Drop in Bay Area House Values Is Accelerating | Hacker News Reader

Drop in Bay Area House Values Is Accelerating

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18 pointselsewhen10 comments

I really have my doubts about a meaningful drop in home prices.

The issue now is that there's a drastic affordability gap between those who own a home and those who are looking to buy a home. Because the vast majority of mortgages have their rates locked in, if you own a home and decide to sell and get another home, you're going to get much, much less for your money, since you're trading into a much higher interest loans.

That creates a huge constraint on housing supply. Unless you have a very good and/or urgent reason to sell (death, divorce, relocation), you're almost certainly going to stay put. The usual reason for a home sale - moving to a larger or nicer property - is out the window unless you've had an enormous increase in income/wealth.

Thus, even if demand is high (which it's not, because renters face the same affordability issues if they choose to try and buy a home), the severe supply constraint is likely to keep a pretty significant floor on housing prices. The two big things that could affect this would be newly built houses coming through or Boomers starting to die in large numbers, thus forcing sales. Neither of those seems likely to materialize in large enough numbers at one time to drastically move the market, given the data we have on housing starts and death rates.

Only a small fraction of homes are ever on the market anyways.

While you’re correct that people have a strong disincentive to sell right now, the looming prospect of a recession is a grim harbinger of increased supply. Many people made an investment decision on the assumption that their equity will only increase and are over leveraged. There was one other major reason to sell that you left out of your list:

>death, divorce, relocation

And that’s repossession. If you lose your income and can’t pay, there’s no option.

You're clearly correct that this would be one other thing that could theoretically tank the market, but I disagree when you say "Many people made an investment decision on the assumption that their equity will only increase and are over leveraged."

The percentage of ARMs is much, much lower than it was during the financial crisis, so there's no adjustment coming that'll force people who can't refinance to sell, as was the case then. Lending standards are also much tighter now than they were then - the vast majority of people can afford to make their mortgage payments.

That means that in order for there to be large-scale repossessions, we'd have to have significant job losses. That's certainly not impossible, but employment still looks like the one part of the economy that's not showing a lot of weakness.

Sure, and as Mike Tyson once said, everyone has a plan, until they get punched in the mouth. Affordability when the current in-force loans were written was deemed to be much better. Tech is in a huge employment bubble right now. The exorbitant pay packages that engineers at FAANG companies are getting simply didn’t exist 15 years ago. A reversion to the mean, especially one triggered by a tightening business climate, is more likely than not, in my opinion.

How these loans hold up if tech pay packages decline — that’s something that nobody knows.

I don’t foresee a massive surge in unemployment, but the Bay Area is particularly expose to tech jobs and salaries, so an acute cut in the cost structure of a handful of large tech firms could have a huge impact on the local housing market.

There are plenty of boomers who might want to cash in and downsize before they lose much net worth. They don’t have to be dying to make that decision, just worried about the possibility of prices falling. Investors and owners of second homes might do the same.

Nothing will change here until Prop 13 is meaningfully dismantled. It makes no sense for a boomer owner of a quadplex rental property to be paying less property tax then a owner of a new studio apartment.

So. much. this. Of course it will end as soon as the tax base collapses as more large businesses leave this year.

California just surpassed Germany to become the world’s 4th largest economy. This won’t end, people will just gripe and adapt as it plays out over decades.

https://twitter.com/abcampbell/status/1585004780271071235?s=...

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