US housing market posts $2.3T drop, biggest since 2008
bloomberg.com
bloomberg.com
While it may signal some cooling, housing is still substantially less affordable than it was pre-pandemic.
* edited to correct the time frame, 36 months not 24 months.
Yes, and in addition, interest rates are higher, so the monthly payment is dramatically higher.
And if you're a buyer, it's even harder because nobody wants to sell right now, particularly established homes. It's mostly just new (and tiny) units/townhouses/apartments.
Most people have variable-rate home loans. In the past few years, fixed five-year loans have become more common. Basically you're on a fixed rate for the first five years, and then after that you're onto a normal variable rate.
Most economists here predict house prices will fall further as people sell due to mortgage stress. At the moment it looks like most people are hanging on. Historically speaking, interest rates are still pretty low. And I think people are reluctant to sell due to fear they won't get a decent price, and that if they wait a few years house prices will be back up.
The problem is not with selling, there are no buyers now since the interest rates are going up.
I dont have the numbers but most houses dont have loans specially old people houses who want to downsize or kids want to sell because their parents have paswed away.
On the other hand most majority of buyers need loans which is expensive in a high interest scenario.
“…from 1999–00 to 2019–20, the percentage of Australian households that own their own home:
… Without a mortgage decreased from 39% to 30%. With a mortgage increased from 32% to 37%.”
And that’s only talking about owner-occupiers, not investment properties, which I suspect would overwhelmingly have mortgages.
You graph actually proves my point, amount of people with mortgages is increasing aka buyers need loans while old people who are selling who bought their properties 20-30 years back dont have loans.
Sudden decreases put pressure on buyers to hold off (it will be cheaper next year), and sellers to either hold off on selling (we’ll wait for the next boom), or in rare cases panic sell ASAP if they need to liquidate due to some weird life circumstance (divorce, death, unexpected emergency move and can’t afford to keep it, etc).
So price decreases are likely to have two different types of effects depending on the ‘part of town’ you’re looking at.
The rich part can wait out boom/bust cycles (generally), so inventory will dry up and prices will stay high because no one will be forced to sell and take a loss - but most potential buyers will also be less willing to buy as the prices are even more ridiculous (relatively) than they were before.
The poor part of town will have significant inventory increases and major price drops, as people have to sell more often due to job changes, financial hits, etc.
Overall sales volume will drop across the board, as financing is harder to get - which it being easier is really what caused the boom, and it being harder is causing these overall shifts too.
Modulo local market factors of course.
The vast majority of people in the country who own residential real estate did not purchase it in the last few years. If the "value" of their home doubled and then dropped 20% they really aren't going to care, regardless of the mortgage rates.
And beyond all that, there are always going to be people who have to sell, whether they bring money to the table, still have a profit, use a short sale, or what have you. And those sales will still set comps for entire neighborhoods. I'd love to see some concrete examples of rich neighborhoods "holding out" during downturns as I simply do not believe that has ever happened.
If someone holds that property and dies, they’ll have a trust setup for it already, and almost no one will be in a rush to lose $5m liquidating it right away.
Anyone owning a place in Atherton (who bought recently) doesn’t have a ‘job’ in any every day person sense, and certainly isn’t relying on a paycheck to pay the mortgage. You literally can’t even get a conforming mortgage for those places.
Someone can (and will!) go full Kanye eventually of course, if it’s a big enough area, but those are few and far between and there is a LOT of pressure to not screw up the neighbors comps.
They’re often weird, special places anyway, so many games can be played. A friend of a friend lives there and his neighbors include a member of the Saudi Royal family, and a prominent VC LP.
That kind of wealth means there is no rush to lock in losses, and plenty of reason to pretend they haven’t happened - as usually, prices go back up.
It’s going to be easier to rent too than a terrible place in a terrible part of town.
If you’re poor? No one has those luxuries. Hell, many times no one can even afford lawyers!
Trying to buy into Palo Alto in ‘09-11 was impossible. No price drops, even less inventory, almost no volume at all. Atherton was laughable, there was even some price increases.
Sunnyvale? Near 101 (the ‘bad part’), prices literally halved. I know, I bought one. Most of San Jose was similar.
The closer you got to Los Altos/Campbell, the more frozen and ridiculous it got.
