won't stay high for long.

If the average person is buying a house to hold for 7 years - and you're expecting only 2 years to be at elevated rates before you can refinance at 3% or less - then you'll settle for a lot less than a 30% correction.

Does your 30% figure doesn't include property tax - or mortgage interest deduction? If you include those - I'd imagine you're looking at a <20% correction.

“There was a statistician that drowned crossing a river... It was 3 feet deep on average.”

I think we’re going to see a lot of new things this recession. The high inflation preventing ‘quantitive easing’. Usually the middle class can bear all kinds of hardships but from my observations they’re reaching a point where they’re tapped out and can bear no more. Many landlords think they’ll simply raise rents to cover increases in interest rates because renters are less able to buy their own property due to the same high rates. But tapped out renters cannot afford the higher rents for long and landlords will have to take a bath. If we go into a reverse wealth effect deflationary spiral we can’t lower interest rates to get out of it due to the risk component of interest will start to dominate over the risk free rate.

Doesn't matter if they are willing to make that bet if the bank isn't and banks are going to be underwriting their loan based on the current mortgage payment and interest rate.

Nobody's going to accept $500k to sell a house after thinking it was worth $750k, though, especially:

1. After 9% inflation

2. With a <3% mortgage rate

3. If it would mean realizing a loss

4. When they can rent it for more than their PITI

Prices do not have to go anywhere.

OH NO A WHOLE MONTH!!

Inventory of listed homes remains extremely low. https://fred.stlouisfed.org/series/ACTLISCOUCA

Median days on market still near all-time lows

SF: https://fred.stlouisfed.org/series/MEDDAYONMAR41860

Cal: https://fred.stlouisfed.org/series/MEDDAYONMARCA

USA: https://fred.stlouisfed.org/series/MEDDAYONMARUS

> inventory of listed homes remains extremely low

Those are statewide statistics. Oakland is seeing a ~20% increase in days on market and 5% decrease in price from last year [1]. Population and income shocks hit poor neighborhoods first [2].

[1] https://www.redfin.com/city/13654/CA/Oakland/housing-market

[2] https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.23...

> Population and income shocks hit poor neighborhoods first

Oakland has a Median HH Income of $80k - which is 20% higher than the US median HH income, and above median for California.

Oakland as a whole is definitely not poor.

The problem with median income is income inequality far outpacing inflation.

You can have most of a city making minimum wage (~30k pre-tax), but enough CEO's and mil/billionaires to completely skew the medium far higher than it should be.

We need to look at income without the high outliers to get a real sense of the population.

This is why the shocks always hit the poor first- they are the real representation of the population.

> but enough CEO's and mil/billionaires to completely skew the medium far higher than it should be

Are you confusing median for arithmetic mean?

Median is meant to avoid the skew from the top 1% (or top 10% or 20% or whatever). Half the population is above the median and half below.

You can look at HH income by decile.

SF: https://statisticalatlas.com/place/California/San-Francisco/...

Oakland: https://statisticalatlas.com/place/California/Oakland/Househ...

Considering rents - I would imagine you are FAR worse off in the bottom 20% in SF than Oakland.

The income for the bottom 20% is 30% higher in SF.

Median rent in SF is $4k. It's 42% higher than rent in Oakland at $2.8k

That's cool, much appreciated. I don't think any of them are livable on the minimum wage.

The charts are terrifying.

Add the highest gas and now electric prices in the US, California is headed for a reckoning.

I know myself and several associates are looking at getting out, with some of us looking at north Washington to be close to the Canadian border.

The great thing about skyrocketing everything in California on top of their already insane prices, is that it makes other places that may have seemed out of reach cheaper by comparison now.

It's pushed me personally to finally open another business. Not because I was ready- or even wanted to again, but because I'm tired of making others rich for nothing.

I've a friend who is maintenence for Marriott properties- they just had a housekeeper hit 20 years with the company and she is still making minimum wage (bonus- it's the 14/hr not 15/hr because Marriott properties consider each location a separate business, so they don't think they should have to oay the 15/hr for employers with more than 26 employees).

Not even a $.05 raise a year.

Really opened his eyes, he is now looking at taking a year off to enjoy himself since he doesn't have rent or anything.

Sad, truly.

You're comparing 20%ile incomes against 50%ile rents. I imagine SF 20%ile rent is not 42% higher than Oakland's 20%ile rent

The Monthly Supply of New Houses in the United States is considered by some to be a more reliable leading indicator of the housing market and it is at historical highs: https://fred.stlouisfed.org/series/MSACSR

Days on market is going up dramatically in July where normally it should be going down. The inventory of listed homes is going up as well- overall in all those graphs there is a clear trend in the housing market towards a reversal- saying things are still historically low ignores the trend and ignoring other leading indicator data that is at historical highs.

New homes are not that great of a signal because they are a small part of the market and have a tendency to exist in the most speculative places. Certainly in the context of Oakland the nationwide inventory of new homes is all but irrelevant.

Hey, just so you know, that “share links” button leads to some of the best share options I’ve ever seen on a data website. You could combine those three lines on one chart and share as a static image for example.

Only sharing bc I was late to the party on them too.

I have a move to the East Bay area planned in next 6-8 months or so, if you can hold out for that long haha.

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