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Comment by yieldcrv | Hacker News Reader

its only a bubble when people want to sell or refinance though

also unlike 2008, people dont have many adjustable rate mortgages, and if they do, it wont adjust yet

over 50% of current mortgages were started in 2020-2022, locked into to 2-3% rates until 2050! they don't have enough equity yet to sell and live in a different home. the speculators didn't get a continued rally, they're all stuck.

supply isnt going to occur just because aspiring buyers cant buy at these prices or pay a mortgage at 8.5% at any price

any counterpoints that would bring housing prices far lower?

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> its only a bubble when people want to sell or refinance though

The "everyone will just hold forever" theory doesn't describe markets well. People usually move because they have to: unemployment, run out of space, divorce, death, marriage, etc. This will not change, even if the rate of turnover is slower.

Sure, but a lot of people will not have those events and so will be able to hold. A few who have a choice won't upgrade who would have before.

> any counterpoints that would bring housing prices far lower?

As you note, it's hard for people to move right now because interest rates on a new mortgage are so much higher than what they're currently paying and prices are still cresting rather than falling. So owners are holding out.

But personal circumstances will eventually catch up with them and more houses will start to bleed off the plateau, into a market of buyers facing higher interest rates and therefore lower budgets for nominal price. These circumstance-pressured sales will accumulate, prices will slowly sink off the crest (as they already are) and then sentiment will turn. Media stories will dramatize sinking home values, and the narrative will invite a wave of panic selling and abandoned mortgages as people start to worry that they'll miss the chance to sell or end up caught in an upside-down mortgage.

We can't really know the scale or exact timing of these supply-side phases, and we don't know how it will overlap with changes in demand, but we can reasonably expect this cycle to play out to some degree or another. It could very well "burst" the bubble and suddenly bring prices much lower (answering your own question), or it may not prove to be so extreme because opposing factors that temper the panic/abandonment phase. We're just not there yet and have to wait and see.

my primary rebuttal is that without overleveraging resulting in collateral calls (foreclosures in mortgage-speak), the personal circumstances have too low of a velocity to matter. I think there is some merit to your point that most cannot afford 8.5% mortgages at these prices for the sales from personal circumstances, but there also are some people that can afford that and when everyone is waiting to buy the dip, the dip never comes.

right now, I don't see any scenario that I could quantify to support a bearish thesis.

This observation is a bit morbid (apologies!), but it seems like the eventual deaths of baby boomers could put downward pressure on prices. Someone born in 1955 would be smack in the middle of that generation, with an average expected death date of 2029 (for a man) or 2033 (for a woman). Since people of that generation tend to own the most expensive homes, we could end up with too many expensive homes on the market at around the same time with not enough buyers able to purchase them without prices falling. But I am merely speculating.

a 10-15 or 20 year time horizon that relies on 60 year old children selling the houses that they receive as beneficiaries

time to short mortgage backed securities folks /s

this article did not specify time horizons, but for reference 10 years in the past was 2013 and 20 years in the past was 2003. the predictive quality of your observation has little utility because there are too many other variables in that time frame, it doesn't make a difference for anybody now to know that there might be a glut of housing a whole nother generation from now, in completely manageable price trends downward across decades. we're looking for a catalyst for a crash, now.

I didn’t realize that I am only “allowed” to make comments with a short time horizon.

Anyway, I wasn’t trying to give investment advice or make a concrete prediction. I’ve just seen a lot of people say that prices will never go down … and that’s what I question given demographics. There are several widows living in large houses alone in my immediate neighborhood, so just anecdotally, it seems like that situation has to change eventually.

I think we’re actually in agreement that prices probably won’t tank any time soon—although if rates stay high enough for long enough and people simply can’t afford the payments, then something has to give. (It could be that wages will go up and we’ll have a bunch more inflation, though.)

>any counterpoints that would bring housing prices far lower

Policy changes allowing substantially more construction finally bearing fruit?

We have a long way to go but there has been some significant movement in that direction, particularly in the most expensive housing markets.

> particularly in the most expensive housing markets.

any indications that is outpacing demand?

if supply is less than demand, prices of additional units stay the same or go higher

if supply equals demand, prices of additional units stay the same

if supply is more than demand, prices should go lower or something else is broken like poor transparency and collusion

To get a crash the rest of market would have to go very far south, and this time it seems unlikely that housing prices would be leading that crash. Maybe commercial real estate?

Even then, as you say, since the 2008 housing crash we've chronically under built housing so we're still in a huge deficit.

And even then, banks would likely hold onto inventory for years keeping prices high.

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