Most of sunnyvale had movement. A LOT of San Jose turned over.
I’ve seen the same thing play out in other markets of course, and know professional real estate investors.
The writing has been on the wall for YEARS pre-pandemic. Hell, good luck finding anything that would even cashflow for renting in the entire state of CAlifornia even by ‘18.
As far as anecdotes go the news media is full of stories of the ultra wealthy taking a bath on residential real estate in downturns. Sure, they might hold onto it for a year or so with an outrageous asking price, but they're also going to cut that asking price by 25-50% at the drop of a hat in my experience.
I'm not really all that concerned with the real estate habits of the ultra-wealthy. Like most people (even on this site) I'm more concerned with general trends in neighborhoods with less than 2 swimming pools per property. And I just don't think those neighborhoods are going to hold out to the extent that values will not fall and properties won't be available for purchase. That's a myth, IMHO.
They also wouldn’t be landlords (in the sense you’re talking about), that’s what they hire people for.
If the property is irritating them and they can’t offload it, then sure some won’t bat an eye at losing a couple million (or 10) on something. Most of them would stab their own mothers in the back for $100 though. But most of them literally never need to care to that level.
In the Bay Area at least, the 1%’er wealthy areas like Palo Alto? Most of the city just… stops. I’ve seen it myself last downturn.
You don’t need to be ultra wealthy to not need to sell if you hit a rough spot for a few years.
They might lay off the gardeners though.
There are just as many examples of real estate stagnating or depreciating over the course of 5 years as there are it appreciating by $500k. We shouldn't treat the last 10 years as typical for any residential real estate market. It wasn't that long ago that a typical real estate cycle was 17 years peak-to-peak. The Fed can't intervene and keep rates artificially low and buy up tens of billions in mortgages each month forever. In a market where a cycle is 17 years, 5 years at the beginning of a downturn is nothing. And that's wasted opportunity, especially for experienced investors.
We both did really well on it - she’s still angry though.
As someone who bought a "starter home" years before the pandemic at rock bottom rates in the SFBAY, these new rates have made me reconsider my next steps. I originally planned to sell and upgrade at some point in the future, however, this is making less and less sense as rates continue to shoot up. It makes no sense to trade a mortgage well below inflation for a much higher one at an even more inflated price per square foot, with a higher tax bill to boot.
My rate is locked down for the remainder of the loan, and I'm still well above water even as the market cools. I know I'm not the only one in this position, and it's definitely contributing to the lack of inventory, keeping prices higher than they should be.
We need to build more housing!
Or prices need to decrease, which can happen by increasing supply, as ProfessorLayton wrote.
Of course, due to prop 13, California has the exact opposite situation where landowners are rewarded for sitting on unproductive land.
Presumably a home in the same area that is valued now at a time of high interest rates the same as your current house was during the time of low interest rates will be a nicer home. Having the higher valued home as collateral is a benefit to the bank.
I have no idea the volume here, but I'd venture to guess it's substantial, partly why inflation has been so bad, and may lend it's hand to a soft landing and not a dive off a cliff. But just my humble two cents.
https://www.hud.gov/press/press_releases_media_advisories/hu...
https://www.hud.gov/sites/dfiles/SFH/documents/IACOVID19FB_F...
Kids distract from the modern, busy, downsized life. They're a major time and financial burden, and they only add headache. You can't make them do meaningful work for you. They get in the way in ways that were impossible a century ago. You can't hop on a plane, take off after work, or shut them away and have them mind their own business. Not like on a farm, where kids could roam free, learn independently, and help with the mountain of chores.
This is tongue in cheek, of course, but there's definitely some truth to the calculus of whether or not to have children. And it's on everybody's minds.
Fingers crossed. My worry(?) is that any children I potentially have would move across the country (or world) and be fully occupied / overwhelmed by their own lives.
From my perspective, my mother can visit me just as well as I can her - I shouldn’t have to live by where she chose to live if it doesn’t work for me (and it doesn’t - the job opportunities stink and even if I did work remote, there is just a big cultural clash between me and that area). Once parents retire it is just as much on them to relocate close to me as it is I to them.
When I think about my desire to have children, I frame it in terms of them getting what they want, rather than sticking around like a pet.
Bad deal.
