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Comment by tigeroil | Hacker News Reader

Indeed. Everyone I've spoken to seems to be convinced that clearly, something has to change, house prices must drop, but the reality is, there's too many people for too few houses, and unless that changes housing will always continue to become more expensive.

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> but the reality is, there's too many people for too few houses

Not really...

There are 2 big things that are skewing the housing market now:

1. In any given market, all-cash investors make up about 20-30% of the demand. [1] They will buy at almost any price. Even though they make a small percent of existing owners (iirc, its like 1-3%), they make an 20-30% portion of demand right now.

2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, its a shortage of homes for sale.

Now imagine those 2 dynamics flipped the other way - what happens to prices then?

Also food for thought - every market boom/bust cycle was caused speculative demand. What happens when 20-30% of demand goes away?

More food for thought - the folks that feel like they are locked out of the market and have been screwed (the young) are growing increasingly resentful. How will they vote?

[1] https://www.corelogic.com/intelligence/us-home-investor-shar...

[2] https://tradingeconomics.com/united-states/total-housing-inv...

If interest rates plummet and people start purchasing houses that they can only afford due to cheap loans, I would expect home prices to… rise. As they did before.

> If interest rates plummet

Operative word being "If"...

What if rates go up?

Look at it from the perspective of the fed:

- Home prices up (or neutral)? Check...

- Stock market at all time highs? Check...

- Strong labor market + low unemployment? Check...

- High inflation? Check...

^^ The combination of the above make the case for rate increases, not cuts. [1]

[1] https://nypost.com/2024/02/20/business/larry-summers-said-th...

Well if rates go up then we would not be in the dynamic reversing scenario you were asking about?

If the rates go up… then the dynamics you were discussing become more prevalent

Could you elaborate please? Bc I do not follow what you are talking about.

You said

> This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to).

And the asked

> Now imagine those 2 dynamics flipped the other way - what happens to prices then?

And I told you if interest rates went lower then priced would rise.

> And I told you if interest rates went lower then priced would rise.

That's not what I meant.

I meant - what if:

- the 20-30% investor demand in the housing market would go away (demand down), and

- sales inventory went back to historical mean (supply up)

^^ then house prices go down bc demand goes down and supply goes up.

The 20-30% of demand you’re citing is your own claim that it’s driven by all cash buyers. I’m not seeing any reason why they would possibly disappear. That class of homebuyers may comprise a smaller portion of demand, but only due to demand growth from mortgage wanters, which again implies lower interest rates.

You’re also conflating demand with quantity demanded, so this chain of reasoning is not correct.

> 2. Inventory (houses that are for sale now, not just total stock) is at historical lows. This is bc of interest rates going higher - nobody who has 3-4% fixed rate locked in will sell (until they have to). The shortage that people refer to is not a shortage in homes that exist, it’s a shortage of homes for sale.

This is a way bigger than non-homeowners realize and is keeping prices high. I would love to sell my midsize (slightly under 2500 sq ft) for something around 3500 sq ft and maybe a little bit bigger lot. I’d pay something like an additional 50% over my existing mortgage for a property like that. Online mortgage calculators show that I’d pay around 2x-2.5x for that property now. I know play the worlds smallest violin for me but this affects people downstream who are looking to become homeowners.

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