I don’t think parenting is a bad deal for the same reason any other kind of entertainment or fulfilling lifestyle choice is a “bad deal”
If they want to, and we happen to live near, then great. If their goals take them elsewhere, then that is great also.
ps. yes, i know that the opposite is also true.
I think it’s good that children are not viewed as an investment (note this is still the case in many cultures where communal living/financially supporting your parents is expected). But if it means fertility rates falling to drastically low SK/Japan levels we have to explore policy solutions.
I think it's much the same reason. When children are viewed as a giant economic and lifestyle cost, a lot of people will delay until they feel more ready. As things like good family housing become proportionally more expensive, it makes sense that people will want to wait until they feel more financially established in their careers and lives that they're comfortable taking on that kind of debt. And on the lifestyle front, there's more than ever that DINKs (dual-income no-kids) folks can spend their ample money and free time on, making having kids an even larger perceived opportunity cost. Why have kids in your 20s when you can't afford a house and can spend your time as a couple traveling or whatever when you can have kids in your 30s instead when you feel like you can better afford it and are maybe ready to settle down, or so the thinking goes for a lot of folks.
Now my person opinion. Unless your a millionaire, your never financially "stable" enough to have kids. It is going to kick you in the "balls" one way or another. Rather it is affording diapers (not so steep) or child care (almost take a whole pay check for many people) or medical. With that said, there is a degree where if I had to do it over, I may have waited.
it does; people want to wait until they're more financially secure/stable before having kids given the costs of raising children, and they are less likely to reach that stability until well into their 30s
In the UK, the average savings (net financial wealth) at 25 - 29 years old is £3,800, but the typical person in that age range has -£100. The average UK savings for 30 - 34 year old's is around £14,500 of net financial wealth (savings like current and savings accounts, stocks, bonds, etc. less financial liabilities), but the median figure is just £1,000.
By the time anyone is in a financially secure enough position to have children, they're at the stage where they're spending thousands in fertility treatment.
Big assumption there. Prices have fallen moderately so far (in some places) but mortgage rates are up which means there's still an affordability problem.
If prices were to "come back to earth" it would likely take a pretty serious recession to get us there (something akin to the '08 GFC) and that means even less people able to afford to buy.
House prices are low, rents are low, population density is high.
How do they do it? Can we do that in the US or the rest of the western world?
There relatively few old homes in Japan.
Maybe I'm naive, but it seems obvious: smaller plots, denser arrangements, and better zoning rules. Plus I'm pretty sure money isn't cheap in Japan and land is primarily bought in cash.
Still, in the US land/housing is pretty cheap... outside of the popular areas. I'm not saying this to say everyone should just move out of cities, but to show that it's not an American issue, but an urban American issue. Our current rules do not scale into urbanism.
If they did evade anything, they pretty much have housing on easy-mode by default because of demographics alone. Obviously places like that exist in the US, look at St. Louis. Or some of the rust belt. But nobody is going to think those places figured out something clever.
I thought I was in a hurry, but the economics are absolutely ridiculous right now. Some sellers are still clearly on drugs - 300+ days on market with zero price reductions in sight.
Not sure if related, but I noticed a lot of the (empty) investor-owned homes in my area are falling behind in basic lawn care and other maintenance. One side of my street is going to be reclaimed by nature in a year or so if someone doesn't start living in these things properly.
It isn't coming.
There is now a confluence of interests to make sure that never happens. It's an alliance of homeowners and investment funds. Homeowners have a tendencey to become NIMBYs to protect their house values. For some this is now generational wealth they're creating. These presence of institutional investment funds are just adding to this to create a permanent renter class.
Some markets are soft but we don't have a vast amount of unqualified buyers. Nor do we have massive unemployment. These are really the only things that could drive a sharp fall.
This is the natural outcome of a capitalist organization of the economy. Every aspect of your life has become or is becoming financialized as the need for ever-increasing profits are going to extract every last dollar from you. Debt is quite literally built into your existence.
We’ll need to check back in after the next three hikes and Powell applies max pain by holding the rate up as long as possible (driving down asset prices).
https://www.theatlantic.com/ideas/archive/2023/01/housing-cr...
Oft forgotten fact of 2006 is that people were buying multiple new builds in their subdivision for speculative purposes. Because they thought they could flip them in six months for a 30-40% profit. To have a crash, someone needs to buy at inflated prices and lose their asses.
For affordable housing people are moving out of cities, to me that's a bigger story.
Monthly repayments over 25y:
£300k mortgage at 2% = £1271
£250k mortgage at 5% = £1461
Lower rates also (all thing being equal) means lower rents.
Taxpayer subsidized interest rates simply transfer future taxpayer money to existing land owners, similar to how taxpayer subsidized educations loans transfer money from future taxpayers to educational institutions and their staff, via excessive tuition prices.
If the government wanted to help someone buy a house, it could do one or more of the following:
1) build more houses
2) pay someone to build more houses
3) give people cash so that they can buy houses.
Houses can be abodes of any kind, including apartment, condo, townhouse, detached house, etc.
Interest rates affect repayments. Higher repayments mean that the rent an owner is willing to accept will be higher (or, they won't enter the market).
Your whole model seems a little strange to me. Keeping rates low/stable is not a housing subsidy; it's about keeping the entire economy growing at a sustainable rate.
My model is about helping people acquire a home they can live in. Which means having a home available for them to live in, and giving them cash to obtain it.
Using taxpayer funded loans is wholly unnecessary to accomplish that, and is a wealth transfer from non land owners to land owners in the long run.
We are subsidizing the well-off to allow some subgroup to afford owning homes while excluding the poorest from getting any benefits.
Whenever I hear 'lower interest rates' this and 'lower interest rates' that my scam radar goes off. It's a dogwhistle for "I want to take out $200K loans again for free."
People need higher interest rates, but more than that they need them over a sustained period of time, not reactive hikes that just screw everyone over. ECON 101: you lower them in bad times, not when selling pictures on your phone is one of the most profitable endeavors (i.e. the market is stupid hot). A cushion is useless if it's deflated before the fall.
Historic average interest rates in the US are around 4%, with around 6% being about the average over the past 40 years or so. We can do fine with non-zero rates. https://advisor.visualcapitalist.com/us-interest-rates/
For me personally I max out the SALT deduction which is barely less than the standard deduction, so most interest payments would be “discounted” by my highest marginal tax rate, which is a lot. Basically you end up with a 30-50% discount on mortgage interest in some cases
5 years out it's expected to be 10% higher.
If you know something they don't there's an opportunity for easy money.
I'm not saying that Miami will last for thousands of years from now, but I would bet money that they have a few generations at least.
Yeah but the housing market has gained a lot too. Percentages are more important. Not nearly as bad as 2006-2009
Fundamental setup is worse than the 2000s bubble in many ways (for different reasons). But even a 30% drop would only take us back a few years this time, so there is a nice cushion, yes.
Many still believe the various news pieces about a housing shortage, just as most people in 2005 were totally complacent. Only time will tell, but worth revisiting in 3-4 years
Have you got a solid argument against this? Just the demographics are pretty stark. Millenials are the largest generation ever and we simply did not build any houses for them.
https://fred.stlouisfed.org/series/TTLHH https://fred.stlouisfed.org/series/ETOTALUSQ176N
The millenial "hump" you're referencing just recently passed the average age for a first-time homebuyer. Demographics move strongly against housing demand going forward (without change in immigration policy).
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj...
We are at an all time high in units under construction:
https://fred.stlouisfed.org/series/UNDCONTNSA
The amount of overbuilding in 2000s compensates for underbuilding in 2010's. The housing shortage is a complete myth... the only thing there was a shortage of was active listings. There is no structural shortage that is provable by any hard number. There's a lot more to say regarding housing market fundamentals, but just answering your question directly
The other stat should be read as an all-time low in construction completion. Houses under construction is a terrible thing to celebrate. They started more than they could finish with the labor and materials available. Not great.
https://fred.stlouisfed.org/graph/?g=j9kB
Demographics matter a lot, yes, not just population. 5 year olds don't buy houses. Elderly dying sell their houses. But even using that number shows no shortage.
Back up your assertions with facts or don't participate at all please. This is how misinformation about a housing shortage has spread so virally. I've already engaged in the same circuitous conversation 100 times though, not worth engaging again. Check back in 5 years and we'll see what happened
The housing demand is greatly variable by location across the country. It is possible that there is increased demand in fewer places even though overall demand is lower.